The Asian Development Outlook is an annual report from the Asian Development Bank that analyzes developing economies in Asia and the Pacific. The April publication highlights that the conflict in the Middle East has introduced global geopolitical tensions that challenge the resilience and economic development capacity of the Asia-Pacific region.
Economic challenges and energy vulnerability
The conflict escalated on February 28, 2026, impacting energy production facilities and major shipping routes in the region, such as the Strait of Hormuz—a critical transit point through which a large portion of raw materials from major Middle Eastern suppliers are exported. In 2024 and early 2025, the Strait of Hormuz carried 25% of the world's maritime oil trade and 20% of its liquefied natural gas trade, with over 80% destined for Asian markets. The conflict led to a collapse in shipping traffic through this route.
Production and transport disruptions have strained Middle Eastern markets, driving up prices: for example, in just two weeks, the price of Brent crude rose above $100 a barrel, up 70% since the beginning of the year.
These economies are also suppliers of fertilizers. Production and transportation disruptions raise agricultural production costs and, with some delay, food prices.
Semiconductor production could also be affected, as the conflict impacts shipments of helium (where Qatar accounts for a third of the global supply), sulfur (45% of Gulf exports), and petrochemicals—key materials for chip manufacturing. Taiwan is the world leader in this sector, producing over 60% of global chips and nearly 90% of the most advanced ones.
Markets have weakened with increased volatility, local currencies have depreciated against the dollar, and there has been an outflow of cash flow. Furthermore, the rapid decline in stock markets could affect investor confidence.
Furthermore, the intensification of the conflict is also disrupting air links between Europe and Asia, affecting tourism-dependent countries such as the Maldives, Thailand, and Fiji.
Tariff and trade uncertainty
In February 2026, the US implemented a new 10% global tariff on all imports for 150 days, with potential increases to 15%. This disrupts supply chains and weakens external demand.
Following the 2025 tariff increases, many regional economies (particularly the Philippines, Vietnam, and to a lesser extent, China and Indonesia) have already had to redirect their exports to markets outside the US.
Although 'front-loading' (advance shipments) could support short-term growth, uncertainty will slow regional investment.
Growth forecasts
Under an early stabilization scenario, growth in the Asian region is expected to moderate to 5,1% in both 2026 and 2027.
If disruptions in the Middle East intensify and persist into the third quarter of 2026, growth could fall to 4,7% in 2026 and 4,8% in 2027.
However, private consumption remains robust in South Asia and Southeast Asia, supported by stable labor markets and increased public spending on infrastructure.
Inflation projections
Although the initial shock affects energy, high transportation and logistics costs can filter down to underlying inflation, forcing central banks to maintain restrictive monetary policies for longer.
Inflation is projected at 3,6% in 2026 and 3,4% in 2027 under an early stabilization scenario. In a prolonged conflict scenario, inflation could surge to 5,6% in 2026.
Table:
People's Republic of ChinaGrowth will fall to 4,6% in 2026 and 4,5% in 2027 due to the weakness of the real estate sector, moderate domestic consumption and slower export expansion.
IndiaIts economy remains robust with projected growth of 6,9% in 2026 and 7,3% in 2027, driven by structural reforms and trade agreements.
Central AsiaEnergy-exporting economies like Kazakhstan could benefit from high prices, but face risks from disruption to export routes.
Southeast AsiaIndonesia, Thailand, and the Philippines face inflationary pressures from oil prices, although spending on public infrastructure and digital transformation will sustain activity.
Artificial Intelligence and its economic impact
The report identifies a significant gap in AI readiness between advanced economies and developing economies in Asia.
Advanced Asian economies (countries like Singapore, South Korea, and Japan) lead in digital infrastructure and human capital. In contrast, much of developing Asia (such as Indonesia, India, and the Philippines) scores low in digital infrastructure, which limits the adoption of advanced AI models.
It is estimated that by 2030, AI could increase the GDP of prepared economies by between 0,6 and 2,1 percentage points. In developing economies, the initial impact will be smaller (0.2 to 1.8 percentage points), but they have greater long-term potential benefits if they invest in five key areas: digital infrastructure, human capital, innovation capacity, institutional strength, and economic structure. This will allow for faster implementation of advanced AI models and reduce the technological gap.
Conclusion
The conflict in the Middle East has illustrated how geopolitical shocks are transmitted through complex networks and increasingly influence different aspects of the global economy.
Despite geopolitical and trade challenges, the Asia-Pacific region has shown resilience, although downside risks are significant. Asia is vulnerable to the spillover effects of energy prices, trade networks, and financial conditions.
