Why war on Iran threatens to unleash unrest in South Asia

Police clash with activists during a protest against the arrest of former prime minister K.P.

Sharma Oli in Kathmandu, Nepal, on March 29.

Photo: EPA While the Iran war has sent shock waves through energy markets across Asia, one corner of the region has been hit especially hard.

South Asia’s reliance on Middle Eastern fuel and Gulf remittances threatens to push some of its most exposed economies to the brink, analysts warn, as the conflict drives energy and food costs to multi-year highs.

For Sri Lanka, Bangladesh and Pakistan, whose International Monetary Fund bailout programmes and thin fiscal buffers limit their ability to shield citizens from war-driven price shocks, the crisis threatens to spill over into wider economic and political instability.

It could do the same in Nepal, where massive student-led protests toppled a government last year.

Bangladesh and Sri Lanka experienced their own youth-led popular uprisings in 2024 and 2022, respectively. “The longer this war goes on, the more closely the impact will be felt,” said Pearl Pandya, South Asia senior analyst at the Armed Conflict Location and Event Data project, an independent global conflict monitor. “The region relies heavily on the Gulf and Iran for oil, gas and fertilisers, while remittances from large diaspora populations – particularly in countries like Nepal and Bangladesh – remain a critical economic lifeline.” A man unloads filled liquefied petroleum gas cylinders at a dealer in Kathmandu, Nepal, on March 16.

Photo: EPA Energy prices have surged since the Iran conflict began on February 28, with benchmark Brent crude jumping more than 50 per cent to over US$100 per barrel while spot prices for natural gas are at their highest in years as Tehran throttles Gulf fuel flows.

When US President Donald Trump threatened “extremely hard” fresh strikes against Iran in an address to the nation on Wednesday, Brent futures jolted higher still, briefly touching US$105.

Even if the war ends within weeks – as Trump has previously claimed – the damage to infrastructure will outlast the fighting.

Analysts say the same for the impact it will have on the jobs that millions of South Asian workers depend on for their livelihoods. “We might see the unrest driven by economic grievances take over,” Pandya said. “Historically, there have been strong reasons for people to mobilise.” In Bangladesh, the garment industry – a primary economic engine – is reeling from the crisis, with reports of widespread m

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