The escalating conflict between Iran and Israel is expected to have a ripple effect on Nepal’s economy, particularly through rising global oil prices and disruptions in supply chains, according to experts.
Global crude oil prices began climbing after the U.S., reportedly at Israel’s request, launched an attack on Iran’s nuclear facilities, raising fears of a prolonged and unstable conflict in the region.
Experts warn that the war could affect Nepal in multiple areas: supply chain disruptions, rising oil prices, inflation, foreign employment, and remittance inflows. The price of crude oil, which reached $78.85 per barrel on Sunday, could climb as high as $120 per barrel if hostilities continue, according to the International Energy Agency (IEA).
The IEA and major global energy companies have cautioned that a prolonged conflict could severely impact global energy infrastructure.
Economist Gyanendra Adhikari noted that if diesel prices rise significantly, Nepal’s inflation could enter double digits, negatively affecting the overall economy.
“The extent of the impact depends on the duration of the conflict. If the war drags on, rising fuel costs will seriously affect supply chains, foreign employment, and inflation in Nepal,” Adhikari said.
According to the Nepal Rastra Bank’s recent report on the country’s current macroeconomic and financial situation, year-on-year consumer price inflation stood at 2.77 percent in mid-May— the lowest in the past 62 months, down from 4.40 percent in the same period last year.
However, Adhikari warned that if oil prices remain high due to an extended conflict, inflation could surpass 10 percent. “A sharp rise in diesel prices will push up transportation costs, driving up the prices of daily essentials and other goods. Oil prices are already rising,” he added.
The central bank’s report showed that inflation in the food and beverage category stood at 1.52 percent in mid-May, while non-food and service inflation was at 3.45 percent— compared to 6.41 percent and 3.09 percent, respectively, a year earlier.
Nepal meets nearly all of its fuel needs through imports from India. When global oil prices rise or supply chains are disrupted in the Middle East, Indian fuel prices increase— directly impacting Nepal.
Trade expert Ravi Shankar Sainju pointed out that rising fuel prices will increase transport costs for trucks, buses, and other vehicles, raising market prices for food, construction materials, and other goods.
“Increased transportation costs will disrupt supply chains and drive up consumer prices, especially hurting low- and middle-income households,” Sainju said.
Experts also warned that the conflict could significantly affect Nepal’s foreign employment and remittance inflows. Since Nepal’s economy relies heavily on remittances and many Nepalis work abroad, particularly in the Middle East, instability in the region could have serious consequences.
Adhikari explained that the conflict could destabilize not only Iran and Israel but also neighboring countries such as Saudi Arabia, Qatar, and the UAE— home to large numbers of Nepali migrant workers.
“If Nepali workers in those countries lose employment or are unable to send remittances home, it would directly impact Nepal’s economy and potentially increase unemployment domestically,” he said.
Nepal received around Rs 1.4 trillion in remittance inflows in Fiscal Year 2023/24.
