On February 28, 2026, the United States (US) and Israel attacked Iran. In a televised address, the President of the US, Donald Trump claimed that the operation would end a security threat to the US and give Iranians a chance to rise up against their rulers. The attack killed Ali Khamenei who was Iran’s Supreme Leader for nearly four decades, and other top defense officials including the Head of the National Defense Council Ali Shamkhani, Commander in Chief of the Islamic Revolutionary Guard Corps (IRGC) Mohammad Pakpour, and the Defense Minister Aziz Nasirzadeh.
Iran retaliated by blocking the Strait of Hormuz immediately, a crucial shipping waterway between Iran, the United Arab Emirates (UAE), and Oman, through which 20-30% of global oil and gas supplies are shipped. Other retaliations included missile attacks on Israel and attacks on US military assets in the Gulf region, with strikes also hitting civilian installations. Among the civilian casualties, a Nepali national working in the UAE was killed and several others were injured. The conflict has since widened geographically, with Israel conducting military operations across Lebanon, Gaza, and parts of Syria. The consequences of the conflict spilled beyond the battlefield and triggered wide-ranging disruptions across the global economy.
Global Economic Impact
On December 16, 2025, Brent crude oil, the global benchmark for crude oil prices, closed below USD 60 per barrel, near a five-year low since 2021. Fast forward four months, as a result of the conflict, on April 6, 2026, the price of Brent crude oil was at over USD 100 per barrel. However, the surge in energy prices represents only one side of the disruption. The conflict is also influencing global labor markets, tourism, as well as global food security.
West Asia is also crucial as a labor destination. According to the International Labour Organization (ILO), out of 169 million migrant workers worldwide, the Arab States hosted 24.1 million migrant workers in 2019. Among these, the Gulf Cooperation Council (GCC) countries host around three-quarters of all migrants and refugees, most of them migrant workers recruited from South and Southeast Asia, as well as some African countries, notably Ethiopia, Kenya, and Uganda. The conflict put the lives and jobs of these workers at risk.
The conflict is also disrupting tourism. Fears of missile and drone attacks caused airports in West Asia to shut down, disrupting flights in the region. Although flights restarted after a few days of the conflict, they remain below the normal levels as of mid-April. Due to this, travelers from the West Asia face difficulty leaving the region, reducing tourism inflows into destination countries worldwide. Exacerbating the situation, the region accounts for 14% of global international transit traffic. Regional instability, therefore, ripples outward, reducing passenger demand and affecting airports, airlines, and hospitality sectors across the world.
The impact of the conflict also poses a potential threat to global food security. According to the American Farm Bureau Federation, West Asia accounts for nearly 49% of global urea exports and about 30% of global ammonia exports. This, combined with rising energy costs, could drive up fertilizer prices globally and threaten food affordability, particularly in import-dependent nations like Nepal. Overall, the conflict is generating far-reaching economic spillovers, affecting everything from fuel prices to food security worldwide.
Impact in Nepal
Despite its geographic distance from the conflict, Nepal is highly exposed to its consequences. The conflict has led to rising prices, labor uncertainties, and ripple effects across sectors such as tourism and construction at home.
Nepal imports 100% of refined petroleum products and Liquefied Petroleum Gas (LPG) from India. India, on the other hand, sources about 90% of its crude oil and LPG from international markets. Of this, roughly 40% is imported via transit through the Strait of Hormuz. As expected, the conflict has driven up energy prices in Nepal. Effective January 16, 2026, the price of petrol was NPR 156 per liter in the cluster that includes the Kathmandu Valley. This has since risen to NPR 219 per liter, marking a sharp 39.49% increase. The price of diesel in this cluster rose from NPR 136 per liter to NPR 237 per liter during the same period, a 74.26% increase. The LPG cylinder, which sold at NPR 1,910 per 14.2 kg cylinder before the conflict, increased by 5.24% on April 10, 2026, and is currently sold at NPR 2,010. The prices of kerosene and jet fuel have also increased in Nepal. To discourage hoarding and panic buying, the Nepal Oil Corporation (NOC) decided to distribute half-filled LPG cylinders weighing 7.1 kilograms, effective March 13, 2026.
The conflict also put the lives and jobs of 1.7 million Nepali citizens in the Gulf countries at risk beyond killing one Nepali migrant. A Nepali captain working for a Dubai-based shipping company was also detained in Iran while transporting fuel when the conflict began. He was released only after the Government of Nepal assisted in his release. On March 2, 2026, the Department of Consular Services under the Ministry of Foreign Affairs (MoFA) launched an online registration system to address the grievances of Nepali citizens working in various Gulf nations due to the conflict. The government also temporarily suspended all new and re-entry labor permits for 12 countries on March 1, 2026, including several key Gulf destinations. However, on March 17, the government reinstated re-entry labor permits for seven countries. The government also sent two non-scheduled flights to the UAE and Saudi Arabia on April 3, 2026, and April 5, 2026, to bring back Nepali citizens who wished to return due to the conflict.
