Iran–Israel War and Its Ripple Effects on Gulf Economies and South Asian Business

By Mahamud Hasan

The escalating conflict between Iran and Israel, which intensified in late February 2026, has rapidly evolved into one of the most consequential geopolitical crises of the decade. What initially appeared to be a regional military confrontation has now begun to reshape global markets, trade routes, and energy supply chains. The Gulf region—home to some of the world's largest energy exporters and a critical hub for international trade—is at the center of this economic turbulence. For South Asia, whose economies are deeply tied to Gulf energy, labor migration, and investment flows, the consequences could be profound.

A Conflict with Global Economic Reach

The conflict escalated after coordinated strikes on Iranian targets triggered retaliation across the region, including missile and drone attacks affecting infrastructure and shipping routes. Since then, global markets have responded sharply, particularly in energy and logistics sectors. Analysts warn that disruptions to Middle Eastern supply chains and energy exports could significantly alter global economic dynamics. (Reuters)

One of the most sensitive points in this crisis is the Strait of Hormuz, a narrow maritime corridor through which a significant portion of global oil and gas supplies travel. Around 20–30% of the world's oil and gas shipments pass through this route, making it one of the most strategically important choke points in global trade. Any military escalation in this area risks disrupting global energy markets and shipping routes. (Al Jazeera)

In the early stages of the conflict, maritime traffic through the strait declined sharply as shipping companies attempted to avoid potential attacks. Such disruptions have already pushed oil prices upward and increased insurance premiums for vessels operating in the region.

Economic Pressure on the Gulf Region

The Gulf economies—including Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, and Bahrain—rely heavily on stable global energy markets and international investment flows. The ongoing war has already begun to affect energy infrastructure, aviation networks, and investor confidence across the region.

Energy prices surged following the outbreak of the conflict, with Brent crude approaching $90 per barrel, as markets reacted to fears of supply disruption. At the same time, aviation networks across the Middle East experienced widespread flight cancellations, and energy facilities in the region have become potential targets. (The National News)

Such instability could discourage foreign investment in Gulf economies and delay major infrastructure projects. Tourism, which accounts for a notable portion of the Gulf’s GDP, may also decline if security concerns persist. (The National News)

In short, even if the Gulf states are not directly involved in the conflict, their economies remain highly vulnerable to regional instability.

South Asia: A Region Highly Exposed

For South Asia, the Gulf is not just a neighboring region—it is an economic lifeline. Countries such as Bangladesh, India, Pakistan, and Nepal depend heavily on the Middle East for energy imports, employment opportunities, and investment.

Energy and Inflation Risks

Most South Asian economies import the majority of their fuel from the Middle East. Rising oil prices caused by the conflict could significantly increase import bills and trigger inflation across the region.

For example, Bangladesh relies heavily on imported fuel for power generation and transportation. Economists warn that prolonged instability in the Gulf could raise fuel prices, increase production costs, and weaken export competitiveness. (The Daily Star)

Remittances Under Threat

Another major risk lies in remittance flows. Millions of South Asian workers are employed in Gulf countries, particularly in construction, services, and energy sectors.

Bangladesh alone received around $27 billion in remittances, largely from workers in Saudi Arabia, the UAE, Qatar, Kuwait, and Oman. If the conflict disrupts Gulf economies or forces worker evacuations, remittance inflows could decline sharply—placing pressure on South Asian currencies and foreign exchange reserves. (The Diplomat)

Trade and Logistics Disruptions

Shipping routes between Asia, Europe, and the Middle East also pass through the Persian Gulf and nearby maritime corridors. Rising security risks have increased freight costs and insurance premiums for cargo vessels operating in the region.

This could affect supply chains for garments, electronics, food commodities, and raw materials that move between South Asia and global markets. Export-oriented industries—especially in Bangladesh and India—may face higher logistics costs and delivery delays.

Strategic Implications for South Asian Businesses

For businesses across South Asia, the Iran–Israel war highlights the importance of diversifying supply chains and energy sources. Governments may need to accelerate investments in alternative energy, regional trade corridors, and strategic petroleum reserves to reduce dependence on volatile Middle Eastern routes.

At the same time, the crisis may create new geopolitical alignments. Gulf countries could increasingly deepen economic partnerships with Asian markets to stabilize their economies, opening opportunities for trade, technology cooperation, and investment.

Conclusion

The Iran–Israel conflict is no longer just a regional military confrontation—it has become a global economic event with far-reaching implications. As energy markets fluctuate and trade routes face disruption, the Gulf region stands at the epicenter of economic uncertainty.

For South Asia, the stakes are particularly high. Rising fuel prices, potential remittance disruptions, and supply chain challenges could place significant pressure on economies already navigating post-pandemic recovery and global financial instability.

Ultimately, the crisis underscores a critical reality: in an interconnected world, regional conflicts rarely remain regional. The ripple effects from the Gulf are already reaching South Asia—and the long-term consequences for business, trade, and economic stability are only beginning to unfold.