When War Hits the Poor Hardest: What Needs to be Done

While war fuels poverty in the countries directly involved, it can also spill over into other regions. As the war in Iran enters its second month with no end in sight, the economic impacts are being felt globally. The main transmission mechanism is through the fuel crisis, with sharp price increases and rationing following disruptions to supply. Southeast Asian countries are particularly affected because about two-thirds of their crude oil imports originate from the Persian Gulf countries, which must traverse the chokepoint, the Strait of Hormuz. The fuel crisis is affecting all income groups. In particular, the poor, especially in developing countries, are taking the brunt of the impacts (Table 1).

With limited resources and capacity to adapt, the poor are more vulnerable to any kind of economic or financial shocks, including a fuel crisis. Despite dramatic reductions since 2000, poverty rates remain unacceptably high in the Least Developed Countries (LDCs) — Cambodia, Laos, Myanmar and Timor-Leste — and the Philippines (Table 1). Furthermore, large numbers of the near-poor hover above the poverty line. They could be pushed below it, either directly from the fuel shock or indirectly if growth slows.

The increase in energy costs affects the prices of almost everything grown or manufactured, directly or indirectly, and is already fueling inflation. Because of its inherently regressive nature, inflation is a tax on the poor more than any other group. The poor consume almost all their income, leaving them more exposed with little savings to invest in inflation-hedged assets. Given that the poor are the biggest losers from cost-push inflation, both poverty and inequality will increase.

The poor in developing countries are likely to be hit harder than their counterparts in the richer countries. This is due to limited social safety nets and public services. Even existing public transfers and support systems will be under severe stress as already limited fiscal resources are strained by the rising fuel import bill. The LDCs also need to import more expensive refined petroleum — gasoline, diesel and jet fuel — because they lack domestic refining capacity. The rising crack spread — the difference between crude oil prices and refined product prices — has dealt a further blow to the LDCs.

While Southeast Asian governments and regional and multilateral organisations cannot determine when the war ends, they can limit its irreparable consequences by reprioritising their resources to support the most affected — the poor.

The LDCs are also the most dependent on agriculture, which is largely small-scale or subsistence-based. While the share of agriculture in the LDCs has been falling, they still constitute between 15 and 20 per cent of GDP and much higher shares of employment (Table 1). Sharp rises in diesel prices are increasing transport and irrigation costs. The rise in liquified natural gas (LNG) prices is also affecting nitrogen-based fertilisers like urea. This has forced farmers to cut back, which will affect future yields. The LDCs, the Philippines and Thailand are the most dependent on imported nitrogenous fertilisers in Southeast Asia. Furthermore, rather than benefitting from food price inflation, the poorest farmers are negatively impacted as net importers of food.

The response to this crisis must be national, regional and multilateral. Despite dwindling resources, national governments need to reconsider priorities and refocus budgets to ensure food security so that the poor are not irreversibly harmed as the prospect of a humanitarian crisis looms.

At the regional level, the ASEAN Petroleum Security Agreement, which expanded in October 2025 to include LNG, is specifically designed for this type of crisis. But it has not been used because it relies on voluntary, commercial-based assistance with vague implementation guidelines. Similar problems plague the ASEAN+3 Chiang Mai Initiative, which could provide emergency liquidity support should the fuel crisis lead to balance of payment problems. Despite numerous upgrades, the initiative has also never been used because it is not a fund, but a reserve pooling system with ambiguous activation procedures. These regional emergency programmes need to be made usable or removed, as maintaining them incurs a cost.

It is unlikely that ASEAN, with its limited internal resources, or larger groupings like the ASEAN+5 Regional Comprehensive Economic Partnership, can be of much assistance when all its members are also struggling to address the impacts of the crisis. These programmes cater to asymmetric shocks that affect one or a few members, but not all in a similar fashion. Where regional groupings (and multilateral development banks, MDBs) can help is by improving longer-term resilience to such shocks by expediting programs that support the green transition nationally or regionally, like the ASEAN Power Grid.

In the short run, however, budgetary support from MDBs and flexibility to repurpose portions of their loan portfolios to cover emergency fuel imports will help contain the worst impacts of the fuel crisis. The ADB is allowing 10 per cent of loan portfolios to be repurposed, but this needs to be increased to at least 25 per cent for LDCs, in line with the allowance for Pacific island nations. An increase in targeted interventions such as cash-transfer programmes to protect the most vulnerable households is also required. The World Bank has actively promoted such initiatives.

The likelihood of a macroeconomic and humanitarian crisis increases the longer the war lasts. The World Food Programme warns that if the conflict does not end soon, the number of people facing acute hunger globally could reach a record 363 million in 2026. How much suffering the poor will bear depends on how quickly governments, regional organisations and MDBs respond. While Southeast Asian governments and regional and multilateral organisations cannot determine when the war ends, they can limit its irreparable consequences by reprioritising their resources to support the most affected — the poor.

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