Escalating conflict in the Middle East is already triggering shocks that are reshaping development challenges in the Indo-Pacific. Over the short period of only a month, the surge in global prices for oil and LNG, coupled with significantly increased costs for food and shipping, of course, would have that effect.
Yet, where are these impacts being felt most acutely — and what are the broader implications?
Smaller, import-dependent, remittance-reliant economies with limited fiscal buffers (Pacific Island countries in particular) will likely fare worse than larger, export-driven economies. Budgets will only be further strained by demands to subsidise food and energy, and with repayment stress as debt costs rise.
There are also challenges in donor countries.
You need only to look at electoral outcomes in the more than 60 countries that went to the polls in 2024 to see the longer-term impact of rising prices. In a period of higher inflation — at rates not seen in decades — incumbent politicians around the world were decisively punished. Such punishments also led to key policy choices— most notably, a significant decrease in global aid and development spending in the last couple of years.
It is a well-known phenomenon that public support for foreign aid decreases in periods of economic crisis. But for such periods to precede an even more acute increase in costs will have an even greater impact. Donor countries to the Indo-Pacific were already shifting from long-term development projects to emergency responses and security-driven aid. The increased prices resulting from conflict in the Middle East will likely only decrease appetite for any aid spending in the months and years ahead.