PAKISTAN READER

Preetha Renganarayanan Preetha Renganarayanan is a Research Assistant with the NIAS.

In April 2026, the United Nations Development Programme (UNDP) released a report titled “Military Escalation in the Middle East: Human Development Impacts Across Asia and the Pacific.” The report draws on 22 UNDP country office impact and needs assessments spanning 36 countries in the Asia-Pacific region, supplemented by UNDP Computable General Equilibrium (CGE) simulations and external analytical sources. The report offers a preliminary assessment of shock transmission channels (such as energy, trade, fertilisers), examining how these pressures are unfolding in Asia-Pacific, their implications for development trajectories, and where policy attention is most urgently required.

The following are five key takeaways from the report.

1. South Asia is at the centre of losses, both in absolute and relative terms
The report identifies South Asia as the most severely affected subregion, with output losses exceeding USD 183 billion and reaching up to 3.6 per cent of GDP in severe scenarios. This is attributed to its structural vulnerabilities, including high dependence on imported energy, exposure to remittance flows, and limited fiscal buffers.

East Asia also incurs substantial absolute losses exceeding USD 108 billion but experiences relatively modest proportional declines of up to around 0.4 per cent. The report notes that, while East Asia absorbs large shocks in absolute terms, the diversity and resilience of its economies help contain their relative impact. In contrast, South Asia’s concentrated exposure accentuates both macroeconomic and human development setbacks, positioning it as the principal casualty of the crisis.

2. Energy is the dominant shock transmission pathway, affecting economies
The report identifies energy as the primary channel through which the shock is transmitted, affecting economies through multiple, reinforcing pathways. Across the region, 33 of 36 assessed countries report high vulnerability to oil-price shocks, reflecting the fact that over 80 per cent of crude oil and LNG passing through the Strait of Hormuz is destined for Asian markets. However, vulnerability varies depending on import dependence, reserve capacity, and supply flexibility.  Risks are reportedly more acute in the Pacific Island Countries, where commercial petroleum needs are met entirely through imports and strategic reserves are limited. UNDP analysis shows that where buffers are weak, energy shocks rapidly extend beyond import costs, impacting inflation, logistics, and household welfare.

3. Fallouts on trade, supply chain, food, fertiliser costs, remittances and tourism 
Beyond energy, the report highlights a hierarchy of reinforcing transmission channels that together amplify and prolong the shock across the region. Trade and logistics disruptions emerge as the second major pathway, through higher freight charges, war-risk insurance premia, route diversions, and delays in essential goods. With respect to fertilisers, the Middle East is a major exporter of nitrogen-based inputs with much of it transiting the Strait of Hormuz. Thus, disruptions quickly feed into food systems. In India, over 45 per cent of fertiliser imports come from West Asia, while around 85 per cent of domestic urea production depends on imported LNG. As input and food prices rise together, low-income households, especially women, face disproportionate impacts.

Remittances and tourism further extend the shock. South Asia faces the risk of destabilising household incomes, given that nearly USD 100 billion in remittances come from the Gulf. Whereas tourism arrivals in the Maldives (–23.4 per cent) and Sri Lanka (–40 per cent) highlight pressures on livelihoods and external earnings. Together, these channels reinforce the shock by simultaneously raising costs, reducing incomes, and weakening foreign exchange earnings.

4. Human development setbacks with implications for labour markets 
The report finds that the shock is likely to have regressive labour market effects, disproportionately affecting low-skilled workers. A one per cent decline in GDP growth is associated with an estimated 2-per cent increase in unemployment among low-skilled workers, compared to about 1.5 per cent for higher-skilled workers. The crisis is also translating into broader welfare losses, with around 8.8 million people across 14 countries at risk of falling into poverty. The impact is heavily concentrated in Iran, where over 5 million people could be pushed into poverty. Human development losses are also most severe in Iran, with declines in the HDI equivalent to one to one-and-a-half years of progress. While effects elsewhere remain modest under short-duration scenarios, they could increase sharply if the conflict continues, particularly in countries such as Nepal and Pakistan, wherein exposure to external demand, remittances, and imported inputs is high.

5. Emphasis on a four-point priority action framework with social protection, livelihoods, regional cooperation, and resilience at the centre
The report emphasises four key policy priorities to contain and respond to the shock. First, making social protection more agile and able to reach vulnerable groups rapidly and at scale during shocks. This involves particular focus on women, informal workers, migrants, and households close to the poverty line. Second, protecting livelihoods by building the resilience of MSMEs and local economies that are exposed to external volatility. Third, reducing structural vulnerabilities. This means building more resilient energy, food, and employment systems that are less susceptible to external disruptions. Fourth, increasing regional cooperation. Given the interconnected nature of energy flows, trade, and labour mobility, coordinated responses can significantly enhance collective resilience. Taken together, these policy suggestions reflect an approach that moves from reacting to isolated crises to preparing the Asia-Pacific to face volatile, uncertain environments in the long run. 
 

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