West Asia Conflict Shakes South Asia: Energy Crisis and Economic Stress Mount in India’s Neighbourhood

The escalating conflict in West Asia is beginning to have serious ripple effects across South Asia, exposing the economic vulnerabilities of countries in India’s immediate neighbourhood and increasing pressure on New Delhi to step in as a regional stabiliser.

Nations such as the Maldives, Sri Lanka, Bangladesh, and Nepal are facing mounting challenges due to disruptions in energy supplies and declining tourism revenues. The crisis has underscored how deeply interconnected these economies are with global energy markets and West Asian stability.

The Maldives, heavily dependent on tourism, has recorded a sharp decline in visitor arrivals, with footfall dropping by over 20 percent compared to last year. This downturn comes at a critical time as the country prepares to repay a $500 million international bond. Rising global fuel prices are further straining its foreign exchange reserves, raising concerns about its financial stability.

Similarly, Sri Lanka and Bangladesh have implemented strict energy conservation measures. Colombo has introduced fuel rationing and even reduced the workweek to manage limited resources, while Bangladesh has adjusted public holidays during Ramzan to ease pressure on energy consumption. Nepal, too, has imposed restrictions on cooking gas distribution.

The situation has been worsened by recent attacks on key energy infrastructure in West Asia, including damage to Qatar’s Ras Laffan industrial complex, which accounts for a significant share of global liquefied natural gas production. This disruption has tightened supply chains and increased costs for energy-importing nations.

Sri Lanka’s recovery from its 2022 economic crisis now faces fresh uncertainty. The country relies heavily on remittances from workers in West Asia and tourism revenues—both of which are at risk due to the ongoing conflict. Bangladesh, already navigating internal economic reforms and political transitions, is also under pressure as energy shortages threaten industrial output and recovery.

Amid this regional strain, India has begun positioning itself as a key responder. New Delhi is stepping in with fuel exports and financial assistance to support neighbouring economies, including planned diesel supplies to Bangladesh and past currency support to the Maldives and Sri Lanka.

However, India itself faces strategic challenges. Efforts to diversify supply chains away from China may be complicated by disruptions in West Asian trade routes, potentially forcing a temporary recalibration of its import strategy.

The broader crisis highlights the fragile economic foundations of South Asia and the region’s heavy dependence on external energy sources. As the conflict continues, India’s diplomatic and economic engagement with its neighbours is likely to deepen, reinforcing its role as a critical pillar of regional stability.