As the war in the Persian Gulf completes its third week, India’s South Asian neighbours – Sri Lanka, Bangladesh, and Nepal – are facing its economic impact. All these countries have witnessed severe economic and political unrest in the recent past, and the economic turmoil arising from the Gulf will complicate the journey to stability.
While most of the economic focus of the conflict has been on oil prices, natural gas has seen a much larger disruption. Qatar, which is the world’s third-largest producer and exporter of liquefied natural gas (LNG), declared force majeure and paused gas deliveries on 4th March.[i] Bangladesh, which relies on natural gas for over half of its energy needs, felt the impact almost immediately. It had to acquire LNG cargoes at prices of $23-28/mmbtu (Metric Million British Thermal Unit, used to measure gas), versus the $10/mmbtu that it had paid in 3 months before the crisis.[ii] Bangladesh has now stopped power generation from its gas-fired power plants, and two of its critical sectors, agriculture and textiles, will take a hit. Dhaka has already shut down five of its six urea-making plants due to the shortage of natural gas – natural gas is the raw material for fertiliser manufacture.
The shortage will likely hit Bangladesh’s important textile sector, which accounts for over 85% of the country’s exports and is the largest employer outside of agriculture. Apart from the gas shortage, Bangladesh is facing stress on liquid fuels (diesel and petrol) and had introduced fuel rationing on 6th March, which was withdrawn on the 15th ahead of Eid.[iii]
Sri Lanka too depends on imports for its energy needs and has introduced fuel quotas for vehicles, with limits to how much fuel each vehicle type-2-wheelers, 3-wheelers, private cars, buses etc – can purchase.[iv] The government is relying on QR codes to enforce the rationing. The country has moved to a four-day work week effective from 18th March.[v] For Sri Lanka, the disruptions in West Asian airports such as Dubai and Qatar have started to hit tourist arrivals. For the first two weeks of March 2026, Sri Lanka welcomed 85,811 tourists – about 20% less than the same period for March 2025. Tourism is one of the key forex earners for the island nation, and an extended disruption will hurt the economy.
Landlocked Nepal, which imports its fuel from India, has raised petrol prices by 15 Nepali rupees/litre to reflect the higher international price of petrol.[vi] Nepal Oil Corporation has started distributing half-filled cylinders which have 7.1 kg of cooking gas, instead of the usual 14.2 kg, to cope with the shortage of cooking gas.[vii] Tourism is an important sector for Nepal as well, which had 1.16 million tourists in 2025. While India accounts for the bulk, the high spenders tend to come from the U.S. and Europe, and Western tourist and trekker arrivals may see a fall if the conflict persists.
Apart from the fuel shortages and declining tourism, these countries will be hit if there is a fall in remittances – Bangladesh, Sri Lanka and Nepal rely significantly on remittances from their overseas citizens, many of whom work in the Gulf. Bangladesh received $30.2 billion in remittances during 2024-25 from its expatriate population [viii] mostly from the Gulf region. For Sri Lanka, the six GCC members account for 40% of total inward remittances – $3.2 billion out of the $8 billion it received during 2025.
Sri Lanka, Bangladesh, and Nepal are all under an IMF programme to stabilise their external sectors. The hit from higher oil and gas imports, the textile/tourism sectors, and reduced remittances will cause economic instability – and easily snowball into a political crisis.
This is of grave concern to India, which itself has begun to ration cooking gas in the wake of the war. Petrol and diesel prices will follow in the next weeks, and become increasingly unaffordable.
Since the conflict began, crude oil has jumped over 50% to over $110/barrel, while LNG has doubled to over $20/mmbtu. By keeping prices high, Iran can pressure the U.S. to come to the negotiating table but without other countries going against it. This objective seems to be driving Iran’s stance on ship movement through the Straits of Hormuz. Iran has officially declared that the straits are open to vessels from countries that have not participated in attacks on Iran.[ix] However, in practical terms, very few ships have transited the straits due to risk perception, and traffic is down by 95%.[x]
The Iranian stance is dictated by pragmatism – denying innocent passage to a merchant vessel through an international waterway can be viewed as an act of war. By declaring the straits open, Iran has complicated U.S. attempts to broaden its coalition and involve other major powers to ‘open the straits’[xi] – a stance America’s NATO alliance partners are not willing to take. The U.S. Navy is the world’s largest, followed by China, Russia, and India. None of the big three of BRICS are likely to participate in a U.S.-led war. The next two navies in terms of size are Japan and South Korea, neither of whom have heeded the U.S. call
However, since the straits are practically closed, oil and gas prices continue to be high, working in Iran’s favour in the longer term. Unfortunately for South Asia, waiting for the straits to reopen is also a wait for its next crisis.
Amit Bhandari is Senior Fellow for Energy, Investment and Connectivity.
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References:
[i] https://www.qatarenergy.qa/en/MediaCenter/Pages/newsdetails.aspx?ItemId=3894
[ii] https://www.thedailystar.net/business/economy/news/three-more-lng-cargoes-be-bought-double-dec-prices-4126706
[iii] https://www.tbsnews.net/bangladesh/energy/fuel-rationing-officially-withdrawn-supply-improves-1387156?amp
[iv] newsfirst.lk/2026/03/15/sri-lanka-reintroduces-qr-based-national-fuel-pass-system#:~:text=Colombo%20(News1st)%3A%20The%20Ministry,rise%20in%20domestic%20fuel%20demand.
[v] https://www.adaderana.lk/news.php?nid=119849#:~:text=Public%20transport%20services%2C%20including%20trains,17%2C%202026%2002%3A50%20pm
[vi] https://en.himalpress.com/noc-raises-fuel-prices-petrol-dearer-by-rs-15-per-liter/#:~:text=With%20the%20fresh%20revision%2Cpetrol,at%20Rs%20152%20per%20liter.
[vii] https://english.ratopati.com/story/54155/consumers-say-we-felt-relief-even-after-half-a-cylinder-of-gas-was-distributed
[viii] https://www.bb.org.bd/en/index.php/econdata/wageremitance
[ix] https://www.iranintl.com/en/202603168217
[x] https://unctad.org/publication/strait-hormuz-disruptions-implications-global-trade-and-development
[xi] https://www.pbs.org/newshour/world/trump-says-hes-demanded-countries-help-protect-their-own-territory-police-irans-strait-of-hormuz