War in West Asia Impacts Nepalese from Households to Warehouses

March 22, Kathmandu – The war ongoing between Israel, the United States, and Iran shows no signs of imminent resolution. Both sides have intensified attacks not only militarily but also targeting non-military sectors, especially fuel extraction and processing facilities.

US President Donald Trump has warned that if the Strait of Hormuz is not reopened within 48 hours, he would authorize attacks on Iran’s oil infrastructure; over 24 hours have passed since this warning. In response, Iran has threatened attacks on Gulf countries’ oil structures.

Attacks on oil infrastructure from both sides will inevitably deepen the global energy crisis.

Although Nepal is neither involved in the war nor directly targeted, like many other countries worldwide, Nepalese people are deeply affected by this conflict.

Direct and indirect impacts of this war have already become visible in Nepal.

What effects could this conflict have on Nepal? Let us delve into the details.

1. Risks to Lives, Property, and Employment of Nepalese in West Asia

Middle Eastern countries are major employment destinations for Nepalese workers. According to the Ministry of Foreign Affairs, approximately 2 million Nepalese reside in these countries. Among them, one Nepalese has died due to the war in the UAE and 16 have been injured. Iranian forces have detained one Nepalese individual, and others have been arrested by various countries on charges of spreading misinformation.

So far, 81,000 Nepalese have applied for repatriation. Should the war prolong, the government may face the challenge of rescuing and returning hundreds of thousands of workers, which will temporarily halt foreign employment since nearly half of Nepalese migrant workers are employed in Gulf countries.

Managing the reintegration of returning workers will be a major governmental challenge; however, demand for labor might rise again during the post-war reconstruction period.

2. Difficulties in Evacuating Those in Distress

According to the International Labour Organization (ILO), out of approximately 35 million migrant workers worldwide, many serve in the Middle East. Developed countries have already repatriated their citizens, with India bringing back nearly 250,000 nationals.

The Nepalese government is preparing to bring back those wishing to return via various channels. Currently, about 1,000 Nepalese stuck in transit or residing there have been repatriated or dispatched to their destinations. Plans include using ships if necessary.

However, evacuating millions at once might go beyond the government’s capacity.

3. Pressure on Remittances

According to Nepal Rastra Bank, about 41% of Nepal’s total remittances come from Middle Eastern countries. The Nepal Remitters Association estimates that around half of all formal and informal remittances originate from these nations.

If the war continues and Nepalese lose jobs, remittances could decline, weakening household income sources. With an average household size of four, around 8 million people could be directly affected. Decreased remittances would also negatively impact Nepal’s foreign currency reserves.

4. Fuel Shortages

The war in West Asia has been ongoing for more than three weeks, but Nepal has experienced a shortage of cooking LPG gas for over two months. Weaknesses within Nepal Oil Corporation and malpractices by traders were major causes of the shortage even before the war, which has now worsened.

The conflict further raises the risk of petrol and diesel shortages. Nepal relies entirely on India for fuel supply, and over 55% of India’s crude oil imports come from West Asian countries such as Saudi Arabia, Iraq, and the UAE.

Although Nepal uses only about 1% of India’s total fuel consumption, any shortage in India could impact Nepal. So far, Nepal Oil Corporation claims there has been no decrease in fuel supply from India.

5. Rising Fuel Prices and Overall Inflation

The war has pushed crude oil prices on international markets from approximately $70 to $113 per barrel, leading to increases in Nepal’s fuel prices. On March 14, Nepal Oil Corporation raised petrol prices by NPR 15 per liter and diesel by NPR 10 per liter.

According to India’s price listing, petrol prices should increase by an additional NPR 31, diesel by NPR 54, and LPG cylinders by NPR 216; however, only minimal hikes were applied, suggesting further price increases in early April.

Fuel prices reached NPR 199 per liter in 2022, and current trends suggest prices may surpass that. Higher fuel costs add to transportation and production expenses, leading to broad inflation.

Analysts predict transportation fares could rise by up to 40% due to fuel price increases. IMF guidelines indicate that a $10 per barrel annual increase in crude oil prices can cause up to 0.4% inflation rise in the price level. With prices currently raised by over $40, inflation will likely accelerate.

Additionally, the US dollar has reached over NPR 150 due to the conflict, adding pressure on import prices.

6. Potential Weakening of Foreign Currency Reserves

Nepal currently holds foreign currency reserves worth approximately $2.276 billion, sufficient for 18 months of imports, regarded as a very stable condition. This robust position is largely supported by remittances, which reached NPR 1.723 trillion in the previous fiscal year.

If remittances from the Middle East halt partially or completely, Nepal’s foreign currency reserves could suffer a significant shortfall. The country aims to maintain reserves sufficient for seven months of imports, so immediate currency shortages are unlikely; still, it highlights the need to strengthen the reserves further.

7. Shortage of Chemical Fertilizers
Chemical fertilizer production depends on natural gas. Disruptions in natural gas supply owing to the petroleum conflict have led to a shortage of fertilizers like urea, with prices rising over 50%.

According to the Ministry of Agriculture, Nepal currently has enough fertilizer stocks to last until mid-July (15 Ashad). A tender for additional supply has just been issued. There is a high possibility of fertilizer shortages and significant price hikes during the rice planting season.

Similarly, the conflict has increased shortages of raw materials for plastic production. Constraints on raw materials used in petroleum refining have caused supply disruptions for plastic products in Nepal.

This situation has severely affected industries producing plastic bottles, jars, and pipes. Some factories have already shut down due to raw material shortages, and if conditions persist, others may collapse.

The closure of pipe factories would impact water infrastructure, while shortages of plastic jars and bottles could worsen. These disruptions threaten jobs for Nepalese workers in these industries and could compromise the supply of treated drinking water.

What’s Next?

Nepal pursues a peaceful and non-aligned foreign policy. It is neither a party to this war nor targeted by it. The conflict is occurring thousands of kilometers away, yet millions of Nepalese working abroad, sending remittances, and relying on oil supplies from these countries are affected.

Given Nepal’s heavy dependence on foreign employment and remittances, the country faces substantial costs from this conflict. This underscores the need for long-term structural reforms in both the economy and foreign policy.