The US-Iran conflict of 2026 crashed oil markets, froze the Strait of Hormuz, and pushed developing nations from Pakistan to Egypt toward economic collapse. A deep analysis of the financial and social fallout.

The Day the World Paid for a War It Did Not Choose

On the morning of March 6, 2026, Ahmed Farouk had already been waiting three hours at a petrol station on the outskirts of Cairo when an attendant walked out and hung a hand-written sign on the pump: No Diesel. Ahmed drives a freight truck for a living. No diesel means no work. No work means no bread — not for him, and not for the forty families whose weekly produce deliveries he hauls from the Nile Delta to the capital. He sat back in his cab, pulled out his phone, and read about a war being fought 2,000 kilometres away — a war, he would tell a journalist later, “that no one asked us about.”

The US-Israel strikes on Iran — launched on February 28, 2026, under the codename Operation Epic Fury — represent one of the most consequential geopolitical decisions of the decade. The immediate military objectives: to degrade Iran’s nuclear facilities and missile infrastructure. The immediate economic consequences: a supply disruption the International Energy Agency described as “the greatest global energy security challenge in history”, the closure of the Strait of Hormuz — through which roughly 20 percent of global oil demand flows daily — and a cascade of financial shocks that have pushed developing nations from Pakistan to sub-Saharan Africa to the edge of economic collapse.

This is not merely a story about oil prices. It is a story about what happens when powerful states choose war and the world’s poorest nations pay the bill.

A Familiar Architecture of Catastrophe

History has seen this before, and its lessons are rarely learned in time.

When the United States invaded Iraq in March 2003, global oil prices climbed steadily from roughly $30 per barrel toward $60 within a year, feeding inflationary pressure across import-dependent economies that were entirely peripheral to the war’s stated purposes. The 1973 Arab oil embargo — itself a retaliatory geopolitical move — triggered a global recession, destroyed a generation of Western consumer confidence, and pushed countless low-income nations into debt spirals from which some never truly recovered. Russia’s invasion of Ukraine in February 2022 sent Brent crude surging to $139 per barrel and precipitated a global food crisis that, according to the World Food Programme, drove an estimated 70 million additional people toward acute hunger.

What distinguishes the 2026 US-Iran conflict from those episodes is not its severity alone — though its severity is historically unprecedented — but its structural architecture. As analysts at Al Jazeera and the World Economic Forum have documented, prior shocks were sanctions-driven or logistical in nature, allowing for rerouting, substitution, and policy intervention. The current crisis is a physical chokepoint crisis: Iran’s retaliatory closure of the Strait of Hormuz has taken offline not merely trade routes but the very capacity of producers to export, pushing markets beyond the reach of conventional adjustment mechanisms.

The logic of escalation that produced this outcome was, in retrospect, grimly predictable. Iran — its economy already battered by sanctions, with inflation exceeding 40 percent in 2025 and its rial in freefall — had little to lose strategically by weaponizing the Strait once strikes began. Unable to match the US and Israel militarily, Tehran chose to internationalize the costs of war, targeting energy infrastructure, shipping lanes, and civilian water supplies across the Gulf. The calculation, as the World Economic Forum’s analysis put it, was blunt: raise the price of escalation until pressure for de-escalation builds.

It worked. The question is who bears the cost of that arithmetic.

The Oil Shock: Numbers That Reshape Economies

By March 4, 2026 — six days after the opening strikes — Iran had effectively closed the Strait of Hormuz to commercial tanker traffic. Brent crude, which had surged 10–13 percent to around $80–82 per barrel in the conflict’s opening days, blew past $120 per barrel as markets began pricing in sustained disruption. QatarEnergy declared force majeure on all exports. The collective oil production of Kuwait, Iraq, Saudi Arabia, and the UAE dropped by a reported 6.7 million barrels per day by March 10, and reached at least 10 million barrels per day by March 12 — the largest supply disruption in the recorded history of global oil markets, according to the IEA.

For context: the 2022 Ukraine crisis, which shocked financial markets worldwide, was primarily a sanctions-driven disruption. Producers could still pump; buyers could still source alternatives. In 2026, the pumps are still running in some Gulf fields, but the oil has nowhere to go. Oilfields forced to shut in across the region as storage capacity fills could take “days or weeks or months” to return to pre-war output levels even after a ceasefire, according to Amir Zaman of Rystad Energy — a detail that markets have begun, belatedly, to price in.

The transmission from crude markets to consumer prices is faster and more brutal than most economic models predict in real time. As certified financial planner Stephen Kates told CNBC, “unlike last year’s higher tariffs, which took months to filter meaningfully into prices, increases in oil prices are quickly reflected” — in gasoline, airline tickets, shipping costs, and anything touched by oil-based inputs. In the United States, the national average gasoline price reached $3.41 per gallon within the first week of the conflict, up $0.43. US crude prices soared more than 35 percent, posting their biggest weekly gain since crude futures began trading in 1983.

For the eurozone, the arithmetic is worse. Capital Economics projected that inflation would peak above 4 percent year-on-year in the euro area, with the ECB likely forced to reverse its rate-cutting trajectory — a painful reversal for economies still navigating post-pandemic debt burdens. Japan, which imports virtually all of its crude, faces a structural dilemma between defending the yen’s purchasing power and supporting domestic growth. Even in the United States, despite record domestic production levels, supply-chain linkages to global markets mean that price insulation is largely illusory — a decade of building export infrastructure has effectively tied American pump prices to the same global benchmarks it once sought to escape.

Equity markets reflected the shock imperfectly but unmistakably. Asian and European indices fell more sharply than US benchmarks — a pattern Frederic Schneider of the Middle East Council on Global Affairs attributed to their greater exposure to the energy crisis and thinner cushion of corporate winners in defense and oil. Russian stocks trended upward, as any oil-price shock that bypasses Moscow’s export routes functions as a windfall for the Kremlin — a grim irony of the geoeconomic landscape.

The Federal Reserve’s Impossible Dilemma

Central banks have been here before, and they have rarely found a good answer.

A supply-side energy shock presents monetary policy with a structural trap. Raising interest rates to contain the inflationary impulse risks choking economic growth and employment. Cutting rates to support activity risks pouring fuel on price pressures. The Federal Reserve, according to Morgan Stanley analysts, is likely to favor a holding pattern — smaller adjustments or outright pauses — while it watches incoming data. But the political pressure to act is enormous: with US midterm elections on the horizon, voters are acutely sensitive to gasoline prices and grocery bills, and a Reuters/Ipsos poll found only about 27 percent approval for the initial strikes.

