Longer than expected

Upgrade to High-Speed Internet for only ₱1499/month!

Enjoy up to 100 Mbps fiber broadband, perfect for browsing, streaming, and gaming.

Visit Suniway.ph to learn

It seems that global economists are now resigned to projecting a longer period of disruption stemming from  the Middle East war following the yawning gap between the terms the United States and Iran separately demand to end the conflict that is now in its second month.

Even as I write this column, US vice president JD Vance has just announced that the initial round of Pakistan-hosted talks has ended without any agreement, as the US is insisting that Iran agrees to abandon any demand to be allowed to continue with its nuclear enrichment plans.

Realistically, political observers have pointed out that the fragile ceasefire and negotiations sought by the US would not be as easy or quick to resolve as President Trump may once again have envisioned. Analysts have cited the fact that in the past, negotiations for the containment of Iran’s nuclear plans and imposition of sanctions had taken a long two years to reach agreement.

Thus, longer scenarios for the effect of the Middle East war on global economies are now in play compared to initial projections by economists that the turmoil would last only a couple of months.

The Asian Development Bank (ADB) last Friday presented three disruption scenarios that use a longer timeline of three months or one quarter for its first scenario, six months or two quarters for its second scenario and a much longer one year conflict duration.

Under the first scenario, the ADB sees oil prices rising to an average of $105 per barrel in the quarter before returning to baseline by the third quarter of this year. Thus, gas prices are projected to increase in the second quarter, impacting gross domestic product or GDP of  Developing Asia and the Pacific (DAP) by just 0.3 percentage points and inflation by 0.6 percentage points.

In its second scenario, the ADB projects oil prices increasing  to $130 in the second quarter of this year, but trending down slightly to $120 in the third quarter before returning to baseline by the last quarter of this year. Thus, the scenario projects gas prices increasing more sharply than in scenario 1, in proportion to assumed increases in oil prices. Its impact on the GDP of DAP would be around 0.7 percentage points, while its impact on inflation would be 1.2 percentage points.

For its third scenario, using a one-year timeline, ADB economists project oil prices spiking to over $155 in the second quarter this year before slowly declining to about $140 between the third quarter of this year and the first quarter of 2027 before returning to baseline.

As such, scenario 3 projects gas prices rising more sharply and approaching levels following the Russian invasion of Ukraine. The impact on the GDP of the DAP would then be up to 1.3 percentage points, while its impact on inflation would be up to 3.2 percentage points.

However, it was admitted that none of the scenarios takes into account the impact of the game-changing move of Iran moving forward to now impose a new path for the movement of ships and tankers through the Strait of Hormuz, closer and within the territorial waters of Iran rather than Oman, and with the payment of a “safe-passage” fee.

This safe-passage fee imposition is further complicated by US President Trump’s own proposal that the US should likewise impose such a fee for safe passage due to the protection provided by the US.

Economic growth in DAP is expected to slow to 5.1 percent this year and in 2027, from 5.4 percent last year as a result of  the conflict in the Middle East and continuing trade uncertainty, according to the ADB. Regional inflation is projected to rise to 3.6 percent this year and ease to 3.4 percent  in 2027, from three percent last year.

The ADB’s  forecasts are informed by assumptions finalized on March 10 under exceptionally high uncertainty, envisaging an early stabilization scenario for the conflict in the Middle East. Evidence since then points to a higher likelihood of more persistent disruptions.

The region enters this challenging and uncertain global environment from a position of strength, with robust domestic demand, steady labor markets and higher public infrastructure spending underpinning resilience, according to the Asian Development Outlook (ADO) released Friday.

“A prolonged conflict in the Middle East is the single biggest risk to the region’s outlook, as it could lead to persistently high energy and food prices and tighter financial conditions,” said ADB chief economist Albert Park. “With renewed trade policy uncertainty posing additional risks, it is essential that governments implement sound macroeconomic policies to sustain growth and contain inflation, with targeted support measures to protect vulnerable households.”

The ADO April 2026 includes a section that assesses the impact of the conflict on economies in the region under alternative scenarios.

A prolonged and escalated conflict in the Middle East could affect economic activity via several channels, including heightened price pressures, shipping disruptions and financial volatility.

Most economies in developing Asia and the Pacific will see their growth outlook worsen this year and in 2027, according to the ADB,  despite resilient private consumption and solid demand for artificial intelligence-related goods.

The Philippine economy is projected to post slower growth than earlier expected due to rising global uncertainties, particularly from the Middle East conflict and downside risks. The country’s GDP is now projected to grow by 4.4 percent this year, slower than the December forecast of 5.3 percent, before rising by 5.5 percent in 2027. Growth will continue to be driven mainly by domestic demand and with investment supported by the lagged effects of previous policy rate cuts. But the gains, according to the ADB,  will be partly offset by the recent surge in price pressures, which will weigh on investment decisions and erode household spending.