Iran war and Hormuz shock fuels cost-of-living crisis across South Asia

When tensions erupted around the Strait of Hormuz in early March, the impact was felt far beyond the Gulf’s narrow shipping lanes. 

Within days, the shock from the world’s most important energy chokehold rippled across South Asia, from petrol pumps in Karachi to vegetable markets in Dhaka and taxi stands in Mumbai. 

With oil prices surging as the US-Israeli war on Iran escalated, governments across the region scrambled to contain rising fuel costs while millions of households began bracing for higher transport fares, food prices and electricity bills.

For the people of South Asia, already grappling with high inflation, the surge in fuel costs is rapidly turning into a complete cost-of-living crisis, highlighting how vulnerable the global energy market is to geopolitical disruptions, particularly in the Gulf.

For South Asian economies that rely heavily on imported fuel and natural gas - India gets 40 percent of its gas from Qatar - the surge has immediate consequences: higher transport costs, rising food prices, electricity shortages and growing pressure on already strained government budgets.

Roughly 20 million barrels of crude oil and petroleum products pass through the narrow Strait of Hormuz every day, accounting for nearly one-fifth of global oil consumption.

“South Asia’s energy systems remain deeply tied to Gulf oil,” Fatima Rahman, an energy analyst at the Institute of Strategic Studies Islamabad, told Middle East Eye.

“When a geopolitical shock hits the Strait of Hormuz, the economic shock reaches households here within days,” Rahman said.

Countries across South Asia, including India, Pakistan, Bangladesh, Sri Lanka and Nepal, import the majority of their energy needs. 

With limited domestic production and volatile currencies, even a modest increase in global oil prices can quickly strain public finances and household budgets.

Ramadan in Pakistan

In Pakistan, the effects have been swift and visible.

Petrol prices have risen by roughly 55 rupees (20 cents) per litre, pushing retail prices above 321 rupees ($1.15) per litre, while diesel has climbed to nearly 336 rupees ($1.20).

For transport workers and small businesses, the increase has been immediate and painful.

Ahmed Khan, a bus driver in Lahore who operates a route between the city’s suburbs and the old railway station, said his daily fuel expenses have surged in just a few days.

“Earlier I spent around 6,000 rupees ($21) on diesel for a full day,” he said while waiting for passengers near Badami Bagh. “Now it’s close to 7,000 rupees ($25). I had no choice but to raise fares, otherwise I cannot run the bus.”

Transport operators across Lahore have increased fares by 15 to 20 percent, adding pressure on commuters who already struggle with rising living costs.

The price shock is also rippling through food markets. In Karachi’s Empress Market, vegetable vendors say transport costs have pushed prices up by nearly 10 percent within a week.

For families observing the holy month of Ramadan, the timing has been particularly difficult. Sara Ahmed, a mother of three in Islamabad, said the cost of everyday items such as dates, milk and cooking oil has climbed noticeably.

“We budget carefully during Ramadan,” she said. “But this year prices change almost every day. Even a small increase makes a difference for families like ours.”

Pakistan’s government has introduced austerity measures to reduce fuel consumption.

Schools in Punjab and Balochistan are scheduled to close for two weeks from 16 March, universities have shifted to online classes and public offices have adopted a four-day work week with partial remote staffing.

Cabinet members have also agreed to forgo their salary for two months as part of cost-cutting efforts.

Economists at the Pakistan Institute of Development Economics warn that sustained oil prices above $100 per barrel could add two to three percentage points to inflation, which already stood at about 23 percent in February.

Meanwhile, the country’s foreign exchange reserves - estimated at roughly $8.5bn - could face additional strain as the import bill rises.

Fuel rationing in Bangladesh

In Bangladesh, where nearly 95 percent of energy demand depends on imports, the crisis has triggered fuel rationing and panic buying.

Authorities have limited vehicles to 40 litres of fuel per purchase at petrol stations in an effort to prevent shortages.

'Without the generator we cannot manage the heat and the power cuts'

- Fatima Begum, Dhaka resident

In cities such as Dhaka and Chittagong, long lines stretching more than a kilometre have become a common sight as drivers wait hours for fuel.

Fatima Begum, a Dhaka resident who relies on a diesel generator during frequent power outages, said she spent four hours waiting to buy fuel.

“Without the generator we cannot manage the heat and the power cuts,” she said. “But fuel is becoming harder to find.”

Electricity shortages have worsened as natural gas supplies tighten, forcing urban areas to endure power cuts lasting up to six hours a day. The disruptions are also affecting Bangladesh’s crucial export industries.

In Chittagong’s garment district, factory workers say production shifts have shortened because of unreliable electricity.

Rahim Uddin, a sewing machine operator at a clothing factory, said the changes have reduced his income. “My salary is the same, but I used to earn extra through overtime,” he said. “Now production stops early because of electricity problems.”

Zahid Hussain, a former lead economist in Dhaka, said rising energy costs could significantly widen Bangladesh’s trade deficit.

“For a country that imports nearly all its fuel, every $10 increase in oil prices puts serious pressure on the balance of payments,” Hussain said.

Bangladesh’s inflation rate stood at about 9.5 percent in February, but analysts warn it could climb above 12 percent if oil prices remain elevated.

India transport and cooking costs

India, the world’s third-largest oil importer and a significant importer of liquefied natural gas (LNG) from Qatar, is being hurt by the Iran war.

Petrol prices in Delhi have risen roughly 12 percent to about 108 rupees ($1.17) per litre, while diesel prices have reached around 95 rupees ($1.03).

To cushion the impact, the government has released about five million barrels of crude from strategic reserves, but analysts say this is only a temporary measure. 

For workers who depend on fuel for their livelihoods, even modest price increases can have significant consequences.

Rajesh Singh, a taxi driver in Mumbai, said his monthly fuel expenses have increased by about 4,000 rupees ($44). “Earlier I could save some money after paying rent and fuel,” he said. “Now most of what I earn goes straight into petrol.”

Higher transport costs are also beginning to hit food prices. In Kolkata, wholesale onion prices have increased by about 10 percent in recent days as trucking costs rise.

In rural Uttar Pradesh, households report higher cooking gas prices, with liquefied petroleum gas (LPG) cylinders approaching 950 rupees ($10).

The Indian government has invoked emergency powers and directed oil refiners to maximise the production of LPG to try and prevent a shortage of cooking fuel. The country is the second-largest importer of LPG in the world.

The gas, a mixture of propane and butane, is widely used as a primary cooking fuel in millions of Indian households, making stable supply critical.

Structural inequality

The shock of the war has been even more severe in smaller economies like Nepal and Sri Lanka.

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In Sri Lanka, which is still recovering from the financial crisis that triggered mass protests in 2022, petrol prices have risen by roughly 18 percent. Authorities have introduced restrictions on imports of non-essential goods in an effort to protect foreign exchange reserves.

In Nepal, petrol prices have increased, while the Nepal Oil Corporation has reduced fuel supplies to dealers by around 20 percent. Transport strikes in Kathmandu have disrupted food deliveries, pushing rice and vegetable prices upward.

Across South Asia, rising energy prices are disproportionately impacting poorer households.

Low-income families typically spend 15 to 20 percent of their income on food and energy, compared with roughly five percent for wealthier households.

Energy analyst Anirban Mukherjee, based in Kolkata, said the current crisis exposes a deeper structural problem.

“The lesson is clear,” Mukherjee said. “Energy security cannot rely solely on imported oil. Countries in the region need to accelerate investments in renewable energy and regional power cooperation.”