IMF Managing Director Kristalina Georgieva, speaking at a symposium hosted by Japan’s Ministry of Finance on March 9, warned that a prolonged conflict poses an inflationary risk to the global economy that policymakers must prepare for now. The IMF’s scenarios are not comforting. Capital Economics projected that if conflict is contained to three months, Brent crude could average $150 per barrel over the following six months — a figure that, if realized, would constitute the most prolonged and severe oil price shock since the 1970s Arab embargo.

What begins as a battlefield decision hardens, in the language of financial markets, into a geoeconomic constraint: not a temporary shock to be absorbed but a restructuring of the conditions under which global growth is possible at all.

The Invisible Casualties: Fertilizer, Food, and the Coming Agricultural Crisis

Beyond the oil price charts, a slower and more devastating crisis is taking shape — one that threatens food security for hundreds of millions of people who have never heard of Operation Epic Fury.

The Strait of Hormuz handles roughly 50 percent of global urea and sulfur exports, and 20 percent of global LNG trade — the latter a critical feedstock for nitrogen-based fertilizers. Since the strait’s effective closure, fertilizer exports from the Persian Gulf have dropped precipitously. According to Morningstar projections reported by Reuters, nitrogen fertilizer prices could roughly double from 2024 levels, while phosphate prices may rise by approximately 50 percent.

The timing is catastrophic. These disruptions are coinciding with the Northern Hemisphere’s spring planting season — the window in which farmers in South Asia, the Middle East, and sub-Saharan Africa must apply fertilizers to secure yields for the year. The World Food Programme’s deputy executive director Carl Skau has warned bluntly: “In the worst case, this means lower yields and crop failures next season. In the best case, higher input costs will be included in food prices next year.”

There is no cavalry coming. China, the world’s largest nitrogen and phosphate fertilizer producer, is prioritizing domestic supply and is unlikely to resume urea shipments before May. Russian plants are already running near full capacity. As Máximo Torero, the UN Food and Agriculture Organization’s chief economist, told NPR: “The loss of Gulf exports creates an immediate global shortfall with no quick substitutes.” Unlike oil, there are no strategic international fertilizer stockpiles to release.

Even short delays matter enormously at the farm level. Research from Zambia cited by agricultural analysts suggests that delayed fertilizer application can reduce maize yields by approximately 4 percent per season — a figure that may sound modest in aggregate but translates, at scale, into tens of millions of people facing inadequate caloric intake during the 2026–27 harvest cycle.

The Developing World at the Breaking Point

The architecture of the global economy is not neutral. It distributes the costs of distant decisions in ways that fall heaviest on those least responsible for them.

Pakistan: The Arithmetic of Austerity

In Lahore, motorcyclists queue for hours at filling stations. Pakistan — a country still recovering from the 2022 floods that ravaged a third of its national territory, and from an IMF bailout process that has demanded painful fiscal consolidation — is among the most acutely exposed economies in the world to this particular shock. The government has raised state-controlled energy prices by 20 percent, instituted a four-day work week for public offices, and closed educational institutions for two weeks to conserve fuel. As Khalid Waleed of the Sustainable Development Policy Institute told Al Jazeera, “diesel is the backbone of Pakistan’s freight and agricultural economy. Trucking costs have started climbing, and that will feed into everything from flour to fertiliser in the weeks ahead.”

Pakistan’s foreign exchange reserves were already thin before the conflict. The rupee — like most emerging market currencies — has come under renewed pressure as global investors flee to dollar-denominated safe assets. Pakistan may need to roll over around $1 billion in outstanding eurobonds in the coming year, a burden that becomes structurally harder as the dollar strengthens. Plants producing fertilizer domestically have, in some cases, been forced to halt production entirely as natural gas prices spike. A country already on the edge of balance-of-payments crisis is now absorbing a simultaneous fuel shock, food production threat, and capital outflow.

Bangladesh: Universities Dark, Queues at Every Pump

Bangladesh, which imports approximately 95 percent of its oil and receives roughly 25 percent of the natural gas that fuels its power plants from Qatar, is facing what analysts at Yale’s School of Management have termed an existential energy dependency crisis. The government has closed all universities to conserve electricity, anticipating power shortages as the country’s LNG supply from Qatar has been effectively interrupted. Petrol pumps in some districts have run dry despite fuel rationing measures. The Bangladesh Petroleum Corporation has imposed per-vehicle refueling limits.

These are not abstract economic statistics. They are the contours of daily life for 170 million people, many of whom were only recently climbing toward middle-income status — a fragile trajectory that this war is now threatening to reverse.

Egypt: Suez Losses, Currency Collapse, and the Emergency Declaration

Egypt occupies a uniquely painful position in this crisis. As one of the region’s largest energy importers and most indebted economies, the country was already navigating a grueling IMF stabilization program when the war began. Now it faces simultaneous pressure from multiple directions.

The Egyptian pound has depreciated more than 8 percent against the US dollar since the conflict’s opening days. Reduced traffic through the Suez Canal — caused by war-related shipping disruptions — is costing the country approximately $10 billion in losses according to World Bank estimates. Egypt provides extensive fossil fuel subsidies to its population; with global prices surging, those subsidies have become fiscally unsustainable, but unwinding them risks triggering street-level inflation and political instability. President el-Sisi has ordered malls and cafes to close by 9pm, cut back public lighting, and described his country’s economy as being in a “state of near-emergency.”

Egypt needs to roll over more than $4 billion in outstanding eurobonds within the next year. Against the backdrop of currency depreciation, energy price inflation, and capital outflow, the mathematics of that debt servicing are becoming precarious. The Centre for Global Development in Washington has placed Egypt explicitly on its watch list of countries at serious risk of fiscal crisis if the conflict continues.

Sub-Saharan Africa: Fiscal Buffers Already Gone

The countries least equipped to absorb this shock are those already operating without fiscal margin. Janes analysts have identified Burkina Faso, Burundi, the Central African Republic, the Democratic Republic of Congo, Liberia, and Mozambique as particularly vulnerable — countries that entered this crisis with depleted buffers, high petroleum import reliance, and deep pre-existing poverty.

