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Info Service on UN Sustainable Development (Apr26/02) Penang, 16 Apr (Kanaga Raja) -- Human development gains across the Asia and Pacific region are coming under renewed strain as the economic shockwaves from the recent military escalation in the Middle East spread across households, even amid a temporary ceasefire, the UN Development Programme (UNDP) has warned. In a new report, UNDP estimates that 8.8 million people in the region are at risk of falling into poverty, with output losses ranging from US$97 billion to US$299 billion, underscoring how quickly external geopolitical crises can erode years of progress in poverty reduction and economic resilience. Preliminary analysis by UNDP examines how heightened volatility, transmitted through energy, trade, and labour markets, is straining incomes, consumption, jobs and social protection across the region. Low-income households, informal workers, migrants, and small enterprises are among the most at risk. Women are the most vulnerable across these categories, it said. The report synthesizes impact and needs assessments covering 36 countries, complemented by macroeconomic simulations, and provides a region-wide outlook as well as how different countries are currently responding to these pressures. Rising fuel and freight costs are the most immediate pressure point. With over 80 percent of crude and liquified natural gas (LNG) transiting the Strait of Hormuz destined for Asian markets, the region is experiencing rapid pass-through of higher pricing on transport, electricity, food and fertilizer, said UNDP. In Iran, the estimated decline in the Human Development Index (HDI) is equivalent to one to one and a half years of progress lost. In other countries, human development losses under a short duration scenario range from weeks to months of foregone development progress, but could escalate significantly if disruptions persist, particularly in economies reliant on remittances, imported energy and food, said the UNDP. It said that losses are most pronounced in South Asia, reflecting higher exposure to income and price shocks and more limited policy buffers, while East and Southeast Asia experience comparatively smaller setbacks. "The strain this war is placing across Asia-Pacific is already visible. It is reaching households faster than policy can adjust," said Kanni Wignaraja, UN Assistant Secretary-General and UNDP Regional Director for Asia and the Pacific. Despite the recent ceasefire, the resulting prolonged volatility in global markets is imposing increasingly difficult tradeoffs between stabilizing prices, supporting vulnerable households, and maintaining essential public services and market investments, Wignaraja added. "At the same time, we see important opportunities for countries to accelerate long-term resilience through adaptive social protection, stronger local and regional value chains, and diversified energy and food systems." TRANSMISSION CHANNELS According to the UNDP report, the military escalation in the Middle East that began late February 2026 has sent shockwaves through global energy markets, trade routes, and financial systems, with acute implications for Asia and the Pacific - a region deeply exposed through its dependence on imported energy, integration into the global supply chains, and the vulnerability of its poorest households, to rising living costs. At this stage, the impact of the military escalation in the Middle East is being felt across Asia and the Pacific, with the costs of intermediate and final goods rising and localized shortages beginning to emerge, it said. Some vulnerable economies are reportedly facing acute supply constraints in critical sectors such as fuel. The first-round effects are rising fuel and freight costs. If conflict-induced disruption persists, second-round effects are likely to appear through food prices, fiscal pressure, remittance volatility, and weaker tourism receipts, the report cautioned. Across the region, the evidence points to a clear hierarchy of transmission channels, with energy at the center, the report said, noting that this is followed by trade and supply chains, then food and fertilizer, while remittances and tourism are more concentrated but potentially severe where exposure is high. Highlighting energy as the dominant transmission channel, the report said that the Strait of Hormuz accounts for roughly one-fifth of global oil and petroleum product consumption, with the vast majority of these flows destined for Asia. It said in 2024, an estimated 84 percent of crude and condensate and 83 percent of LNG transiting the Strait were destined for Asian markets. This regional exposure is amplified by the continued importance of oil in Asia-Pacific's energy mix and by the strong macroeconomic pass-through from energy prices. Oil accounts for a substantial share of primary energy consumption across many economies, including Singapore, Sri Lanka, Thailand, the Republic of Korea, and the Philippines, helping to explain the wide transmission of oil-price shocks across the region, it added. Among the region's larger importers, India meets over 90 percent of its oil needs through imports, sourcing more than 40 percent of crude imports and 90 percent of LPG imports from the Middle East. In the Philippines, 98 percent of crude oil imports come from the Middle East, alongside 97 percent of liquid petroleum products and 91 percent of LPG from Asian refineries dependent on Gulf-sourced crude, according to the Department of Energy. Thailand sources about 60 percent of its oil imports from the Middle East. The report said vulnerability is even sharper where buffers are limited. For instance, in Nepal, only about 80 percent of total storage capacity is currently filled as of March 2026. While full storage could meet demand for 13 days of petrol and diesel, existing stock was sufficient for a maximum of 10 days, with 10 days of aviation fuel and no LPG stock. The speed of domestic pass-through is already visible: Lao PDR reported that diesel prices rose by almost 50 percent within a week, it added. Trade and supply chain disruption is the second major transmission channel, with UNDP country-level analysis indicating significant impacts in 25 out of 36 countries through freight surcharges, war-risk insurance premia, route diversions, and delayed delivery