The US and Israeli military strikes on Iran codenamed Operation Epic Fury and Operation Lion’s Roar leading to the death of Iran’s Supreme Leader, Ayatollah Ali Khameiini, has fueled a full-scale conflict in the Middle East. A growing number of countries including India, Germany, and South Korea have warned its citizens to leave Iran.

An anticipated escalation in the conflict risks impacting South Asia’s trade and economy collectively, including the livelihoods of migrant workers from the region.

Oil Market Fluctuation

First and foremost, inflationary risks loom over South Asian economies including Nepal, which relies heavily on energy imports from the Middle East. Oil prices have surged sharply amid concerns about supply disruptions. Concerns have soared high after the Strait of Hormuz, a strategic route for global oil supply, has been closed. Crude prices may jump to $100 a barrel, if the war continues which in turn might impact inflation rate, fiscal deficit targets, and consumer price index. A rise in $10 per barrel in crude can significantly widen import bills of any country.

Blockage in trade arteries may also trigger significant disruptions in South Asian export markets and supply chain, particularly India. Exports of Indian basmati rice has already been halted since the war began. One-fourth, or  25%, of India's total basmati rice exports are to Iran, while 20% is to Iraq amounting to over 2  million tonnes of basmati rice, valued at over $2 billion.

India and Iran bilateral trade stood $1.68 billion in the financial year 2024-25. India exported goods worth about $1.24 billion to Iran and imported goods valued at $0.44 billion resulting in $0.80 billion of trade surplus in India’s favor. Agricultural items, pharmaceuticals, synthetic fibres and electrical machinery are featured in India’s major exports to Iran list. India imports chemicals and glass products, and dry fruits in return from Iran. Besides India, according to available data, Bangladesh, another major exporter, risks losses triggered by disrupting port operations, shipping routes, or even financial transactions. Bangladesh’s exports to the GCC market amounted to $1550.95 million while imports from the GCC stood at US $4628.13 million in 2023.

Likewise, Nepal’s trade, whatever quantity with the Middle East, will also be hit.

Intra- Regional Diaspora Mobility

A significant amount of South Asian diaspora is employed in Gulf countries including Nepali, Indians, Bangladeshis, and Sri Lankans. These migrants mostly work in low-skilled occupations under short-term contracts under flexible and non-accountable contract clauses. A sudden shift in the security situation put contractual workers under direct threat of termination with no assured guarantees for future.

Although trade remains nominal, the Gulf region absorbs a huge number of Nepali migrants. The Nepal Rastra Bank (NRB) data states the six months of the financial year 2025-26, some 207,341 new Nepali migrant workers, both institutional and individual, went to Gulf countries (GCC) for foreign jobs.

In a press meet organized at the Ministry of Foreign Affairs on Sunday, Division Chief of Central Asia, West Asia and Africa Region and Joint Secretary Ramkaji Kharka informed that there are 1.73 million Nepalis in the Middle East, currently. He also informed that the Nepal government has stopped the labor permits, albeit temporarily, of 12 nations in the Middle East namely Saudi Arabia, UAE, Qatar, Kuwait, Bahrain, Oman, Iraq, Yemen, Jordan, Lebanon, Turkey, and Israel.

According to NRB data, remittance inflows increased 39.1 percent to Rs 1062.93 billion in the six months of the financial year 2025-26 compared to an increase of 4.2 percent in the same period of the previous financial year. During mid-December to mid-January (Poush month), remittance inflows stood at Rs 192.62 billion in a single month. In the same period of the previous financial year, such inflows were at Rs 122.44 billion. Thus, the increasing remittance inflow to Nepal from middle east could slow down, if the conflict continues in the region.

Remittance inflows are also integral to not only Nepal but also Bangladesh’s economy. According to reports, Bangladeshis abroad sent home a record $32.8 billion in 2025. In December 2025, remittances reached $3.22 billion, the highest monthly inflow in nine months, up 22 percent from the same month last year. Between 2004 to 2025 Bangladesh exported about 73.78 percent manpower to the GCC, among which 34.49 percent manpower was exported to the Kingdom of Saudi Arabia (KSA) alone.

Likewise, India has been the biggest recipient of diaspora remittances in the region for more than a decade now. In the financial year 2025, India solidified its position as the world's top recipient of remittances, with inflows hitting a record $135.46 billion. Meanwhile, India’s southward neighbor, Sri Lanka has received more than $24 billion in remittances, largely driven by labor markets in the Middle East, including the UAE over the past four years. A prolonged conflict would directly impact the remittances, a significant contributor to the regional economies in South Asia.

The conflict also poses a risk to Nepal’s regular labor and services mobility to GCC countries. Direct flights from Kathmandu to cities like Doha in Qatar, Abu Dhabi in UAE, and Dubai have been cancelled after the strikes started. Nepal’s private airliner, Himalaya Airlines, has cancelled all its flights to Middle Eastern destinations until further notice after several Gulf countries-imposed airspace restrictions following escalating hostilities between the US, Israel and Iran, from Saturday. In a statement issued on Saturday evening, the airline said all services to Dubai, Dammam and Doha had been suspended due to the ‘ongoing situation in Middle East airspace’.

Further, halt in flight and shipping operations challenges seamless tourist, labor, goods, and services mobility. Global tensions involving the US, Israel and Iran have, however, introduced uncertainty into international travel, indirectly affecting Nepal’s tourism industry. Disruptions and restrictions in key Middle Eastern airspace – crucial transit corridors for flights to Kathmandu – have led to longer routes, delays and occasional cancellations. Such instability can influence traveler confidence, particularly for long-haul visitors. While Nepal itself remains peaceful and open to tourists, changes in global flight connectivity may slow short-term travel momentum. In particular, March tourist arrivals could decline due to restrictions affecting connecting flights to Kathmandu.

Despite these challenges, recent figures had reflected strong overall performance. According to the Nepal Tourism Board (NTB), Nepal welcomed 115,442 foreign tourists in February 2026, a 19.15 percent increase compared to 96,880 arrivals in the same month of the previous year. The growth continues a broader recovery trend, with more than 1.14 million visitors recorded in 2024. The data underscores the resilience of Nepal’s tourism sector, even as it remains sensitive to global geopolitical and aviation disruptions.

Beyond economy, trade and tourism, the escalating conflict holds complex geopolitical implications based on the nature of ties countries in South Asia share with contesting countries. Pakistan’s civilian protest objecting to US-Israel strikes on Iran is significant in the backdrop of its own ongoing conflict with Afghanistan. In such circumstances, the region has to remain cautious to prevent the disruptive security related threats from spilling over from the high-stakes Middle East conflict.

Originally published in the Daily Sun.

Photo: People stranded at the TIA, Nepal- NepalKhabar