For smallholder farmers in East Africa, the fertilizer crisis is already tangible. Stephen Muchiri, a Kenyan maize farmer and CEO of the Eastern African Farmers Federation — which represents 25 million smallholders — notes that early heavy rains have left a narrow planting window. Fertilizer shortages and price hikes are forcing farmers to apply less, with knock-on consequences for yields. The UN World Food Programme has explicitly warned that disruptions are driving long-term global food price increases that could replicate or exceed the severity of the 2022 food crisis.

The Remittance Rupture

One dimension of the developing-world impact has received insufficient attention: the collapse of Gulf remittances. Workers in Gulf countries — predominantly from South Asia, Southeast Asia, and sub-Saharan Africa — collectively send home $88 billion annually, according to Centre for Global Development analysis. Egypt, Pakistan, and Jordan each receive more than 4 percent of GDP from Gulf remittances. Nepal and the Philippines receive remittances equivalent to over 25 percent of GDP, with Qatar and the UAE among the largest sources.

As large infrastructure projects in the Gulf are paused or abandoned and the mass evacuation of foreign residents accelerates in the wake of strikes on civilian infrastructure, the construction and service workers who sustain these remittance flows are returning home to economies that cannot absorb them. The social implications — families losing their primary income source, children pulled from school, small businesses shuttered — unfold quietly and are rarely captured in GDP data.

Beyond Economics: The Social Fractures That Wars Ignite

The social implications of this US-Iran conflict 2026 economic impact extend well beyond macroeconomic metrics. They are written on the faces of children eating half-rations in Karachi, on the ledgers of microfinance institutions in Cairo watching loan repayment rates collapse, and in the decisions of families in Dhaka calculating whether to pull their daughters out of school to reduce household expenses.

Research consistently demonstrates that energy and food price shocks have non-linear social effects. The standard economic framing — inflation reduces real income, which reduces consumption — captures only the mechanical surface. What it misses is the deeper structural damage: the interruption of educational trajectories, particularly for girls in societies where female schooling is the first casualty of household fiscal stress; the acceleration of child labor; the erosion of community savings structures that took years to build; the triggering of migration decisions that become permanent.

A Centre for Global Development analysis has documented the risk explicitly: governments facing the double bind of depleted fiscal buffers and surging import costs will initially attempt to subsidize households. “However, with depleted fiscal buffers and shrinking revenues, this becomes unsustainable. The ensuing austerity, combined with hyperinflation, can trigger widespread social unrest and a full-blown fiscal crisis.”

History offers no reassurance here. The Arab Spring of 2010–2012 was preceded by a spike in global wheat prices — itself a product of drought and the Ukraine-Russia breadbasket disruption of that period. The bread riots that preceded Tunisia’s uprising began in the produce markets of provincial towns, not in ideological seminars. What is happening in Egypt, Pakistan, Jordan, and sub-Saharan Africa today is not categorically different in structure. The question is not whether social pressure will build, but how quickly, and whether governments have the legitimacy and institutional capacity to manage it.

The humanitarian crisis in the Gulf adds another layer of complexity. Iranian strikes on desalination plants — which provide 99 percent of drinking water in Kuwait and Qatar — have turned an economic crisis into an existential one for those societies. The mass evacuation of foreign residents from Gulf cities is not only a human tragedy; it is the collapse of the labor architecture that underpins the entire remittance economy stretching from Kathmandu to Nairobi.

Scenarios: The Fork in the Road

Scenario One: Short, Contained Conflict (Resolution within 4–6 Weeks)

If a ceasefire is reached and Iran reopens the Strait within the next month, Capital Economics projects that Brent crude would fall back sharply toward $65 per barrel by year-end. Inflation pressures would ease, emerging market currencies would stabilize, and the fertilizer supply shock — while severe — would be partially mitigated by late-season planting. The economic damage to developing nations would be significant but potentially recoverable with targeted international support. The political damage to the United States — domestically and globally — would be harder to quantify.

Scenario Two: Prolonged Conflict (3–6 Months or Longer)

The scenario that keeps economists awake. If oil prices average $150 per barrel over the next six months, the global inflationary impulse would be comparable to or exceed the 1973 oil shock. The IMF’s emergency financing mechanisms would be overwhelmed by simultaneous requests from multiple vulnerable economies. Fertilizer shortages would translate directly into crop failures across South Asia and sub-Saharan Africa during the 2026–27 harvest cycle. The WFP estimates that this could push tens of millions of people into acute food insecurity. In countries like Bangladesh, Pakistan, and Egypt, fiscal crises would likely materialize, triggering IMF programs that impose the kind of austerity that historically precedes political upheaval.

The IEA has assessed the current episode as the largest supply disruption in the history of the global oil market — larger than the 1973 embargo, larger than the post-Ukraine disruption. In Scenario Two, the tools used in 2022 — diversification, rerouting, strategic reserve releases — simply do not apply. The chokepoint is physical, not logistical.

Policy: What Needs to Happen, and Quickly

The Centre for Global Development’s prescriptions are clear and urgent. The IMF must deploy rapid financing facilities at scale — potentially including a revived Food Shock Window — for vulnerable economies unable to self-finance through this shock. The World Bank should mobilize IDA crisis response financing and consider frontloading IDA 21 disbursements. The G20, under the US presidency, should convene an emergency discussion of debt service relief for the most exposed countries.

For the longer term — a horizon that this crisis has brutally compressed — the lesson is energy system architecture. The 1979 Iranian Revolution drove Japan’s aggressive energy-efficiency transformation; the 2022 Ukraine crisis accelerated European renewable energy investment. The 2026 conflict has simultaneously exposed the dangerous physical concentration of global hydrocarbon flows in a single strait and the absence of any serious equivalent in fertilizer markets. Both vulnerabilities require structural remedies that no amount of military power can substitute for.

Djibouti’s finance minister Ilyas M. Dawaleh put it with unvarnished directness: the fighting will “bring severe economic consequences for developing countries” — nations that had no seat at the table when the decision for war was made, no vote on the calculus of Operation Epic Fury, and no mechanism to claim compensation for the losses now accruing in their petrol queues, their darkened universities, and their half-planted fields.

The Broader Lesson Wars Will Not Teach Themselves

Ahmed Farouk, the Cairo freight driver, eventually got diesel — three days later, from a black-market reseller at nearly double the official price. He passed the cost on in his next delivery, which passed it on to the market vendors, which passed it on to families who were already spending 60 percent of their income on food. By the time the price of a war 2,000 kilometres away reaches a household budget in a Cairo apartment building, it has traveled through oil futures, currency markets, shipping logistics, fertilizer supply chains, and grocery store shelves. It has been amplified, invisibly, at every step.