of intermediate and consumer goods. These pressures are already visible in shipping and air freight markets. War-risk premiums for vessels transiting the Persian Gulf have in some cases risen by more than 1,000 percent, with hull-war cover moving from around 0.25 percent to as much as 3 percent of vessel value, said the report. It said route diversions are extending delivery times as well: The UN Conference on Trade and Development (UNCTAD) benchmark Asia-Europe example shows that rerouting from Suez around the Cape of Good Hope can lengthen a voyage from roughly 31 to 41 days. Air freight has also tightened sharply, with rates up by as much as 70 percent on some corridors since the start of the conflict. The report said that at the country level, these frictions are producing differentiated impacts. India's assessment shows that West Asian markets account for 14.0 percent of exports and 20.9 percent of imports, with roughly US$48 billion in non-oil exports exposed, particularly in basmati rice, tea, gems and jewelry, and apparel, it noted. Bangladesh reports significant disruption: as Gulf carriers cancelled flights, shipments from Bangladesh and India were stranded; more than half of Bangladesh's air cargo normally transits through Gulf hubs, while in Sri Lanka, tea export losses are estimated at around US$10-15 million per week. The trade shock thus extends well beyond slower shipping times; in economies that are highly import-dependent and only weakly integrated into global logistics networks, it can rapidly translate into broader pressures on the cost of living and on the reliability of essential supplies, the report stressed. It also said food security and fertilizer form a slower but deeper transmission channel, with 22 of 36 countries assessed identifying food and fertilizer price increases as a high risk. The report explained that the regional mechanism is straightforward: fertilizer production is energy-intensive, and the Middle East is a major hub for global fertilizer production and exports. Countries such as Iran, Qatar, Saudi Arabia, and Oman are among the world's leading exporters of nitrogen fertilizers, including urea and ammonia. The report said the Asia-Pacific region accounts for roughly 30-35 percent of global urea exports and around 20-30 percent of ammonia exports, while up to 30 percent of internationally traded fertilizers normally transit the Strait of Hormuz. "As the conflict escalated, fertilizer markets reacted sharply. This matters because the shock is hitting ahead of key planting cycles and can feed, with a lag, into both lower yields and higher food prices. Despite increased domestic production of fertilizers, the region remains a net importer, highlighting its continued dependence on external supply and vulnerability to global price shocks." UNDP's country-level evidence confirms that the food channel is especially acute where import dependence is high, and retail pass-through is fast. The report said that West Asian countries supply over 45 percent of India's fertilizer imports, while 85 percent of the country's domestic urea production depends on imported re-gasified liquefied natural gas (RLNG). Remittances and migrant labour are a narrower channel region-wide, but highly consequential in economies with strong Gulf labour-market ties, the report underlined. It said that the economic stakes are immense: with total remittance inflows from the Middle East and Gulf to the Asia-Pacific region estimated at nearly US$100 billion in 2024. Country reporting points to the sharpest risks in South Asia and the Philippines, where employment in Gulf labour markets sustains both household incomes and foreign exchange inflows. For several countries, the scale of direct exposure to Gulf labour markets and remittance flows is both substantial and consequential, it stressed. India has the largest absolute exposure: the Ministry of External Affairs reports 9.37 million Indians residing in Gulf Cooperation Council (GCC) countries as of October 2024, sending about 38-40 percent of India's inward remittances. In the Philippines, the central bank data indicate cash remittances from the Middle East totaled about US$6.48 billion in 2024, equivalent to roughly 18 percent of overall remittance flows. Sri Lanka is also highly exposed: 80.2 percent of migrant-worker departures in 2025 were to the Middle East. The report also highlighted tourism as a more selective transmission channel, yet it can have pronounced impacts in economies with high dependence on travel-related revenues. Early signals from the most exposed destinations are already concerning. In the Maldives, Ministry of Tourism data show 34,908 tourist arrivals between 1 and 7 March 2026, down 23.4 percent year-on-year, while in Sri Lanka, tourist arrivals fell from an average of about 9,976 a day in February to 5,956 a day during 1-8 March 2026, a drop of roughly 40 percent. Fiscal pressures are a critical channel through which initial shocks translate into medium-term development setbacks, the report pointed out. "While governments can provide short-term relief to households through fuel subsidies, tax relief, and cash transfers, these interventions place increasing strain on already limited fiscal space. Over time, rising support measures risk crowding out development spending." The pressures are most acute where public debt is already elevated, fiscal deficits are large, or foreign exchange buffers are limited, it said. These strains are already becoming visible. In Indonesia, the fiscal deficit could widen to 3.6 percent of GDP if oil remains around US$90-92 per barrel, above the legal 3 percent ceiling. In more vulnerable economies, fiscal and external buffers are thinner. Fiji has indicated that an increase in oil prices from US$60 to US$100 could reduce foreign reserves by about US$500 million. Citing another example, the report pointed out that in the Maldives, each month of reduced tourist arrivals and weaker economic activity could cut revenues by US$85-100 million, raising the debt-to-GDP ratio by about 1.2 percentage points and widening the budget deficit by about 21 percent, against an already high public debt level of about 135.9 percent of GDP and a projected deficit of 7.1 percent of GDP. IMPACT ON DEVELOPMENT The UNDP report outlined three conflict scenarios in its analysis of the impact of the military escalation in