The Ministry of Finance Nepal (MoF) has begun evaluating the potential economic impact of rising tensions in West Asia, aiming to recommend strategies that could help the government reduce possible fallout.
The assessment started about a month after the conflict intensified, with early signs already affecting Nepal’s remittance-driven economy. The crisis escalated following airstrikes launched by the United States and Israel on multiple locations in Iran on February 28.
MoF spokesperson Tanka Prasad Pandey said the ministry is consulting with various government bodies and experts to identify ways to manage the external shock. The goal is to prepare contingency measures in case the conflict continues for an extended period.
Economists warn that a prolonged crisis could pose several challenges for Nepal, including rising inflation, slower economic growth, and reduced household income. Initial effects are already visible, with tightening fuel supplies and rising petroleum prices increasing the cost of living.
Research indicates that a 10 percent rise in global oil prices could increase Nepal’s inflation by 0.4 percentage points while reducing economic growth by 0.15 percentage points. Reflecting these pressures, Nepal Oil Corporation recently raised petrol prices by Rs 15 per liter and diesel by Rs 10 per liter, citing losses exceeding Rs 4 billion.
Nepal depends entirely on India for petroleum imports. Experts highlight a significant risk, as India sources nearly 45 percent of its oil from West Asia, making Nepal indirectly vulnerable to supply disruptions.
Beyond fuel, the conflict could weaken remittance inflows and tourism revenue. Around 40 percent of Nepali migrant workers are employed in West Asia, meaning any disruption in foreign employment could reduce remittance earnings, strain foreign exchange reserves, and increase pressure on government debt.
The agriculture sector may also face rising costs, particularly for chemical fertilizers, due to increased fuel prices and broader inflation. Meanwhile, tourism could decline, as many international travelers to Nepal transit through West Asia, potentially reducing visitor arrivals and overall revenue.
