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What a dire India’s situation finds itself in became apparent when prime minister Narendra Modi called upon the country’s citizens to tighten their belts last week. Modi urged people to work from home, save on petrol costs, hold off on international travel for at least a year, and even buy less gold (an important part of every Indian wedding). He also suggested relying more heavily on public transport, using less cooking oil, and switching to buying locally made products wherever possible. He urged farmers to apply less chemical fertiliser and shift to organic farming. “In our current times,” Modi said, “patriotism is about living responsibly and fulfilling our duties to the nation in our daily lives.”
Modi’s announcement, reminiscent of a degrowth programme, caused the stock market index Sensex to plummet by 1,000 points. Clearly, the financial markets are expecting the war in the Middle East to result in a prolonged economic crisis. India imports 90 percent of its oil; since the US and Israel began their war on Iran, spending on crude oil has shot up by billions of dollars. This is because the Strait of Hormuz, the crucial passageway to the Persian Gulf, has been closed for more than two and half months.
For many people in South Asia, this is a catastrophe. The United Nations Development Programme (UNDP) reports that 8.8 million people in the region (and 2.5 million in India alone) are acutely threatened by poverty as a result. This makes South Asia the region most affected by the war globally.
So far, India’s government has shielded consumers from spiking oil and gas prices. The state-dominated refinery sector has held fuel prices stable despite the ballooning cost of crude oil, but the resulting losses of around 100 rupees (about 90 Euro cents) per litre for diesel and 20 rupees for petrol are not financially feasible in the long term. “Neither the government nor oil companies can withstand this stress indefinitely”, warns Balasubramanian Ashok, former chairman of Indian Oil Corporation. Prices at the pump are expected to rise following legislative assembly elections in three important states at the beginning of May.
The United Nations Development Programme (UNDP) reports that 8.8 million people in the region are acutely threatened by poverty as a result of the gas crisis. This makes South Asia the region most affected by the war globally.
People without money to spare for either gold or overseas trips have already been feeling the pinch since the beginning of March, when the price of gas cylinders for cooking went up from about 1,000 rupees (9 euros) to 3,000 rupees. Panic buying following the rate hike drove prices even higher; gas cylinders are commanding prices up to 5,000 rupees on the black market — about a quarter of India’s monthly minimum wage. “I haven’t been able to find a gas cylinder for days”, reports Arun, who works as a driver. “I stopped being able to sleep at night. Now we’ve bought an electric stove, but it’s really too small for our family of four.”
The criminal underworld is unlikely to let a crisis like this go to waste. In the eastern state of Chhattisgarh, police recently recovered six stolen fuel tankers of liquified petroleum gas (LPG) worth more than 110,000 Euros, the contents of which were to be sold on the black market. Apparently a network of public servants in local administration and employees of distribution companies was behind this incident; they had begun regularly diverting gas for their own purposes back in late December.
Caught in a Vicious Cycle
But India has a more pressing problem: for years, the country has been importing more than it exports. The huge increase in the cost of energy has depleted the country’s reserves of foreign currency. This puts India’s already weakened currency under additional pressure. The rupee recently fell to an all-time low of less than 90 Euro cents per 100 rupees. And the weaker the rupee is, the more expensive oil imports become — a vicious cycle.
In April, the International Monetary Fund (IMF) determined that India, which had risen to become the world’s fourth-largest national economy over the last years has been overtaken by Japan and Great Britain and has now fallen back to sixth place. It is important to note, however, that this shift in rank is mostly due to a change in the way that gross domestic product is calculated. And of course such rankings reveal little about people’s actual living conditions.
Clearly India’s golden days of profiting from cheap oil and gas imports have come to an end. This brings the Indian economy’s existing structural problems increasingly to the fore.
Clearly India’s golden days of profiting from cheap oil and gas imports have come to an end. This brings the Indian economy’s existing structural problems increasingly to the fore. “We now have to transition to renewable energy, reduce our reliance on the rest of the world for crucial minerals and metals, expand our digital infrastructure, and rely more heavily on AI in order to increase our productivity,” says Ram Singh, an external advisor to India’s central bank. Such a programme would also create jobs, but the effects of such measures would be felt only in the middle to long term.
