A new energy shock triggered by escalating tensions in the Gulf is hitting the world’s poorest economies hardest, raising the risk of financial crises and deepening humanitarian strain. As fuel supplies tighten and prices surge, countries heavily dependent on energy imports and remittances are emerging as the most vulnerable.
Across Asia and parts of the Middle East, the impact is already visible. In Nepal, long queues for cooking gas have led to rationing. Sri Lanka has urged businesses to close midweek to conserve fuel, while Pakistan has shut schools and moved universities online. The situation reflects a broader scramble for energy as global supply chains come under pressure.
The pattern is familiar. Similar dynamics unfolded after Russia’s invasion of Ukraine in 2022, when wealthier economies cushioned households with subsidies, keeping demand high and prices elevated. That shifted the burden onto poorer import-dependent countries with limited reserves, triggering crises in places like Sri Lanka and pushing Pakistan into a balance-of-payments emergency.
This time, the shock could be more severe. With disruptions around the Strait of Hormuz threatening a key artery of global energy flows, analysts warn that the combination of high exposure and weak financial buffers could destabilise several emerging economies. Countries that rely heavily on imported fuel and Gulf-linked income streams are particularly at risk.
Pakistan and Egypt stand out as among the most exposed. Pakistan spends around 4% of its GDP on oil and gas imports, with nearly 90% sourced from the Middle East. Egypt spends roughly 3%, with about half of its supply coming from the same region. Both countries also depend significantly on remittances from Gulf workers, accounting for roughly 5–6% of GDP. Any disruption to labour markets or migration flows could sharply reduce these inflows.
As energy prices rise, import bills increase while remittance income weakens, widening current-account deficits and putting pressure on national currencies. A weaker currency makes fuel imports even more expensive, creating a feedback loop that can quickly escalate into a financial crisis. In both Pakistan and Egypt, limited foreign reserves and heavy debt obligations constrain their ability to absorb such shocks.
Bangladesh and Sri Lanka are also vulnerable despite slightly lower exposure. Bangladesh’s reserves cover only about three months of imports, while its export-driven garment sector relies heavily on imported energy. Sri Lanka, still recovering from its 2022 default, remains financially fragile, with limited capacity to withstand another surge in energy costs.
Other countries appear better positioned. Thailand, despite high energy import dependence, maintains substantial reserves and strategic oil stocks that provide a buffer. India also shows resilience, supported by strong foreign-exchange reserves and diversified energy sourcing, including discounted Russian crude. Its reliance on domestic coal for electricity further reduces exposure to global gas price volatility.
Even where a full-blown financial crisis is avoided, the broader consequences could be severe. Rising natural gas prices are driving up fertiliser costs, increasing pressure on food production across low-income countries. Aid agencies warn that food insecurity could worsen significantly if energy prices remain elevated.
The current shock highlights a recurring imbalance in the global energy system: when supply tightens, the poorest economies bear the heaviest burden. Short-term financial measures may stabilise currencies, but the deeper challenge lies in preventing a parallel crisis in food security and living standards.