This is the hidden accounting of intentional and authoritative wars — the ledger that appears in no military briefing, no presidential authorization, no congressional resolution. The formal costs of war are denominated in strategic objectives, casualty counts, and defense budgets. The real costs are denominated in rupees and Egyptian pounds and Zambian kwacha, in missed harvests and interrupted schooling and remittances that no longer arrive.

The International Energy Agency’s description of this crisis as the “greatest global energy security challenge in history” is not hyperbole. It is a precise description of a structural reality: that the world has built an energy system so concentrated in a single 33-kilometre-wide strait that one country’s retaliation for a war it did not start can disrupt the livelihoods of hundreds of millions of people across three continents.

History will record what happened on February 28, 2026. Whether it will also record what was done to prevent the next time — whether the financial and social devastation now radiating outward through developing economies will catalyze the energy system reform, the multilateral financing architecture, and the diplomatic frameworks that might reduce the cost of the next crisis — remains an open and urgent question.

Wars, as the developing world knows better than anyone, rarely end when the shooting stops. Their economic afterlife can last a generation.

References

Al Jazeera. (2026, March 8). Iran war threatens prolonged impact on energy markets as oil prices rise. Al Jazeera. https://www.aljazeera.com/news/2026/3/8/iran-war-threatens-prolonged-impact-on-energy-markets-as-oil-prices-rise

Al Jazeera. (2026, March 16). The tell-tale signs: How bad has the Iran war hit the global economy? Al Jazeera. https://www.aljazeera.com/news/2026/3/16/the-tell-tale-signs-how-bad-has-the-iran-war-hit-the-global-economy

Al Jazeera. (2026, March 23). Why the oil and gas price shock from the Iran war won’t just fade away. Al Jazeera. https://www.aljazeera.com/opinions/2026/3/23/why-the-oil-and-gas-price-shock-from-the-iran-war-wont-just-fade-away

Al Jazeera. (2026, March 25). From Pakistan to Egypt: Iran war drives up fuel prices in the Global South. Al Jazeera. https://www.aljazeera.com/economy/2026/3/25/from-pakistan-to-egypt-iran-war-drives-up-fuel-prices-in-the-global-south

Center for American Progress. (2026). The war in Iran will raise fuel prices and costs throughout the economy. https://www.americanprogress.org/article/the-war-in-iran-will-raise-fuel-prices-and-costs-throughout-the-economy/

Centre for Global Development. (2026). Will the Iran war be the breaking point for vulnerable countries? https://www.cgdev.org/blog/will-iran-war-be-breaking-point-vulnerable-countries

CNBC. (2026, March 10). Iran war spikes oil prices — what consumers need to know. CNBC. https://www.cnbc.com/2026/03/10/iran-war-spikes-oil-prices-consumers.html

Deloitte Insights. (2026). Iran and Middle East conflict: Impacts on the global economy. Deloitte. https://www.deloitte.com/us/en/insights/topics/economy/iran-middle-east-conflict-impacts-global-economy.html

International Food Policy Research Institute. (2026). The Iran war: Potential food security impacts. IFPRI. https://www.ifpri.org/blog/the-iran-war-potential-food-security-impacts/

Janes Defence Intelligence. (2026). Iran conflict 2026: Disruption to Strait of Hormuz increases energy and food production risks. Janes. https://www.janes.com/osint-insights/defence-and-national-security-analysis/iran-conflict-2026-disruption-to-strait-of-hormuz-increases-energy-and-food-production-risks

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Yale School of Management. (2026). What are the consequences of the Iran war for the developing world? Yale Insights. https://insights.som.yale.edu/insights/what-are-the-consequences-of-the-iran-war-for-the-developing-world

“WHY are there so few exits in South-east Asia?”

This is a fair and increasingly common question from limited partners in venture capital (VC). With disappointing initial public offerings (IPOs), struggling unicorns and a funding slowdown since 2022, it is natural to ponder whether the rewards for investing in South-east Asia still justify the risk.

It is also, if you look carefully at the data, the wrong question.

The right question is not whether South-east Asia is producing enough exits. It is whether investors conditioned by the extraordinary aberration of 2021 — a year in which the region attracted over US$25 billion in venture capital — have recalibrated their expectations to match the fundamentally different, and arguably healthier, market that has emerged. As someone who has tracked LP sentiment through three regional cycles, the answer is: not yet, but the evidence is unmistakable for those willing to look past the headline numbers.

South-east Asia’s startup ecosystem is not stalling. It is maturing — into something more disciplined, more profitable, and more durable than the froth-driven growth phase that preceded it. The exit drought narrative is, at best, an incomplete reading of partial data. At worst, it risks becoming a self-fulfilling prophecy that deters exactly the patient capital the region now needs.

The 2021 Illusion: Why Expectations Were Always Going to Disappoint

A Distorted Baseline

Understanding what is happening in South-east Asia today requires being honest about what happened in 2021. That year was not a baseline — it was an anomaly. Zero-interest-rate environments, post-Covid stimulus liquidity, and a global surge in digital adoption combined to push venture funding across South-east Asia to levels that no sober analyst believed were sustainable. Grab went public via SPAC at a valuation north of US$39 billion. Gojek and Tokopedia merged under the GoTo banner with a combined implied valuation of roughly US$18 billion. Sea Limited, the region’s most successful tech crossover, briefly touched a US$200 billion market capitalisation before losing more than 80% of its value by 2023.

For LPs who entered funds during that window, every subsequent year has felt like a correction. They are right — but they are measuring against a mirage.

The Numbers in Context

According to the Southeast Asia Startup Funding Report: Full Year 2025 by DealStreetAsia and Kickstart Ventures, the region’s startups raised US$5.37 billion across 461 equity deals in 2025 — roughly one-quarter of the 2021 peak, but a figure that needs to be read in context. The H2 rebound was sharp and meaningful: funding value climbed from US$1.86 billion in H1 to US$3.51 billion in H2, reflecting genuine late-stage conviction rather than broad-based euphoria.

