Full Breakdown
Impact of Middle East Conflict on Asia's Economic Landscape
3/7/2026, 1:13:10 AM
Overview of the Situation
The ongoing conflict in the Middle East, particularly around the Strait of Hormuz, poses significant risks to the economies of developing Asia. The Asian Development Bank (ADB) has indicated that if the conflict persists for about a month, the impact on regional growth would be modest, with only a slight temporary decline in annual GDP. However, prolonged tensions could lead to increased energy prices, disruptions in shipping and trade, and heightened financial market volatility.
Economic Implications for Developing Asia
Albert Park, Chief Economist of the ADB, stated that while the initial impact of the conflict might be limited, the risks escalate with the duration of the crisis. Approximately 80% of the oil and gas transported through the Strait of Hormuz is destined for Asia, highlighting the region's vulnerability to supply disruptions. Park noted that if the conflict continues, it could adversely affect global demand and lead to a "flight to safety" into U.S. dollar assets, further pressuring Asian currencies and increasing the cost of imported oil.
Effects on the Philippines
The conflict has particularly significant implications for the Philippines, where many overseas Filipino workers (OFWs) are employed in the Middle East. Former ADB Executive Director Chantale Wong emphasized the need for the Philippines to develop its local job market to reduce reliance on remittances, which accounted for 7.3% of the country's GDP in 2025. The Bangko Sentral ng Pilipinas reported that remittances reached an all-time high of $35.63 billion, but disruptions in the Middle East could threaten this vital income source.
Economists have warned that the conflict could lead to reduced employment opportunities for OFWs, as travel disruptions and safety concerns may hinder their deployment. Michael Ricafort, Chief Economist at RCBC, noted that the conflict could diminish business activities in Middle Eastern countries, impacting remittances and the Philippine economy.
Regional Responses and Strategies
In response to the escalating situation, the Vietnamese government has prepared evacuation plans for its citizens in the Middle East and suspended the deployment of workers to the region. The Civil Aviation Authority of Vietnam reported that several airlines canceled flights due to airspace restrictions, complicating travel for Vietnamese nationals.
Park advised Asian policymakers to prioritize stabilization measures rather than implementing broad subsidies or price controls, which could distort market incentives. He suggested that fiscal support should be targeted at vulnerable households to effectively address price pressures without compromising fiscal balances.
Conflicting Reports and Future Outlook
While the ADB projects a modest impact on growth if the conflict is short-lived, some economists believe that the overall effects on remittances and the economy may be more contained unless tensions escalate significantly. BPI Lead Economist Emilio S. Neri indicated that cash remittances from the Middle East accounted for approximately 18% of total inflows, suggesting that the risks, while elevated, may not be as severe as initially feared.
As the situation continues to evolve, the focus remains on monitoring developments in the Middle East and their potential repercussions on Asian economies, particularly regarding energy prices and trade logistics.
Verbatim Quotes
- “If financial disruption becomes disorderly, then our advice is for central banks to think about stabilising markets,” — Albert Park, Chief Economist, ADB
- “It has a huge impact on the economy. Now, you know, the flights are all cancelled. People are stuck in places,” — Chantale Wong, Former U.S. Executive Director to ADB
- “Disruptions in travel, OFW deployment and jobs could reduce business, employment, and other economic activities in some Middle Eastern countries as a matter of prudence and safety, which could reduce OFW employment and remittances,” — Michael Ricafort, Chief Economist, RCBC
- “Nearly 40 percent of overseas Filipino workers (OFWs) are based in the Middle East,” — Emilio S. Neri Jr., Lead Economist, BPI
