Asia-Pacific economies, including the Philippines, are highly vulnerable to a protracted conflict in the Middle East, as sustained spikes in energy prices and broader disruptions threaten to slow growth and accelerate inflation, according to the Asian Development Bank (ADB).

In a brief titled “The 2026 Conflict in the Middle East and Macroeconomic Risks for Asia and the Pacific,” published on Thursday, March 26, the Manila-based multilateral lender warned that while the impact would be limited under a short-lived conflict, a prolonged and more severe scenario could significantly dent the region’s economic outlook.

Under such a scenario—marked by “much larger and more persistent increases in energy prices until the first quarter of 2027”—economic growth in developing Asia-Pacific would be reduced by 1.3 percentage points (ppts) over 2026 to 2027, while inflation would rise by 3.2 ppts over the same period.

The report flagged the Middle East’s dense concentration of oil and gas infrastructure as a key source of systemic risk, with potential disruptions capable of triggering global supply shocks.

Given that a substantial share of the world’s oil production and shipping routes passes through the region, any escalation in hostilities could constrain supply and drive up prices, directly affecting energy-importing economies across Asia-Pacific.

Higher fuel costs, in turn, feed into transport, electricity, and food prices—amplifying inflationary pressures in economies that are already sensitive to commodity price swings.

Beyond energy, the ADB said broader logistical disruptions could weigh on global trade and economic prospects for Asia-Pacific.

Shipping bottlenecks, rerouted cargo, and higher insurance and freight costs may disrupt supply chains, particularly for economies heavily integrated into global manufacturing networks.

These disruptions could dampen exports, raise input costs for businesses, and slow industrial activity across the region.

The report also noted that financial conditions in Asia-Pacific have tightened since the onset of the conflict.

Rising global uncertainty has led to increased risk aversion among investors, putting pressure on regional currencies and capital flows. This has translated into higher borrowing costs and reduced liquidity, particularly for emerging markets (EMs).

Weaker currencies further exacerbate inflation by making imports—especially fuel—more expensive, reinforcing the economic strain on vulnerable economies.

Another transmission channel identified by the ADB is remittances, a key income source for several economies in the region, including the Philippines.

A prolonged conflict could weaken labor markets in affected areas, potentially reducing remittance inflows and dampening household consumption in recipient countries.

To navigate these risks, the ADB urged policymakers to prioritize both near-term stability and longer-term resilience.

The report said governments should safeguard macroeconomic stability while managing energy consumption and accelerating diversification toward alternative energy sources.

It also recommended shifting away from broad-based energy subsidies and price controls in favor of targeted and time-bound fiscal support to protect vulnerable sectors without straining public finances.

On the monetary side, central banks were advised to focus on targeted liquidity provision rather than aggressive tightening, while anchoring inflation expectations through clear and effective communication.

The ADB stressed that the economic impact on Asia-Pacific will depend heavily on the duration and severity of the conflict.

While a short-lived disruption may result in manageable shocks, a prolonged escalation—especially one that keeps energy prices elevated through early 2027—poses a significant downside risk to growth and price stability across the region, according to the ADB.