Sometimes there are wars in world politics, in which bullets are fired in another geography, but their economic vibrations are felt by societies thousands of kilometers away . Nepal is going through the same situation today . 

Nepal has no strategic role in the ongoing conflict in the Middle East, but it is also becoming one of the countries forced to pay a deep economic price . If we look at the structure of Nepal's economy, it is not difficult to understand why this crisis is so serious . Nepal is a completely petroleum-importing country . Our main source of foreign exchange income is foreign employment, a large part of which is linked to the Gulf countries . Tourism, aviation, shipping, construction, agriculture, retail trade - all sectors are directly or indirectly dependent on fuel, dollars and supply chains . 

The impact of monetary policy is limited. Liquidity in the banking system is high, but investment has not increased. The budget being written by the government should seriously address these issues. It has been almost 80 days since the war in the Middle East started . And, its real economic impact is now slowly starting to surface in the world economy . In the first few weeks, many countries saw this as a limited military conflict, but now it is clear that this is not just a regional war, as the impact on energy supplies, shipping, insurance costs, food prices and international trade has increased.

The Indian government has already formally warned its citizens about possible fuel crises, price increases and supply disruptions, and has also started emergency preparations for energy security. China has prepared to use strategic oil reserves, European countries have started emphasizing supply chain restructuring. Singapore, Japan and South Korea have activated alternative energy import mechanisms. And, many countries dependent on the Gulf waterway have started implementing emergency logistics plans.

Oil tankers that were at sea when the war began have now reached their destinations, but in the last two months, oil processing and supply from the Middle East have not been as continuous as usual. Various studies on the international energy market have shown that even if the war ends today, it will take at least six months for the global supply system, transportation networks, and price structure to fully return to normal. Therefore, the current crisis needs to be viewed as a potential long-term economic problem rather than a temporary price increase.

In Nepal, the government's preparation for the Middle East crisis has been extremely weak. So far, apart from the symbolic decision to reduce fuel consumption by adding a public holiday on Sunday, there has been no concrete initiative related to economic, policy, or supply management. Looking at the government's policies and programs, pre-budget discussions, and public statements, it does not appear that the state has yet adequately understood the seriousness of the coming crisis. What is more worrying is that the government has neither had a serious dialogue with the private sector, nor has it clearly made the general public aware of the potential economic impact.

Based on the data of Nepal Rastra Bank, National Statistics Office, Customs Department, Tourism Board and international financial institutions, it is gradually becoming clear that the economy is under pressure even though the external situation of the Nepali economy appears stable. Foreign exchange reserves have reached a level that can cover more than 18 months of imports, remittances have increased by about 39 percent, the current account and balance of payments positions are also in surplus, liquidity in the banking system is high, and interest rates have fallen to the lowest level in recent years. Based on these indicators, claims have been made that the economy is on the path of reform.

However, the picture of the real economy is different. Banks have accumulated investable funds, but credit mobilization is low, and capital transfers have declined by 19.2 percent. Industrialists and businessmen have reached a point where they are trying to survive rather than new expansion plans. Despite the decrease in interest rates, investment has not increased. Domestic credit to the private sector has been negative by 0.1 percent in the 9-month period. The problem is more related to the lack of demand in the market and uncertainty about the future than the availability of money. Consumption in the market is declining, the production capacity of industries has not been fully utilized. This is why the current crisis has become more complex. A large gap has been created between the financial stability seen on the surface and the weakness of the real economy.

The devaluation of the Nepali currency is another important economic issue, the Indian rupee is continuously weakening against the US dollar, and due to the fixed exchange rate, the Nepalese rupee is automatically forced to weaken. According to Nepal Rastra Bank data, the Nepalese rupee has depreciated by about 7.5 percent against the US dollar since the middle of last year. Since a large part of the goods imported by Nepal are directly or indirectly valued in US dollars, its impact is not limited to fuel.

The cost of petroleum products, chemical fertilizers, medicines, construction materials, food, industrial raw materials to daily consumer goods is increasing. The current inflation is transforming into a cost-push inflation that spreads throughout the economy rather than a normal cycle of price increases. Inflation, which had fallen to 1.7 percent a few months ago, is now rising rapidly. And, if this situation continues, the risk of inflation exceeding 6 percent within the next one year seems strong. Its impact is not limited to market prices. It reduces real income, weakens the investment climate, erodes the savings of the middle class, and pushes low-income families towards a direct livelihood crisis.

The economic impact of the Middle East war on the world's energy supply, shipping, insurance costs, food prices and international trade is starting to be felt. The most serious, but less discussed issue with this crisis is the monetary sector. According to the National Bank, the policy interest rate has been reduced to 4.25 percent, the average lending rate has fallen to 6.77 percent, and the average deposit rate has fallen to 3.40 percent. However, at the same time, inflation has reached 4.47 percent. What this means is that Nepal has now entered a negative real interest rate situation. In simple terms, if a bank pays 3 percent interest on savings, but the market price increases by 5 percent, then even though the money appears to have increased on paper, its real purchasing power is decreasing by 2 percent. This is what is happening in Nepal right now. The 7.4 trillion rupees in bank deposits are losing about 6.5 billion rupees worth of real purchasing power every month. This is most likely to affect ordinary savers who do not have access to alternative investments.