Crucially, the e-Conomy SEA 2025 report by Google, Temasek, and Bain & Company tells a parallel — and more encouraging — story about the underlying economy. The digital economy is on track to surpass US$300 billion in gross merchandise value (GMV) in 2025, a 7.4-fold increase from US$40 billion a decade ago. Revenues are forecast to hit US$135 billion, representing an 11.2-fold increase since the programme began. Food delivery platforms are now profitable or approaching profitability. The digital economy, in other words, is not shrinking — it is becoming more efficient, more monetised, and more investable.

The divergence between the venture funding headline and the digital economy reality is not a sign of stagnation. It is a sign of maturation.

What the Exit Data Actually Shows

Diversification, Not Drought

The “exit drought” framing assumes that IPOs are the only legitimate exit mechanism — a bias imported from the US market that does not travel well to South-east Asia. In 2025, that assumption was quietly dismantled.

According to DealStreetAsia’s Southeast Asia Private Equity Readout 2025, liquidity events increased meaningfully last year, driven by PE-backed IPOs reaching their highest volume since before the pandemic, alongside a significant expansion in secondary transactions. Nine PE-backed IPO listings raised approximately US$1.39 billion in aggregate — the most in five years. More importantly, 35 secondary exits were completed during 2025, the highest annual count since 2020. The exit market is not closed. It has simply changed shape.

The distinction matters. Secondary buyouts and strategic M&A are structurally superior exit mechanisms for many South-east Asian companies, whose domestic public markets lack the liquidity depth of the Nasdaq or even the Hong Kong Stock Exchange. EQT’s US$1.1 billion acquisition of PropertyGuru — Southeast Asia’s leading property technology platform — which closed in December 2024, exemplifies this logic perfectly. PropertyGuru’s delisting from the NYSE, supported by TPG and KKR, was not a failure. It was a disciplined reset: freeing the company from short-term public market pressures to pursue long-term regional expansion under a sophisticated PE sponsor with deep marketplace expertise.

Singapore-based AI startup Manus’s acquisition by Meta at a reported US$2 billion valuation at the end of 2025 represents another data point: the global strategic M&A market for high-quality South-east Asian technology assets is open, and it is increasingly willing to pay premium prices for the right companies.

The Public Market Reopening

The IPO market is also reopening — selectively, and on more demanding terms. The standout event of 2025 was UltraGreen.ai’s debut on the Singapore Exchange (SGX): the largest non-REIT IPO in Singapore since 2017, raising over US$400 million following a US$188 million pre-IPO funding round. The surgical imaging company’s 12% jump on its first trading day signalled that public market appetite exists for defensible, technology-differentiated businesses with clear revenue visibility. Health technology emerged as the leading IPO sector by value, with Singapore’s Mirxes joining UltraGreen.ai for a combined listing haul of approximately US$581 million — the best headline from Singapore’s public markets in years.

Across the region, 15 tech IPOs were completed in 2025, with the Indonesia Stock Exchange remaining the most consistently accessible market by volume. There is a robust pipeline of over 150 IPO candidates across Indonesia, Malaysia, and Singapore heading into 2026, as noted in the e-Conomy SEA 2025 report.

The narrative of a shut-down IPO window is simply inaccurate. The window has narrowed and raised its bar — which is exactly what it should do after a period of speculative excess.

Sector Rotation: Where the Smart Capital Is Going

The Fintech Correction and AI Surge

South-east Asia’s startup ecosystem in 2025 looked very different from 2021 at the sector level. Fintech, which dominated the last cycle, recorded one of its weakest annual outcomes in six years despite leading by deal count (111 transactions, US$1.3 billion). The pullback reflects a structural correction: the easy money in digital payments and lending has been captured by Grab Financial, Sea’s SeaMoney, and regional neobanks, leaving less room for newcomers without differentiated technology or data moats.

The capital is flowing toward artificial intelligence and deep technology. AI startups in the region saw funding grow by over 200% in recent periods, according to sector data. Data centre infrastructure — the unglamorous but essential backbone of AI deployment — attracted the single largest deal of 2025: a US$1.3 billion fundraise by Singapore-based Princeton Digital Group. The e-Conomy SEA 2025 report notes that SEA consumers’ interest in general AI and multimodal AI runs at three times and 1.7 times the global average respectively — a demand signal that investors are beginning to price seriously.

The Profitability Imperative

Perhaps the most structurally significant shift in 2025 was the normalisation of profitability as a precondition for serious funding, not an afterthought. This is not a temporary market constraint. It is a permanent recalibration.

“Startups need to show that they can make money and that the business model can scale,” said Maisy Ng, managing partner at Singapore-based Delight Capital. The sentiment is nearly universal across the LP community now. Joan Yao, General Partner at Kickstart Ventures, put it more precisely in the firm’s full-year report: “Capital is returning selectively, increasingly to later-stage, higher-conviction opportunities, as the market continues to shift from growth at all costs toward business fundamentals — governance, unit economics, and credible paths to profitability.”

This shift has a clear precedent in every mature ecosystem. The US market went through the same transition between 2000 and 2005. India went through it between 2016 and 2020. South-east Asia is going through it now. The companies that emerge from this crucible will be structurally stronger than the cash-burning unicorns of the previous cycle.

The Singapore Concentration Question

Strength and Vulnerability

One data point from the 2025 full-year report has generated significant debate: Singapore captured over 60% of South-east Asia’s total deal count, and Tracxn data suggests the city-state accounted for as much as 91–92% of all regional capital at certain points in the year. For LPs accustomed to investing in “South-east Asia” as a diversified regional story, this concentration raises legitimate questions.

There are two ways to read it. The pessimistic reading is that capital has retreated to the safest, most familiar jurisdiction — effectively abandoning Indonesia, Vietnam, the Philippines, and Thailand to their own devices. The governance scandals of 2024-25, including the eFishery accounting fraud that implicated investors including Temasek, SoftBank, and Sequoia, and the collapse of Investree amid rising non-performing loans, provide some support for this view.

The optimistic reading — and the more accurate one in the medium term — is that Singapore is functioning as a concentration point for South-east Asian capital precisely because it has developed the institutional infrastructure, regulatory quality, and talent density that global LPs require. As the Financial Revolutionist noted in January 2026, “Singapore remains the dominant hub, but secondary centres such as Jakarta, Ho Chi Minh City, and Manila are quietly gaining momentum and merit closer attention from global capital.”

The region is not shrinking into a city-state. It is building a hub-and-spoke model: Singapore as the capital formation and holding structure centre, with operating businesses increasingly spread across the ASEAN archipelago. This is how mature ecosystems work. Look at how London functions relative to Edinburgh and Dublin in Europe, or how San Francisco functions relative to Austin and New York.