the Middle East on human development across the region: scenario 1 assumes a short-lived disruption lasting 28 days, with immediate adjustment back to pre-military escalation conditions once the conflict ends; scenario 2 applies the same initial shock but assumes a 4-month adjustment period before full recovery; scenario 3 extends the adjustment period to 8 months, capturing more persistent effects on trade, production, and expectations. Across all three scenarios, the initial shock structure is the same: a temporary 50 percent decline in productivity across sectors in conflict-affected economies during the conflict period, a complete halt in oil and gas production, and a ten-fold increase in export trade costs, it summarized. Economic growth remains foundational to human development, shaping income generation, employment, and the fiscal capacity of governments to finance health, education, and social protection systems, said the report. "Shocks to GDP therefore transmit directly and indirectly into human development outcomes, influencing both immediate welfare and longer-term development trajectories." UNDP said that simulation estimates show that output losses remain moderate in relative terms but substantial in absolute magnitude, reflecting the region's economic scale. Total losses range from approximately US$97 billion to US$299 billion across scenarios, equivalent to about 0.3 to 0.8 percent of regional GDP. Impacts are uneven across sub-regions: South Asia accounts for the largest losses in both absolute and relative terms, reaching over US$183 billion and up to around 3.6 percent of GDP in more severe scenarios, reflecting higher exposure and more limited buffers, it added. East Asia experiences sizeable absolute losses exceeding US$108 billion but with relatively modest proportional declines of up to around 0.4 percent, while Southeast Asia records smaller losses both in absolute and relative terms. By income group, the report said that upper-middle-income economies account for the bulk of total losses, while lower-middle-income countries experience comparatively similar percentage declines relative to GDP. In the aggregate, human development losses remain moderate across Asia and the Pacific under short-duration shocks but increase progressively across scenarios and vary considerably across sub-regions and income groups, it pointed out. "Losses are most pronounced in South Asia, reflecting higher exposure to income and price shocks and more limited policy buffers, while East and Southeast Asia experience comparatively smaller setbacks." The report further said that upper-middle-income countries within this region register the largest declines in terms of lost progress, despite relatively stronger economic fundamentals, whereas the region's lower-middle-income countries experience more modest but still meaningful setbacks. Overall, the report said while losses remain contained in the near term, they are equivalent to several weeks to months of foregone progress and are expected to compound under more prolonged disruptions. Highlighting the case of Iran, it said the losses are far more severe, even under a short-duration scenario: UNDP simulations indicate that Iran's HDI could decline by an amount equivalent to roughly one to one and half years lost of human development progress, underscoring the scale of the shock relative to recent gains, and more severe scenarios suggest even larger setbacks. India is projected to experience a loss of approximately 0.03-0.12 years of HDI progress, followed by Nepal at around 0.02-0.09 years and Viet Nam at 0.02-0.07 years, while for China, the estimated effects on HDI remain limited in magnitude, ranging roughly 0.01-0.05 years. Pakistan also experiences losses in the range of 0.01-0.04 years and Thailand up to 0.02-0.07 years. The report said that other countries, including Bangladesh, the Philippines, Sri Lanka, Cambodia, and Lao PDR, show similarly modest losses of roughly 0.01-0.05 years, indicating limited short-term impacts. UNDP also said simulation results suggest that poverty impacts across the region remain modest in relative terms but increase significantly across scenarios and are unevenly distributed across sub-regions and income groups. "The number of people pushed into poverty rises from approximately 1.9 million to nearly 8.8 million across scenarios, with South Asia accounting for the largest share, ranging from about 1.7 million to over 8.0 million, reflecting both the sub-region's population size and its higher exposure to income and price shocks." East Asia and Southeast Asia experience comparatively smaller increases, with impacts ranging from around 100,000 to over 600,000 and 30,000 to around 150,000, respectively, while effects in the Pacific are limited in both absolute and relative terms. By income group, the report said that upper-middle-income countries account for the majority of new poor, rising from around 1.4 million to nearly 5.8 million, driven by population scale effects, whereas lower-middle-income countries experience smaller but still significant increases, from roughly 0.5 million to 3.0 million, reflecting greater vulnerability to shocks. Iran records the largest increase, from about 1.2 million to over 5.0 million, followed by India, where poverty is expected to rise from around 400,000 to 2.5 million, and Pakistan, from about 73,000 to over 420,000. Meanwhile, China is estimated to experience a more moderate increase in the number of people at risk of falling into poverty, from around 115,000 to over 620,000, reflecting small proportional changes applied to a very large population base. Under the most severe scenario, the estimated increase remains limited relative to population size, underscoring the country's stronger buffers to manage shocks, the report suggested. The report noted that in response to the crisis, governments across the region have responded rapidly to cushion the domestic shocks through fuel price stabilization, targeted subsidies, limits on transport, and early adaptive measures such as diversifying energy supply and improving energy efficiency. It said in some countries, responses have included nationwide energy saving campaigns and temporary changes to public sector work arrangements to ease pressure on fuel consumption and public budgets. +
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