Government Initiates Study to Mitigate Economic Impacts from West Asia Tensions

The Ministry of Finance has initiated a study to assess the impact of the ongoing conflict on Nepal's economy following joint attacks by the United States and Israel against Iran.

Nepal Oil Corporation has already raised fuel prices. Following demands from transport entrepreneurs, the Department of Transport Management has recommended fare hikes to the Ministry of Physical Infrastructure and Transport.

Plastic and footwear manufacturing companies have reported production cuts due to raw material shortages. Prices of construction materials and cooking oil have surged sharply. As raw materials for chemical fertilizers cannot transit through the Strait of Hormuz, supply has been disrupted, raising concerns about a potential decline in global agricultural production.

With the conflict's effects beginning to manifest in Nepal's economy, the Ministry of Finance has launched a detailed study. Tanka Prasad Pandey, joint secretary at the Ministry of Finance, said the West Asia conflict has directly impacted Nepal's economy and people's livelihoods, prompting the study.

According to Pandey, the first sign of the impact has been the rise in petroleum product prices. Price increases in various goods serve as another indicator. "Since goods from third countries transit through West Asia and transportation costs are rising, foreign trade has become more challenging. We have begun the study to formulate strategies to address these challenges," he said.

Industrialists report that the West Asia tensions have already made transporting raw materials difficult for some industries. Business owners said there is a shortage of raw materials for jars, bottles, caps, labels, and packaging supplies needed by Nepal's bottled water industry. Bikram Limbu, president of the Nepal Water Industry Association, said production has declined due to the shortage of raw materials.

Joint Secretary Pandey said the study is examining such industrial impacts. He added that special attention is being given to remittances—a mainstay of Nepal's economy—which could face a significant shock due to the West Asia tensions.

According to the Ministry of Foreign Affairs, approximately 1.8 million Nepalis are legally residing in 12 West Asian countries, the majority of whom are migrant workers. Remittances they send serve as a vital lifeline for Nepal's economy.

Pandey said it is estimated that the tensions could reduce remittance inflows, which would significantly impact the overall economic cycle. Nepal Rastra Bank data shows that West Asia accounts for 40 to 50 percent of total remittances entering Nepal. In the first seven months of the current fiscal year, remittances amounted to Rs 1.261 trillion.

Government statistics indicate that West Asia absorbs the largest share of Nepal's foreign employment. According to the Department of Foreign Employment, of the 500,000 to 550,000 Nepalis who receive work permits annually, nearly 70 percent head to Gulf countries.

With rising tensions between Iran and other West Asian nations, the safety and employment of Nepali migrant workers in the region are now under serious threat. Following joint US-Israel strikes on Iran, Iran has launched missile and drone attacks in the Gulf region, leading to the closure of airspace in countries including the UAE, Qatar, and Saudi Arabia. Many Nepali workers have been affected.

Bhuvan Singh Gurung, president of the Nepal Foreign Employment Association, said a prolonged conflict could result in Nepali workers losing their jobs. According to him, the conflict has also raised security concerns for migrant workers. Many Nepalis in West Asia are employed near gas plants and oil fields, he noted.

"If the conflict necessitates immediate evacuation and repatriation of those working near military camps or oil fields, that will pose an even greater challenge," Gurung said. Joint Secretary Pandey said the ministry is also studying how to manage a potential large-scale return of Nepali workers from Gulf countries. He added that the study is examining the possible decline in tourist arrivals transiting through the Gulf region.

According to Pandey, the risk of a chemical fertilizer shortage has increased due to the conflict, which could affect Nepal's agricultural output.

International media have reported that fertilizer production has declined as the conflict impacts the urea industry. Nepal imports chemical fertilizers from countries including Indonesia, Brunei, Bahrain, Jordan, Morocco, and Russia. With supply routes disrupted by the conflict, fertilizer imports are facing difficulties. A senior official at the Ministry of Agriculture said urea prices have risen due to increased shipping costs driven by higher crude oil prices. He warned that if fertilizer supply becomes problematic, shortages could occur during the rice-planting season.

Ram Krishna Shrestha, joint secretary at the Ministry of Agriculture and Livestock Development, confirmed that fertilizer supply has become challenging due to the conflict. "We currently have a stock of 180,000 metric tons, including fertilizer already in transit," Shrestha said. "If used sparingly, this stock could last until the rice-planting season." He added that while contracts have been signed to import an additional 92,000 metric tons, bringing it in under the current circumstances is difficult. Discussions are underway to find alternative ways to ensure smooth fertilizer supply, including requesting neighboring countries and offering incentives to suppliers.

Joint Secretary Pandey noted that if the conflict affects sectors such as agriculture, remittances, and tourism, it could significantly impact the country's gross domestic product (GDP) growth.

According to Pandey, the study aims to review economic policies to mitigate negative impacts on the economy. "The Ministry of Finance will identify sectors likely to be affected by the conflict and address them through upcoming economic and other policies," Pandey said. He added that the government will take concrete actions based on the study's findings.