The World Bank has warned that the ongoing Middle East conflict is rapidly becoming a major economic threat to South Asia, driving up oil, gas, and fertiliser prices and exposing the region — despite being the world's fastest-growing — to severe external shocks. The warning came on 11 June as the Bank released its latest 'Global Economic Prospects' report from Washington.

Growth Slowdown Projected

The report projects South Asia's economic growth will decelerate from 7% in 2025 to 6.3% in 2026, as higher energy costs, inflationary pressures, and supply disruptions ripple through the global economy. The region, led by India, retains the title of the world's fastest-growing economic bloc — but that buffer is narrowing.

World Bank Chief Economist Indermit Gill told reporters that the conflict's effects were already being felt across the continent. 'Asia is the worst-affected section of the global economy,' Gill said, adding that the impact extended well beyond countries directly involved in the fighting. 'South Asia is being affected by higher oil, gas, mineral, and fertiliser prices,' he said.

Oil and Fertiliser Prices Under Pressure

According to the World Bank, the closure of the Strait of Hormuz has severely disrupted global energy markets. Brent crude is projected to average $94 a barrel in 2026 — 36% above 2025 levels. In a more severe scenario, Brent could climb to $115 a barrel this year if supply disruptions last longer than currently assumed.

Fertiliser prices are also forecast to rise sharply, driven by disruptions to supply chains and elevated natural gas costs. The Gulf region was a major supplier of fertiliser exports and inputs before the conflict, making a prolonged crisis particularly damaging for food-importing economies across South Asia.

Food Prices: The Next Flashpoint

The report warned that energy-market pressures could eventually feed through to food prices. 'If the conflict persists, the next thing that will be affected is food prices,' Gill said. Higher fertiliser costs are expected to reduce agricultural output, compounding food inflation risks for vulnerable households already squeezed by fuel and transport costs.

This comes at a sensitive moment: South Asia is heavily dependent on imported energy, meaning any sustained disruption in Gulf energy supplies raises costs for governments, businesses, and consumers simultaneously — adding pressure on trade balances and headline inflation.

Baseline Assumption and Downside Risks

World Bank Deputy Chief Economist Ayhan Kose said the institution's baseline assumption was that the worst disruptions would ease by the end of July, with energy supplies beginning to recover in the second half of the year. Even under that relatively optimistic scenario, policymakers across South Asia face a difficult balancing act between supporting growth and containing inflation.

The report cautioned that risks remain tilted to the downside. If energy disruptions persist beyond current projections, global oil prices could rise further, intensifying inflation across developing economies and increasing pressure on the most vulnerable households. The World Bank noted that prolonged disruptions could weaken growth prospects across emerging markets more broadly.