Impact in tourism inflow in Nepal is already showing. According to the Nepal Tourism Board (NTB), in March there was a 1% year-on-year decline of tourists in Nepal, with significant decreases from the West Asia (-37.1%), Africa (-29.1%), Americas (-25.4%), and Europe (-18.9%). The overall inflow declined by only 1% due to increase in inflow from countries in Asia. Tourism entrepreneurs have reported cancellations in trekking bookings, flight cancellations, and cancellations at key destinations in Nepal like Pokhara. Everest expeditions, however, have not seen a single cancellation.
The MoFA also indicated the possibility of an increase in the price of chemical fertilizers due to the ongoing conflict. Most of the fertilizer imported into Nepal comes West Asian countries, with additional supplies from Vietnam and China. Due to the supply chain disruptions caused by the conflict, officials from the Ministry of Agriculture have expressed concerns regarding a shortage of fertilizer during the upcoming planting season. The conflict has also hampered the construction sector of Nepal due to the hike in fuel prices and shortage of raw materials such as bitumen necessary for road construction.
Impact on Vulnerable Households in Nepal
According to the World Bank, under the conflict scenario, poverty in Nepal at the USD 4.2 per day line is expected to increase from 6.5% to 6.6% in FY 2026. This translates to an expected increase of 17,267 poor people in FY 2026 due to the conflict. Inequality can increase due to the compounding factors of higher inflation, declining remittance inflows that disproportionately affect rural households, suspension of overseas labor permits, and limited government capacity to protect vulnerable populations.
Way Forward
Many of these impacts are beyond Nepal’s immediate control. However, strategic policy interventions can help reduce vulnerability and build long-term resilience. Energy dependence is the area demanding urgent attention in Nepal as the country is fully dependent on imports for its fuel supply. According to preliminary data, Nepal imported NPR 287.65 billion (USD 1.93 billion) worth of petroleum products in FY 2024/25 AD. According to the International Energy Agency (IEA), the transport sector was the largest consumer of oil products in Nepal in 2023, accounting for 48.6% of total final consumption. The industry sector followed, contributing 20.3% of the total final consumption of oil products, while the residential sector accounted for 17.6% of total oil product consumption. Furthermore, according to the 2022/23 Nepal Living Standards Survey-IV, 46.6% of households use LPG as the main fuel for cooking.
Nepal’s untapped renewable energy potential offers a long-term buffer against such external shocks. Nepal’s hydropower potential has been theoretically estimated at 83,000 Megawatts (MW), with the economically feasible potential at around 43,000 MW. Furthermore, the technical potential for Solar Photovoltaics stands at about 10 times larger than Nepal’s technical hydroelectric potential, at 432 Gigawatts (GW) (432,000 MW). This clearly shows the contribution Nepal’s hydropower projects and solar farms can have in providing relief during periods of energy crisis. However, despite repeated government efforts to electrify transportation in Nepal, implementation remains lacking.
Recently, a Cabinet meeting on April 5, 2026, by the government led by newly elected Prime Minister Balendra (Balen) Shah decided to draft a law to convert fuel-powered vehicles into electric vehicles (EVs). However, earlier, in March 2022, the government adopted a policy to convert fossil fuel vehicles into electric, and the FY 2023/24 national budget promised to promote such conversions. More recently, in December 2025, the Ministry of Physical Infrastructure and Transport issued a notice granting a three-year exemption for vehicles modified for environmental or energy efficiency purposes.
Despite these measures, implementation remains effectively nonexistent due to the absence of operational guidelines. For instance, as transport offices lack procedures for certification, number plate issuance, ownership updates, and approval of conversion kits, converted vehicles cannot be registered or legally operated. Additionally, existing laws still restrict engine modifications without clear enforcement mechanisms, creating a regulatory gap. As a result, although some private companies have converted vehicles, these vehicles cannot be registered or operated and remain museum pieces. The government has also subsidized induction stoves to encourage the use of electricity in cooking in the past. However, people rush to buy electric cooktops only during times of energy crisis.
Therefore, encouraging the purchase of new EVs and the electrification of existing Internal Combustion Engine (ICE) based engines to EVs, alongside encouraging the use of induction cooktops, can help ease some of that inflationary pressure during periods of energy crisis. Starting April 8, 2026, the Department of Transport Management (DoTM) hiked the prices of passenger and cargo vehicles due to the increase in fuel prices in Nepal. The DoTM, however, did not hike the price of EVs. This further reinforces the need for more EVs on the road to cushion inflationary pressure.
Conclusion
Nepal has shown resilience during times of crisis, including the 2015 Gorkha Earthquake and the de facto blockade that followed, as well as recurring floods, landslides, and the COVID-19 pandemic. This latest shock reinforces a lesson that vulnerability to global disruptions can be reduced through stronger domestic preparedness. Nepal can further strengthen its resilience with some policy nudges, successful implementation stories, and greater awareness and effort from its citizens.
Aaryan Kuikel is a Beed Fellow at beed management. He holds a Bachelor's degree in Business Administration from Kathmandu University with a major in Finance. Prior to joining beed, he interned at TEAM Ventures, an alternative investment firm, where he gained experience in financial markets, the private equity landscape, and climate investing.
