A senior economist at the Asian Development Bank (ADB) has predicted that oil and energy prices will remain higher for longer due to the war in the Middle East, as he updated “a lot of change’ to the banks” Asian Development Outlook (ADO) April 2026 report, originally released on April 10.
In the early report, ADB predicted that under an early stabilisation scenario, regional growth was projected to moderate to 5.1% in both 2026 and 2027. It noted that higher energy prices will raise production costs and consumer prices, while export growth should normalise following last year’s front-loading ahead of US tariff increases.
It also projected that the inflation rate would rise to 3.6% this year, as higher energy prices linked to the conflict feed through.
The bank’s chief economist Albert Park told reporters this week that there have been a lot of changes since then, with energy costs expected to remain high for some time.
Ongoing shocks cause downgrades
“The April 10 development outlook was based on an early stabilisation scenario where the war would only last a month or so. We’re clearly past that now, into the third month of the conflict, so our projections are that growth in the region will be 4.7% this year and 4.8% next year,” he said, during the ADB’s 59th annual meeting, held in Samarkand, Uzbekistan.
He explained that many nations in South Asia, Southeast Asia and the Pacific have increased negative growth this year because of greater dependence on imported oil and gas, among other factors.
“Inflation expectations are also raised. Whereas it was 3.6% under the early stabilisation scenario, now under the new reference scenario it’s 5.2% for the region this year. These are quite big changes, reflecting challenges that governments around the region are facing,” he said.
According to Park, in Qatar, 16.9% of energy infrastructure have been damaged by war, with 6% severely damaged, and it would take between three to five years to bring them back online.
He added that overall gas prices have increased 30%, with much higher rises for diesel. The bank also noted higher prices for other important inputs into agricultural and industrial supply chains.
“In particular, we’re very concerned about higher fertiliser prices — urea fertiliser is up 85% — and other industrial inputs into petrochemicals and semiconductors are all being affected. Eventually, these price increases will also work their way through the supply chain and affect prices and production of other goods and services,” said Park.
In its latest scenario, the ADB projects oil price to average $96 per barrel in 2026 and $80 per barrel in 2027.
“We also estimate the effects of a severe downside scenario where oil prices spike to over $200 a barrel. That would probably need to see a lot more destruction of energy facilities and escalation of the conflict, but that’s to give a sense of the magnitude in a worst-case scenario,” he said.
The Cambodian situation
Cambodia, which relies heavily on imported oil and gas, is feeling the severe effects of the war in Iran. The price of regular fuel had increased by around 42% as of May 6, compared to the pre-war February prices. Diesel, on other hand, jumped 110%, reaching a historic peak in April.
The increases are despite government response policies, which saw some taxes and duties suspended.
Park noted that Cambodia is one of the hardest hit economies in the region because of how much they depend on imported fuel and fertiliser.
He believed that ADB team were already talking to the Cambodian government about how ADB can be of assistance and urged the government to protect vulnerable households, in a targeted way that preserves fiscal resources through social protection programs.
Citing research done by the ADB country team and its partners, he said that Cambodia’s rice yield could fall by over 20% if global fertiliser prices remain elevated.
“That’s going to be an additional challenge,” he said.
ADB recommendations
According to the economist, ADB is stepping up to help vulnerable countries address these challenges. The bank is believed to be in conversations with the finance ministries of many nations, to get a better sense of the specific situations and needs of each country.
Park warned that fuel subsidies, tax cuts and broad-case price controls may not be a successful strategy.
“The recommendations have been that it’s important to allow some of these high price signals to pass through to consumers and producers so that they can adjust their behaviour, save energy and consume less in the most efficient way. That’s one part of coping with the prices.
“The other is that if you have across-the-board subsidies of fuel prices, then it will quickly eat up fiscal space when the prices are high and will probably remain high into the future. There’s still quite a lot of uncertainty about how long the conflict may last, so you need to preserve fiscal space to be able to prepare for future contingencies,” he explained.
He said ADB recommended that central banks monitor the situation carefully and be cautious.
“Right now, with supply-side price shocks, the general advice is that central banks should not try to raise interest rates in response. They should really be focusing on core inflation — prices for most goods and services in the economy, not just energy or food prices that are driven by supply shocks,” he said, adding that raising interest rates could be considered if high prices persist in the future.
Park noted that he would like to see countries around the region turn the current challenges into opportunities to accelerate the transition to renewable energy sources and reduce dependency on fossil fuels.
“That’s something that ADB is very happy to support,” he said.
Asian Development Bank chief economist Albert Park has explained how ongoing conflict in the Middle East has forced the bank to update its economic forecasts. ADB