ADB forecasts oil prices to be $96 this year

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

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

In addition, fertiliser prices—especially those of urea, a key crop nutrient—have shot up, which together fuel inflationary expectations and increase fiscal pressure on nations, especially energy- and fertiliser-importing ones.

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

Regional GDP growth is forecast at 4.7 percent, a 0.4-percentage-point drop, while inflation estimates have been raised by 1.6 percentage points to reach 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.

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

The Manila-based agency now projects 5.7 percent growth in South Asia in 2026, lowering its previous projection of 6.3 percent for the year. Inflation is projected to rise to 7.6 percent, up 2.6 percentage points from the previous forecast.

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

The ADB said supply disruptions have exerted upward pressure on the prices of non-oil commodities, particularly fertilisers. “Prices are surging,” he 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,” said Park.

Responding to a question at the briefing 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 demand. Monitor inflation expectations and second-round effects before tightening; avoid choking growth unnecessarily,” he added.