The New Unicorn Class

South-east Asia minted four new unicorns in 2025 — sharply up from one in 2024 and two in 2023. The additions — Malaysian group Ashita, Singapore-based payments firm Thunes, digital asset bank Sygnum, and UltraGreen.ai — represent a meaningfully different profile from the consumer app unicorns of the previous decade. They are financial infrastructure players, medical technology companies, and AI-native businesses with global addressable markets. The region now counts 58 unicorn-status companies, according to Tracxn, representing a compounding base of potential future exit value.

The quality of the 2025 unicorn cohort matters as much as the quantity. These are not growth-at-all-costs consumer apps burning through cash in pursuit of GMV. They are businesses with institutional-grade governance, global revenue visibility, and real paths to liquidity.

The Honest Counter-Arguments

The Zombie Problem Is Real

This analysis would be incomplete without acknowledging the structural challenges that are genuine. The persistence of “zombie” companies — businesses that raised at peak valuations and are now limping along without fresh capital or a credible exit path — is a real drag on LP confidence and fund-level DPI metrics. Edgar Hardless, CEO of Singtel Innov8, said in early 2026 that high valuations from prior years have made it harder for startups to find local acquirers, and that he expects caution to persist into the first half of 2026.

The reluctance of South-east Asian VC funds to execute down rounds — unlike their more battle-hardened counterparts in the US or India — is a structural problem identified by Takahiro Suzuki, General Partner at Genesia Ventures. Without down rounds, over-valued companies cannot attract new institutional capital, creating a log-jam that benefits neither founders nor LPs.

The eFishery and Investree scandals have also created a governance premium that is likely permanent. LPs are now conducting materially more rigorous due diligence on financial controls and board composition than they were in 2020-2021. This raises costs and extends timelines, but it is the correct market response to documented failures.

The Global Comparison Gap

A comparative look at global venture markets is sobering. According to Crunchbase, global startup funding rose approximately 30% in 2025 — while South-east Asia’s recovery lagged. India, now the world’s fourth-largest VC market by deal volume, continues to attract significantly more capital per capita than South-east Asia, with deeper domestic institutional investor participation and a more liquid IPO market. The US AI boom, driven by companies like OpenAI, Anthropic, and a new cohort of AI infrastructure players, has made US venture returns hard to compete with on a risk-adjusted basis for many global LPs.

The region must do more to develop domestic institutional LP participation, deepen secondary market infrastructure, and create more genuine cross-ASEAN capital flows. These are decade-long projects, not quarter-by-quarter fixes.

The 2025 vs. 2024 Scorecard

Metric	2024	2025	Change
Total VC Funding	~US$5.0B	US$5.37B	+7%
Total Equity Deals	~649	461	-29%
New Unicorns	1	4	+300%
PE-Backed IPOs	~4	9	+125%
Secondary Exits	~25	35	+40%
Digital Economy GMV	US$263B	>US$300B	+15%
Digital Economy Revenue	US$89B	US$135B	+52%
Singapore % of Deal Count	~55%	>60%	Increasing
Climate Tech % of Deals	13.0%	15.4%	+2.4pp
AI/Health Tech Late-Stage Share	~35%	~45–50%	Expanding

Sources: DealStreetAsia/Kickstart Ventures Full Year 2025 Report; e-Conomy SEA 2025 (Google, Temasek, Bain & Company); Tracxn SEA Tech 2025; DealStreetAsia PE Readout 2025.

The 2026–2028 Outlook: What Sophisticated LPs Should Expect

Three Scenarios

Base Case (60% probability): Funding stabilises at US$6–8 billion annually by 2027, driven by AI infrastructure, digital financial services, and health technology. Exit activity continues to diversify, with secondary buyouts and strategic M&A running at 30–40 transactions per year. Singapore’s SGX and the IDX gradually absorb the 150+ IPO pipeline candidates, generating more consistent public market liquidity than the 2022-2025 drought. LP returns for 2019-2022 vintage funds remain disappointing; 2024-2026 vintage funds outperform on compressed entry valuations.

Bull Case (25% probability): A significant US-China tech decoupling accelerates the re-routing of global technology supply chains through ASEAN, driving a wave of corporate VC from US and Japanese technology companies. Singapore cements its position as Asia’s neutral technology hub, attracting AI talent and infrastructure investment at scale. The Manus/Meta acquisition becomes the template for a series of high-value strategic M&A transactions involving global technology companies acquiring South-east Asian AI and health tech companies. Funding surpasses US$10 billion by 2028.

Bear Case (15% probability): Zombie company failures and additional governance scandals generate a severe LP confidence crisis, triggering fund closures and a further contraction in early-stage capital. Singapore’s concentration increases to the point where secondary markets effectively cease to function, and the broader ASEAN ecosystem fails to develop meaningful capital depth outside the city-state. Indonesia’s regulatory environment deteriorates, removing the region’s largest consumer market from the investable universe for institutional capital.

The Structural Tailwinds Are Intact

Against these scenarios, the structural tailwinds that originally justified South-east Asia’s venture premium have not disappeared. ASEAN is the world’s fifth-largest economy, with a population of over 680 million, a median age well below 35, and a smartphone penetration rate that continues to climb. The e-Conomy SEA 2025 report documents that 75% of digital economy users say AI-powered tools have made their tasks materially easier — a consumer adoption rate that would be the envy of any Western market. The US-China technology tension, far from being a headwind, creates genuine opportunity for ASEAN as a geopolitically neutral manufacturing, data, and R&D location.

Fock Wai Hoong, Head of Southeast Asia at Temasek, captured the nuance well: “Funding levels in Southeast Asia’s digital economy have stabilised as investors are continuing to emphasise a focus on quality growth and efficient capital allocation over absolute capital deployment.” That is not a retreat. That is a re-rating.

What LPs Should Do Now

For sophisticated limited partners reassessing South-east Asia exposure heading into 2026, the evidence suggests a differentiated rather than binary approach. The 2024-2026 vintage entry point, with valuations compressed to 2017-2018 levels in many categories, represents one of the most attractive risk-reward windows the region has offered since the pre-2019 period. But the selection criteria must be fundamentally different: governance quality, path to profitability, and exit mechanism diversity should now rank alongside addressable market size in any LP diligence framework.