In the context of this widespread economic pressure, according to a sectoral economic study conducted by the columnist based on various available data, if the current war, oil price and supply crisis continue in this manner, Nepal is estimated to lose about 117 billion rupees worth of real economic output in the next 12 months.

The impact of the Middle East conflict on Nepal's economy cannot be understood simply by the general explanation that oil prices have risen. This crisis is now entering the Nepali economy simultaneously through four different channels. The first and most direct channel is energy. The price of crude oil, which was around $73 per barrel in February 2026, has now reached $109. About 62 percent of the petroleum products imported into Nepal are consumed in the transportation sector. Therefore, its impact is immediately visible in the market. Petrol has reached Rs 217 per liter and diesel Rs 225, but even then, Nepal Oil Corporation is still incurring a loss per liter on petrol. The second channel is the currency exchange rate, which is the least understood but most profound aspect of the current crisis.

Since about two-thirds of Nepal's import structure is priced in dollars at some stage, it can be estimated that the currency depreciation alone has created an additional 4.9 percent imported inflation. In other words, the price of goods has risen not only because of oil, but also because of the depreciation of the Nepalese currency.

The third channel is tourism and air services, where the impact of the crisis is now being directly seen. More than 400 flights to Nepal have been canceled due to the disruption of the skies in the Gulf region. The price of aviation fuel has increased by more than 80 percent, and the number of domestic air passengers has decreased. Tourist arrivals in March 2026 were negative for the first time in 18 months, after increasing by 15.5 and 8.8 percent in January and February, respectively.

The impact is not limited to the hotel industry – it has spread to about 7 percent of GDP and 1.19 million indirect jobs through trekking, mountaineering, local transport, retail trade and food services. The fourth and most lasting impact is the Gulf labor market. About 1.9 million Nepalis are working in the Gulf countries, of which 86,000 have registered for emergency repatriation after the war. The government has suspended work permits in 10 West Asian destinations. The increase in remittances does not represent new income generation, but rather the fact that many workers have sent their savings to Nepal before returning.

On the other hand, the retail and wholesale trade sector accounts for 13.5 percent of the economy. In this sector, business costs are also increasing, consumption is decreasing, and traders' profits are shrinking. The true scale of the current crisis becomes clearer when we look at all four of these channels in relation to Nepal’s sectoral GDP structure. The biggest direct impact has been on the transport sector, which accounts for 8.5 percent of Nepal’s GDP and where about 35 percent of operating costs depend on fuel. The situation in manufacturing industries is even more complex. Although it accounts for only 5.2 percent of the economy, the currency depreciation has had a direct impact on this sector as about 55 percent of the price of industrial raw materials is based on dollars. In the construction sector, the price of bitumen has almost doubled, steel has become more expensive, and the implementation of capital expenditure in the first nine months was limited to 23.6 percent, which was already a weak demand side. It is estimated that about 156,000 jobs in these sectors could be at risk.

The impact of the current crisis on the agriculture sector can be expected to be even greater, its impact is not immediately visible, but the impact could be the most profound. As the rice planting season is about to begin, the price of fertilizer has increased by more than 33 percent per bag in a year. Diesel-based irrigation systems are also directly affected by fuel prices.

If farmers reduce investment (input) in agriculture due to inflation, the impact of the reduction in production will only be visible in the data after the crops arrive. This seems to add another challenge to food security next year. On the other hand, the issue of how to continue imports when production is falling in the country from which Nepal imports food is even more challenging. This is why decisions to be made in the agriculture sector now are very time-sensitive.

On the other hand, the share of the retail and wholesale trade sector in the economy is 13.5 percent, and in this sector too, business costs are increasing, consumption is decreasing, and traders' profits are shrinking.

If the government views the current crisis only as a temporary and external pressure, its economic cost will be even deeper in the coming year. At this time, the impact of monetary policy has been limited. Despite high liquidity in the banking system, investment has not been able to increase, so the main responsibility for managing the economy lies with fiscal policy. And, the budget being written by the government seems to have to address these issues seriously. भारतले इन्धन आपूर्ति तथा रणनीतिक भण्डारण तयारी तीव्र बनाएको छ, बंगलादेशले ऊर्जा आयातका लागि विशेष सहुलियत वित्तीय व्यवस्था सक्रिय गरेको छ । र, दक्षिण कोरियादेखि जापानसम्मका मुलुकले खाद्य तथा ऊर्जा आपूर्ति सुरक्षालाई लिएर आकस्मिक आर्थिक प्याकेजहरू लागू गरिरहेका छन् । नेपालले पनि अब लक्षित नीतिगत निर्णयहरू लिनुपर्ने अवस्था आइसकेको छ । न्यून आय भएका परिवारका लागि लक्षित इन्धन सहुलियत, सार्वजनिक यातायातलाई दिने सहुलियत तथा धान रोपाइँको अवधिसम्म मलको मूल्य र आपूर्तिमा विशेष अनुदान आवश्यक छ ।