A more immediate attempt to respond to the crisis by limiting private consumption, however, risks slowing India’s economic growth. The current growth rate sits between seven and eight percent, a number that will probably drop over the coming year due to the crisis. The Indian economy’s weakest points are low wages and high unemployment rates, especially among the young (around 40 percent of young people with university degrees are unable to find work.) Low ages were at the root of April’s escalating protests by factory workers in Noida, near Delhi. Their wages of 10,000 to 13,000 rupees per month (90–115 Euros) have been stagnating for years and are quickly being eaten up by the rising cost of living.
Despite the pressures it faces, India is in fact well positioned to absorb the consequences of the war, since its economy is the fastest-growing major economy in the world. For India’s neighbours, prospects are more grim.
Crisis Everywhere
Sri Lanka, which only just experienced economic collapse in 2022, is now suffering under austerity measures imposed by the IMF. The measures include tax hikes, mark-ups on the cost of electricity and public services, and the privatization of state-owned companies. These measures have increased the number of people living in extreme poverty by 25 percent to about 5.5 million, a fifth of the population.
A recent report by the World Food Programme points out that Sri Lanka imported 2.5 billion US dollars’ worth of food in 2025, making the country particularly vulnerable to rising food prices. The country is also reliant on oil imports, which make up the majority of its power supply.
In its new report on the Iran war’s ramifications for Asia, the UNDP warns that Sri Lanka faces rapidly rising fuel costs, declining tea exports, less tourism, and a drop-off in remittances from workers abroad. According to the report, since 80 percent of remittances come from the Gulf states, any economic slowdown would reduce household incomes, put pressure on the Sri Lankan rupee, and strain foreign exchange reserves.
South Asia had recovered some of its Covid-era losses by early 2026, according to the World Bank, due primarily to India’s rapid economic growth. For the region’s smaller nations, however, already heavily in debt, this most recent crisis comes at the worst time imaginable.
Around 21 million people from South Asia work in Arab countries, mostly as unskilled or semi-skilled labourers in the United Arab Emirates, Saudi Arabia, Qatar, Kuwait, Oman, and Bahrain. Most of these taxi drivers, domestic workers, construction workers, and hotel employees are still holding out in their host countries despite the war’s dangers, as their families rely on the remittances they send home.
Pakistan is under pressure as well, since more than half of its inflows of foreign currency come from Arab countries. The UNDP report warns that a protracted conflict could cause Pakistan’s food price inflation to rise by up to five percentage points. This is in a country that has long been suffering from an energy crisis; most households are now without electricity for more than twelve hours a day, and cooking gas flows through the pipes for just two hours a day. “This crisis has brought us back to the Stone Age”, complains Mohammad Rizwan, who lives with his family in Lahore.
In Nepal, remittances from abroad make up 26 percent of the gross domestic product (GDP), although 41 percent of this inflow comes from the Middle East. At the same time, the tiny Himalayan country’s fuel reserves are meagre. In March, its storage tanks were only 80 percent full — enough for about ten days’ worth of petrol and diesel — and the country has no stockpile of LPG. The government in Kathmandu has therefore ordered gas cylinders to be filled only halfway, and has extended the non-working weekend from one day to two.
Bangladesh, whose textile industry is of central importance for export revenue, is now confronting formidable logistical disruptions. According to the UNDP report, flight cancellations by airlines in the Gulf region have caused shipments from Bangladesh and India to be stranded; ordinarily, more than half of the air freight from those countries is transported via hubs in the Gulf region.
The consequences for South Asia’s labour market will be “regressive”, with workers in low-skilled jobs hardest hit, the report says. A decline in GDP growth of just one percentage point, it explains, increases unemployment among workers in low-skilled jobs by two percentage points. Women workers, migrants, and informal workers are most at risk.
For many people, the Indian prime minister’s calls to return to COVID-era measures are likely to stir up fear and anxiety. “The West Asia crisis is one of the worst in the decade; just as we overcame the COVID-19 pandemic, we will come out of this also”, said Modi. The World Bank reports that the COVID pandemic threw between 32 and 42 million people in South Asia into absolute poverty (below the line of 1.90 US dollars per day) and caused a further 115 million people to fall below the poverty line of 3.20 USD.
South Asia had recovered some of its Covid-era losses by early 2026, according to the World Bank, due primarily to India’s rapid economic growth. For the region’s smaller nations, however, already heavily in debt, this most recent crisis comes at the worst time imaginable.
[Translated by Anna Dinwoodie and Samuel Langer for Gegensatz Translation Collective.]