The LPs who will generate outperformance from this vintage are not those who are asking “why are there so few exits?” They are asking: “Which GP has the portfolio construction and LP relationship sophistication to create exits through secondary markets and strategic M&A — not just IPO pipelines?” That is a better question. And South-east Asia, finally, has credible answers.

Conclusion: The Ecosystem Is Not Stalling. It Is Being Tested.

Maturation is rarely comfortable to watch. It involves write-downs, pivots, failures, and the slow, painful repricing of assets that were overpromised. South-east Asia’s startup ecosystem is going through exactly that process — and doing so while the underlying digital economy continues to compound at 15% annually, while AI adoption accelerates at rates above the global average, and while a new cohort of governance-conscious, profitability-focused companies builds the credibility that the next wave of institutional capital will require.

The exit drought narrative is overstated. The maturation narrative is real. Investors who confuse the two will miss what may be one of the decade’s most interesting vintage windows in emerging market technology.

The question for 2026 is not whether South-east Asia’s startup ecosystem is stalling. It is whether the LPs who ask that question are willing to do the work to understand what they are actually looking at.

The Meeting That Signals More Than Courtesy

When Chinese Ambassador Jiang Zaidong called on Prime Minister Muhammad Shehbaz Sharif at the Prime Minister’s House in Islamabad on Thursday, the optics were familiar — two officials exchanging pleasantries in a gilded diplomatic room. But the substance beneath the ceremony is anything but routine. It was a recalibration of the most consequential bilateral relationship in South Asia, a public doubling-down on CPEC 2.0 at a moment when Pakistan’s economy is attempting one of its most delicate pivots in a generation, and when the region around it burns with geopolitical uncertainty.

Prime Minister Shehbaz, appreciating China’s steadfast economic support, reaffirmed Pakistan’s commitment to advancing CPEC 2.0, with a focus on agriculture, industrial cooperation, and priority infrastructure projects. Associated Press of Pakistan He also felicitated the Chinese leadership on the successful conclusion of the “Two Sessions” and thanked President Xi Jinping, Premier Li Qiang, and Foreign Minister Wang Yi for their warm greetings on Pakistan Day. The Express Tribune

Deputy Prime Minister and Foreign Minister Ishaq Dar, Special Assistant Syed Tariq Fatemi, and the Foreign Secretary were also present — a seniority of delegation that underscores how seriously Islamabad is treating this moment.

From Iron Ore to Iron Friendship: The Economic Architecture

To understand why Thursday’s meeting matters, follow the money. According to figures from the General Administration of Customs of China, total bilateral trade in goods between China and Pakistan reached $23.1 billion in 2024, an increase of 11.1 percent from the previous year. China Daily And the momentum has not slackened. Bilateral goods trade soared to $16.724 billion from January to August 2025, marking a 12.5% increase year-on-year. The Daily CPEC

Those are not the numbers of a partnership in cruise control — they are the numbers of a relationship actively accelerating.

The deeper story, however, lies not in trade volumes but in structural investment. By the end of 2024, CPEC had brought in a total of $25.93 billion in direct investment, created 261,000 jobs, and helped build 510 kilometres of highways, 8,000 megawatts of electricity capacity, and 886 kilometres of national core transmission grid in Pakistan. Ministry of Foreign Affairs of the People’s Republic of China For a country that, barely two years ago, was rationing foreign exchange for fuel imports, this is a transformation of physical and economic geography.

CPEC’s first phase was fundamentally an emergency intervention — a transfusion of infrastructure into a body politic that desperately needed it. Power plants. Highways. Ports. The second phase is a different kind of ambition altogether.

CPEC 2.0: From Hard Concrete to Smart Connectivity

As He Zhenwei, president of the China Overseas Development Association, observed, CPEC has shifted from “hard connectivity” in infrastructure to “soft connectivity” in industrial cooperation, green and low-carbon growth, and livelihood improvements, making it a powerful driver of Pakistan’s socioeconomic development. China Daily

This is the strategic logic of CPEC 2.0 in a single sentence: it is no longer primarily about pouring concrete. It is about embedding China’s industrial ecosystem inside Pakistan’s economy — transferring manufacturing capacity, agricultural technology, digital infrastructure, and green energy know-how into a country of 245 million people that possesses, in abundance, what China increasingly lacks: cheap land, young labour, and untapped mineral wealth.

Prime Minister Shehbaz has said that industrial cooperation will remain the “cornerstone” of bilateral economic ties and a defining feature of CPEC’s high-quality development in its second phase, inviting Chinese companies to consider Pakistan a preferred investment destination, particularly for relocating industries into special economic zones. China Daily

The sectors at the top of the agenda — agriculture modernisation, IT parks, mineral extraction, and green industrial zones — each represent a deliberate attempt to diversify Pakistan’s economic base beyond remittances and textiles. The Rashakai Special Economic Zone in Khyber Pakhtunkhwa, already operational, serves as the template: a dedicated industrial enclave designed to attract Chinese manufacturing relocation, create local employment, and generate export earnings in hard currency.

Agriculture, listed prominently in Thursday’s reaffirmation, deserves special attention. It is anticipated that due to road infrastructure development under CPEC, the distance and time for transporting commodities between Pakistan and China will decrease considerably compared with the sea route — promising high potential for increased trade of agricultural products, especially perishable goods such as meats, dairy, and fruits and vegetables. MDPI For Pakistan’s farming sector, which employs roughly 38% of the labour force but suffers from chronic productivity deficits, Chinese agri-technology partnerships could be genuinely transformative.

Pakistan’s Unlikely Economic Resilience Story

Ambassador Jiang’s commendation of Pakistan’s “economic resilience and reform efforts” was diplomatic language, but it pointed to something real. Two years ago, Pakistan stood at the edge of a sovereign default. Today, it is back from the brink — battered, cautious, but standing.

