Oil to average $96 this year

The Asian Development Bank (ADB) has projected that oil prices will average $96 per barrel in 2026 -- well above the pre-war average of $69 -- as key infrastructure has been damaged and, despite the ceasefire in the Middle East, transit through the Strait of Hormuz has not resumed.

Prices may moderate to $80 on average in 2027, according to an updated ADB analysis on the impact of the Middle East conflict on Asia and the Pacific, released yesterday.

Fertiliser prices -- especially those of urea, a key crop nutrient -- have also shot up, fuelling inflationary expectations and increasing fiscal pressure on nations, particularly energy- and fertiliser-importing ones like Bangladesh.

The multilateral lender has lowered its 2026 growth projections for developing Asia and the Pacific, saying the conflict has proved far more disruptive than its early stabilisation scenarios suggested.

Regional GDP growth is now forecast at 4.7 percent, a 0.4 percentage-point drop, while the inflation estimate has been raised by 1.6 percentage points to 5.2 percent.

“Transit through the Strait of Hormuz remains severely impaired despite the April ceasefire. Physical damage to energy facilities across the Gulf will prolong supply disruptions beyond the end of the conflict -- with some repairs expected to take three to five years,” said ADB Chief Economist Albert Park.

“A new reference scenario incorporating persistent supply constraints points to materially slower growth and higher inflation; a severe downside scenario implies substantially larger impacts,” he said at a media briefing on the sidelines of the ADB Annual Meeting in Samarkand, Uzbekistan.

The four-day event concluded yesterday with ADB President Masato Kanda terming the conference a success at the closing ceremony.

Park said impacts depend on imported energy dependency, fertiliser import exposure, and other economy-specific factors. Across subregions, the largest 2026 growth downgrades have occurred in South Asia, the Pacific, and developing Southeast Asia.

The Manila-based agency now projects a 5.7 percent growth in South Asia in 2026, down from an earlier forecast of 6.3 percent. Inflation in the subregion is projected to rise to 7.6 percent, up 2.6 percentage points from the previous estimate.

“Markets price in persistently tighter conditions, not a quick reversal.”

The ADB said supply disruptions have exerted upward pressure on the prices of non-oil commodities, particularly fertilisers.

“Prices are surging,” Park said, adding that urea marked the largest non-energy price shock and that it has a direct impact on food costs.

South Asia sources 35 percent of its fertiliser from the Middle East. Bangladesh is a major importer of fertiliser from the Gulf nations.

“Food prices typically follow within one quarter,” he added.

Responding to a question on Bangladesh’s economic growth, he said the country-specific numbers for Bangladesh based on the reduced growth forecast will be released by the end of this month.

“So, the regional one is an indicator; I think Bangladesh’s growth will probably be a bit lower. They would have more headwinds, in effect, than the rest of the South Asia average,” he said.

“But I think you should wait; our next Asian Development Outlook will have a much more thorough assessment of Bangladesh, and that report will be coming out in July or early August,” he said.

To tackle the challenges, the ADB suggested avoiding blanket fuel subsidies and excise tax cuts.

High-income households consume more energy, and subsidies are fiscally very costly if prices stay elevated, he said.

“Policymakers should target support to vulnerable households, maintain monetary credibility, and accelerate investment in energy resilience,” he said.

Park suggested targeted cash transfers to protect vulnerable households and ensure fiscal space. A data-dependent monetary policy is needed.

“This is a supply shock, not a demand shock. Monitor inflation expectations and second-round effects before tightening; avoid choking growth unnecessarily,” he added.