Global South faces economic collapse as US-Israel-Iran conflict deepens
By Al Jazeera, March 25, 2026As the United States-Israeli war with Iran sends tremors through the global economy, the poorest members of the Global South are the most exposed to the fallout.
In Asia, Africa and the Middle East, developing economies are bearing the brunt of surging energy costs prompted by the closure of the Strait of Hormuz and attacks on oil and gas facilities across the Gulf.
From Pakistan to Bangladesh and Sri Lanka, through to Jordan, Egypt and Ethiopia, policymakers are facing the double whammy of being both heavily dependent on imported energy and having limited financial firepower to absorb the shock of spiking prices.
In Pakistan, which imports about 80 percent of its energy from the Gulf and has lurched between economic crises for years, authorities have scrambled to roll out measures to conserve fuel.
Facing the depletion of the country’s petrol and diesel reserves within weeks, officials have closed schools, introduced a four-day working week for government offices, ordered half of the country’s public sector employees to work from home, and slashed fuel allowances for official business.
Pakistani Prime Minister Shehbaz Sharif said last week that he had decided against a proposed hike in petrol and diesel prices before the Eid Al-Fitr celebration, saying the government would “bear the burden” of rising costs.
While government subsidies have helped cushion the blow for the public, there are fears that petroleum prices will surge and bring economic activity to a halt if the war drags on, said S Akbar Zaidi, the executive director of the Institute of Business Administration in Karachi.
“The overall shock is quite severe, although it has not been fully passed on to consumers and to industry,” Zaidi said.
“I expect the next few weeks to make things far worse once the disruption and price factors pass through.”
In Egypt, one of the biggest energy importers and among the most indebted economies in the Middle East, the government has ordered malls, shops and cafes to close by 9 pm on weekdays and 10 pm during weekends, and cut back on public lighting.
Facing growing pressure on public finances due to the government’s heavy subsidisation of fuel prices, Egyptian officials on March 10, 2026, announced price hikes of between 15 and 22 per cent for petrol, diesel and cooking gas.
While acknowledging the burden on the public, Egyptian President Abdel Fattah el-Sisi said the move was necessary to avoid “harsher and more dangerous outcomes”.
“For a majority of developing economies, especially those already grappling with debt and high import dependence, they are facing a potent mix of inflation, currency pressures and fiscal strains,” said Yeah Kim Leng, a professor of economics at the Jeffrey Cheah Institute on Southeast Asia at Sunway University in Kuala Lumpur, Malaysia.
Much as the fallout of the war poses particular challenges for governments in developing countries, the effect on citizens is disproportionate, too.
In less advanced economies, citizens spend much more of their pay cheques on fuel and food, leaving them more exposed to rising living costs.
At the same time, governments in developing countries have less capacity to provide a safety net for those at risk of falling through the cracks.
“In vulnerable economies, governments often attempt to shield their populations from price hikes by subsidising fuel and food,” said Yeah, the Jeffrey Cheah Institute professor.
“However, with depleted fiscal buffers and shrinking revenues, this becomes unsustainable. The ensuing austerity, combined with hyperinflation, can trigger widespread social unrest and a full-blown fiscal crisis.”