Pakistan’s 37-month Extended Fund Facility with the IMF, approved in September 2024, aims to build resilience and enable sustainable growth, with key priorities including entrenching macroeconomic stability, advancing reforms to strengthen competition, and restoring energy sector viability. International Monetary Fund

The results, while modest, are genuine. The IMF has forecasted 3.2% GDP growth for Pakistan in FY2026, up from 3% in FY2025, and a moderation in inflation to 6.3% in the same period. Profit by Pakistan Today Gross reserves, which had collapsed to barely two weeks of import cover, stood at $14.5 billion at end-FY25, up from $9.4 billion a year earlier. International Monetary Fund

Pakistan’s “Uraan Pakistan” economic transformation plan, meanwhile, sets a more ambitious horizon: the initiative aims to achieve sustainable, export-led 6% GDP growth by 2028 through public-private partnerships, enhanced export competitiveness, and optimised public finances. World Economic Forum Foreign direct investment has grown by 20% in the first half of fiscal year 2025, reflecting renewed trust in Pakistan’s economic trajectory, and remittances have reached a record $35 billion this year. World Economic Forum

None of this is a clean success story. The IMF has been explicit that risks remain elevated, structural reforms are incomplete, and the energy sector’s circular debt remains a chronic wound. But the trajectory — for the first time in years — points upward. And China is betting on that trajectory.

The Geopolitical Chessboard: Why Beijing Is Leaning In

China’s intensified engagement with Pakistan is not purely altruistic. It is profoundly strategic.

Gwadar Port remains the crown jewel of Beijing’s calculations. As the terminus of CPEC — a 3,000-kilometre corridor running from Kashgar in Xinjiang to the Arabian Sea — it represents China’s most viable land-based alternative to the chokepoint-prone Strait of Malacca, through which roughly 80% of China’s oil imports currently pass. Following the proposal by Chinese Premier Li Keqiang in 2013, the operationalization of CPEC is expected to reduce the existing 12,000-kilometre journey for oil transportation to China to 2,395 kilometres, estimated to save China $2 billion per year. Wikipedia

In May 2025, the strategic calculus deepened further. During a trilateral meeting between the foreign ministers of China, Pakistan, and Afghanistan, Chinese Foreign Minister Wang Yi announced the extension of CPEC into Afghanistan to enhance trilateral cooperation and economic connectivity. Wikipedia This was not a minor footnote. It was a declaration that Beijing intends to use Pakistan as the anchor of a broader Central and South Asian connectivity architecture — one that could reshape trade flows across a swath of the globe currently disconnected from global value chains.

For Pakistan, this is an extraordinary opportunity and a significant responsibility. Being the fulcrum of Chinese strategic logistics means attracting investment, yes — but it also means hosting Chinese personnel in a volatile security environment, managing debt obligations carefully, and maintaining the domestic political consensus necessary to sustain multi-decade infrastructure commitments. Prime Minister Shehbaz highlighted Pakistan’s constructive role in promoting regional de-escalation and stability The Express Tribune — an implicit signal to Beijing that Islamabad remains a reliable partner even as tensions with Afghanistan simmer, and as the broader Middle East grinds through its own turbulence.

75 Years: A Partnership With Institutional Depth

Both sides looked forward to high-level exchanges to mark the 75th anniversary of diplomatic relations between the two countries. Geo News That milestone — China and Pakistan established formal ties on May 21, 1951 — is worth pausing on. Seventy-five years is a rarity in the volatile geography of South Asia. It spans the Partition, three Indo-Pakistani wars, Pakistan’s nuclear tests, 9/11, the war on terror, and multiple economic crises. Through all of it, the “iron brotherhood” held.

The 75th anniversary will not be merely ceremonial. High-level engagements planned for the occasion are expected to include renewed investment commitments, potentially new frameworks for agricultural cooperation, and possibly the formal signing of long-delayed agreements on mining and mineral exploration in Balochistan — a sector that both governments identify as transformational for Pakistan’s fiscal self-sufficiency.

The Road Ahead: Opportunities and Open Questions

The reaffirmation of CPEC 2.0 from Thursday’s meeting is a signal, not a guarantee. Three structural questions will determine whether the next decade of China-Pakistan economic cooperation delivers on its extraordinary promise.

First, can Pakistan create a genuinely investable environment? Chinese companies, increasingly sophisticated in their global operations, want rule of law, profit repatriation mechanisms, and secure personnel — not merely political assurances. The prime minister assured a secure and conducive environment for Chinese personnel and investments The Daily CPEC, but assurances must be backed by institutional reform, upgraded law enforcement, and expedited project approvals.

Second, can the trade imbalance be addressed? Of the $23.1 billion in bilateral trade in 2024, China’s exports to Pakistan surged 17% year-on-year to $20.2 billion, while Pakistan’s imports from China fell 18.2% to $2.8 billion. China Briefing A bilateral relationship where one partner runs a structural deficit of more than $17 billion is not a partnership of equals — and it is not sustainable. Agricultural exports, IT services, minerals, and textile value-addition must be fast-tracked to rebalance the ledger.

Third, can CPEC 2.0’s agricultural pillar deliver at scale? The promise is significant. Chinese precision agriculture technology, drip-irrigation systems, seed science, and cold-chain logistics could revolutionise Pakistan’s food economy. But past agricultural cooperation agreements between the two countries have struggled with implementation. The devil will be in the provincial-level execution.

What is not in question is the strategic intent on both sides. China needs Pakistan as a corridor, a consumer market, and a geopolitical anchor in a region where its influence is otherwise contested. Pakistan needs China as an investor, a market for its exports, and — frankly — a financier of last resort when the IMF’s medicine grows too bitter.

Conclusion: The Partnership’s Next Chapter

Thursday’s meeting between Prime Minister Shehbaz and Ambassador Jiang was a paragraph in an ongoing novel — not the first chapter, and certainly not the last. Both sides reaffirmed the enduring Pakistan-China All-Weather Strategic Cooperative Partnership, emphasising the importance of continued close coordination on issues of mutual interest. Associated Press of Pakistan

What makes this moment distinctive is the convergence of timing. Pakistan is mid-reform, mid-stabilisation, and mid-pivot. China is mid-BRI, mid-reshaping of its global industrial footprint, and actively seeking to lock in reliable partners before the geopolitical weather of the 2030s becomes even more unpredictable. The 75th anniversary of diplomatic relations provides not just an occasion but an impetus.

CPEC 2.0, with its agriculture, IT, minerals, and green industrial agenda, represents the most sophisticated iteration yet of what Beijing and Islamabad have been building together since the 1950s — a partnership that transcends any single government, any single economic cycle, and increasingly, any single geopolitical era.

Whether Pakistan can convert this ironclad political commitment into tangible economic transformation for its 245 million citizens remains the defining question. The answer will not be written in diplomatic press releases. It will be written in crop yields, factory floors, export invoices, and the balance sheets of a nation that has been, for too long, more corridor than economy.

That is the chapter both sides are now trying to write.