West Asia conflict may push 2.5 million Indians into poverty

• The United Nations Development Programme (UNDP), in a report titled ‘Military Escalation In The Middle East: Human Development Impacts Across Asia And The Pacific’ noted that the conflict is widening human development pressures across Asia and the Pacific.

• Years of human development gains across Asia and the Pacific are under pressure as the impacts of the recent military escalation in the Middle East ripple through economies and households, despite a temporary ceasefire.

• The conflict and military escalation in West Asia threatens to push 2.5 million people in India into poverty.

• India is projected to experience some loss in its human development progress, according to the report.

Highlights of the report:

• The military escalation in the West Asia that began on February 28 has sent shockwaves through in global energy markets, trade routes, and financial systems, with acute implications for Asia and the Pacific – a

region deeply exposed, through its dependence on imported energy, integration into global supply chains, and the vulnerability of its poorest households, to rising living costs.

• The Strait of Hormuz, through which approximately one-fifth of global oil supply normally transits, has experienced severe disruption in the immediate aftermath of the escalation.

• As the situation remains fluid, a current preliminary analysis by UNDP examines how heightened volatility, transmitted through energy, trade, and labour markets, is straining incomes, consumption, jobs and social protection across the region. 

• Low-income households, informal workers, migrants, and small enterprises are among the most at risk. 

• Women are the most vulnerable across these categories.

• The report synthesizes impact and needs assessments covering 36 countries, complemented by macroeconomic simulations, and provides a regionwide outlook as well as how different countries are currently responding to these pressures.

• Rising fuel and freight costs are the most immediate pressure point.

• With over 80 per cent of crude and Liquefied Natural Gas (LNG) transiting the Strait of Hormuz destined for Asian markets, the region is experiencing rapid pass through of higher pricing on transport, electricity, food and fertilizer.

• In Iran, the estimated decline in the Human Development Index is equivalent to one to one and a half years of progress lost. 

• In other countries, human development losses under a short‑duration scenario range from weeks to months of foregone development progress, but could escalate significantly if disruptions persist, particularly in economies reliant on remittances, imported energy and food. 

• Losses are most pronounced in South Asia, reflecting higher exposure to income and price shocks and more limited policy buffers, while East and Southeast Asia experience comparatively smaller setbacks.

• Governments across the region have responded rapidly to cushion the domestic shocks through fuel price stabilisation, targeted subsidies, limits on transport, and early adaptive measures such as diversifying energy supply and improving energy efficiency. 

• In some countries, responses have included nationwide energy saving campaigns and temporary changes to public‑sector work arrangements to ease pressure on fuel consumption and public budgets.

• Rising living costs are squeezing poor and near-poor households, while food and fertilizer price increases, hitting ahead of key planting cycles, threaten to deepen food insecurity, particularly in South Asia and Pacific Island Countries. 

• Employment losses are concentrated in informal and micro, small and medium enterprise (MSME)-intensive sectors. Women, migrants, and low-income households face the greatest risks.

How the conflict will affect India?

• Among the region’s larger importers, India meets over 90 per cent of its oil needs through imports, sourcing more than 40 per cent of crude imports and 90 per cent of LPG imports from the Middle East.

• West Asian countries supply over 45 per cent of India’s fertilizer imports, while 85 per cent of the country’s domestic urea production depends on imported Regasified Liquefied Natural Gas (RLNG).

• India is projected to experience a loss of approximately 0.03–0.12 years of Human Development Index (HDI) progress.

• In India, poverty is expected to rise from around 400,000 to 2.5 million.

• The employment risks are likely to be especially pronounced in MSME-intensive sectors that rely on imported energy and inputs or are exposed to Gulf-linked trade. 

• This is particularly significant in a labour market where about 90 per cent of employment is informal.

• Small firms in hospitality, food processing, construction materials, steel-based manufacturing, and gems and diamonds may face higher input costs, supply shortages, and delayed or cancelled orders, with knock-on effects on jobs, hours worked, and business continuity. 

• These pressures could translate into reduced working hours, job losses, and business interruptions, especially for informal and migrant workers and MSMEs operating with limited financial buffers, and constrained access

to credit. 

• For several countries, including India, food security pressures could also be compounded by remittance losses, as reduced Gulf economic activity weakens household incomes and purchasing power.

• Input-related vulnerabilities are especially significant where planting cycles and existing subsidy systems leave little room to absorb further shocks.

• In India, the timing is especially sensitive: any prolonged disruption would coincide with the preparations for the Kharif (the monsoon cropping season), which begins in June. 

• Urea stocks stood at 6.114 million tonnes, providing a near-term buffer but not fully insulating the sector if disruptions persist into the planting season.

• Raw material costs for medical devices are expected to rise by around 50 per cent due to disruptions around the Strait of Hormuz, while wholesale prices of medicine have already risen by 10-15 per cent.