Unquestionably the brewing conflict in South Asia is a significant concern on a global basis. India’s response to the terror attacks in Kashmir has led to growing speculation of full-blown conflict breaking out between the two nuclear powers. Whilst at this stage it remains to be seen whether full-scale war will break out or if both countries will bow to international pressures to avoid escalation, it is certainly a time when many countries and businesses will be examining the likely impacts should the worst occur. Indeed, given its proximity to both nations and vested interests – particularly with India – Nepal is a country that will be keenly examining the situation and waiting with bated breath to see what happens next. This blog examines some of the key ramifications Nepal may face should conflict escalate.
Economic Disruption
A widespread ramification of conflict and war felt by other countries not even involved in the conflict is economic repercussions. Indeed, looking at conflicts elsewhere, it is clear that one of the long-lasting impacts of the conflict in Ukraine is the economic impact it has had throughout Europe. As such, it is reasonable to assume that conflict between India and Pakistan would have similar economic impacts – particularly in the South Asia region. Undoubtedly, Nepal would be impacted by this; the impacts may be even more accentuated given Nepal’s dependence on India for trade with approximately two-thirds of its international trade being conducted with the country. Nepal would likely be significantly impacted by any disruptions to trade given this dependence on India as a trading partner.
Historically speaking, the ramifications of trade disruptions with India have already been experienced before with the unofficial blockade in 2015 that led to significant shortages of essential goods in Nepal – particularly regarding fuel and medicine. The impacts of this blockade were significant on Nepal with the economy suffering significantly and wider impacts on key services such as hospitals which faced critical shortages. Using this precedent, it is reasonable to assume that disruptions to Indian and Nepali trading would have significant ramifications for the Himalayan country.
Whether the impact would be as significant as 2015 is rather challenging to speculate on without knowing the direction the impending conflict may take. However, it is reasonable to assess that due to fears surrounding the historical precedent of disrupted trade with India, two things will likely occur. Firstly, given the shortages that plagued Nepal during 2015, it is reasonable to assume that the stockpiling of crucial goods Nepal is dependent on India for would increase. Naturally, increased stockpiling can result in economic and civil chaos if not controlled. Equally, likely to happen is the increase in prices for goods imported from India. As imported goods become more scarce, prices throughout Nepal will rise to reflect this scarcity. Prominently this would affect consumers with lower income who may struggle to afford the same goods they were able to previously.
Tourism
Tourism is one of the most vital sectors of the Nepalese economy. Indeed, in 2023 tourism accounted for around 6.6% of the total GDP in the country with 1.2 million people being employed in the tourism sector in 2024; a roughly similar amount also came to the country for tourism purposes in 2024, which marked a significant recovery following the pandemic which decimated tourism in the country. The importance of steady tourism to Nepal cannot be understated, it is a vital sector for the economy and of vital importance to the livelihoods of those who work in the sector and those who are dependent on them.
Worryingly, tourism is something that could be significantly harmed should conflict break out in the region. Speaking first on tourism from within the region, it is entirely possible that tourism from India itself would significantly decrease. Indeed, if war does break out India may take measures to secure all of their borders to a far greater extent. Any increase in border security could directly impact direct tourism from India into Nepal through its southern border. Naturally, given that Indians coming to Nepal make up a significant part of the tourism in the country, any decrease in their holidaying in Nepal would damage tourism. Equally, if the conflict in the region is significant, it may dissuade other international tourists from coming to the region due to safety concerns. If international travel in the region is disrupted or advised against due to the severity of the conflict, even more people would stop coming to the country, further damaging the tourism sector.
The likely ramifications of such a decrease in tourism would be significant. Firstly, the wider economy as a whole would suffer. With tourism making up such a significant part of Nepal’s GDP any drop in this area would damage the entire economy. Unquestionably, the tourism sector itself would suffer from any decrease in revenue; businesses severely impacted may see closure and job losses would likely occur. Equally, there would likely be a wider ramification for businesses that don’t purely depend on tourism for their revenue. If tourists aren’t coming into the country, less money will be spent across areas of the economy that tourists may still contribute to during their time in Nepal.
Energy and Fuel
Another aspect that may be impacted within Nepal should wide scale conflict break out is energy and fuel shortages. Particularly, when it comes to fuel, Nepal is very dependent on India. Indeed, Nepal imports nearly all of its petroleum products from India. Undoubtedly, any disruption to importing petroleum would have a very significant impact on Nepal. This is something that could be likely if war does break out. If conflict does begin, as mentioned earlier trade may be disrupted. Equally, when it comes to petroleum India may opt to reduce its export of the resource to redirect it towards aiding in conflict.
Should these occur the impacts felt in Nepal would be significant. Indeed, a lack of petroleum would unquestionably bring key transport to a halt. This could result in an inability to move goods and necessities throughout the country, disrupting local distribution. Equally, businesses as w whole may suffer from a lack of petroleum – particularly those who are dependent on the fuel for operations. Being so dependent on India for this resource will only lead to the impact of any disruption being far greater than if trade was more diversified.
International Impacts
Finally, there may potentially be impacts in terms of international aid. Nepal is a country that still depends to a certain extent on aid from the international community. However, should war break out there is no guarantee that aid would not be reduced. Indeed, it has already been proven that aid to Nepal can be stopped at ease in favour of international countries using the money elsewhere; this was proved as the US suspended funding for two major infrastructure projects in Nepal in early 2025. International funding and aid are something that can prove essential for developing countries like Nepal, particularly when it comes to developing infrastructure within the country.
If war is to break out in the region there is a high possibility that aid and other international payments to Nepal could be reduced. The wider international community may divert aid away from Nepal to fund humanitarian efforts in any conflict-affected areas, granted this is slightly less likely though still possible. The higher likelihood is that India itself may divert aid away from Nepal to fund any war efforts. Nepal relies on India for aid, so any reduction in aid provision would have an impact on the country. The most impacted aspect should this occur would be infrastructure development. India has played a critical role in supporting the development of new infrastructure within Nepal; should aid provision in this area be reduced to fund war efforts Nepal’s rate of infrastructure development would suffer.
Overall, conflict between India and Pakistan would have a variety of detrimental impacts on Nepal. Undoubtedly, Nepal’s economy would suffer significantly from an outbreak of conflict within the region. Trade, tourism and aid provision are all aspects that could be impacted should the conflict escalate. Moreover, Nepal could take a significant hit when it comes to energy supply. This potential outlook underscores the dependence Nepal has on India in particular for trade and other aspects of support. Inherently, businesses and consumers throughout Nepal should be hopeful that the two neighbouring powerhouses ultimately cave to international pressure and deescalate the current tension between them; if conflict does begin it could certainly have significant negative ramifications for Nepal.
