Iran War’s South Asian Fallout

The war in Iran has extended far beyond the Middle East and is now affecting other regions of Asia, particularly South Asia. South Asian countries are increasingly experiencing economic, strategic, and geopolitical repercussions from the conflict. This conflict, aggressively and illegally imposed by the United States and Israel, has not only disrupted diplomatic efforts but also challenged the foundations of international law. Iran’s retaliation to this aggression has surprised the world. But this conflict is no longer confined to the Middle East; it has spread to South Asia, sharply affecting energy markets, trade routes, and inflation dynamics. The aftereffects of war are now significant, as due to disruptions in the Strait of Hormuz it has been a sharp rise in global crude oil prices. Analysts warn that crude oil prices could exceed $100 per barrel. The consequences are particularly severe for South Asian countries such as Pakistan, India, and Bangladesh.

Pakistan, a state already experiencing macroeconomic fragility, is now increasingly exposed to the economic consequences of a prolonged Iran war. Pakistan, the first South Asian country, has the highest oil prices at 321 per litre, which may increase to 500 if the conflict prolongs. This is because Pakistan imports approximately 39% of its oil from Gulf countries. Due to the conflict and the disruption of oil supplies through the Strait of Hormuz, Pakistan has been severely affected, as more than 70% of its oil imports pass through this critical route. Beyond the economic repercussions, the Iran war has generated serious security and diplomatic challenges for Pakistan. Pakistan shares a border with Iran while maintaining strategic relations with both Iran and the Gulf States. Pakistan faces a delicate geopolitical balancing act. A prolonged escalation of the conflict could heighten border tensions, exacerbate regional instability, and potentially lead to refugee inflows.

India, the most populous state in the world and South Asia’s largest economy, also faces a different and equally set of challenges. Right now, due to disruptions in the global gas trade caused by conflict, India is facing a significant LPG shortage. Despite its reliance on oil and gas imports, the war also presents a significant foreign policy challenge for New Delhi. India depends on the Gulf states not only for energy supplies but also for critical sectors ranging from aviation connectivity to fertilizer imports. Notably, nearly 10 million Indians are employed across the six Gulf Cooperation Council (GCC) countries, collectively remitting over $51 billion annually. Consequently, any escalation of conflict in the region has the potential to adversely affect these remittance flows. Any escalation in regional conflict risks undermining these remittance flows and destabilizing India’s external economic position.

Bangladesh, though often less emphasized in strategic discourse, is equally vulnerable to the cascading effects of the Iran war.  As an energy-import-dependent economy, Bangladesh relies heavily on imported oil to sustain its industrial growth and power generation. Rising global energy prices have already placed significant pressure on its balance of payments and foreign exchange reserves. Higher fuel costs translate directly into increased production expenses in key export sectors such as textiles, thereby undermining Bangladesh’s competitiveness in global markets.  According to a new policy analysis by the South Asian Network on Economic Modelling (Sanem), a prolonged US-Israel war on Iran could reduce Bangladesh’s gross domestic product (GDP) by as much as 3 percent over the next two years.

Conclusively, the US-Israeli illegal imposition of the war on Iran represents not merely a localized conflict but a broader geopolitical crisis with far-reaching implications for South Asia. Countries such as Pakistan, India, and Bangladesh are interconnected with the Middle East through energy dependencies, trade linkages, and labour migration. The disruption of critical maritime chokepoints, volatility in global energy markets, and uncertainty in remittance flows collectively exacerbate economic vulnerabilities across the region. The disruption of critical maritime chokepoints, volatility in global energy markets, and uncertainty in remittance flows collectively exacerbate economic vulnerabilities across the region. Furthermore, the conflict introduces complex diplomatic challenges, forcing South Asian states to navigate competing strategic interests while safeguarding their national priorities. If the conflict persists, its long-term consequences may include sustained inflationary pressures, weakened economic growth, and heightened regional instability. Therefore, a coordinated diplomatic effort and diversification of energy and trade dependencies remain essential for mitigating the adverse impacts of this evolving crisis.