The military confrontation between the United States and Israel with Iran could lead to a large-scale economic crisis for the countries in the Middle East. According to estimates from the United Nations Development Programme (UNDP), the potential GDP losses for Arab states range from $120 billion to $194 billion. This could set back the economic development of the region by decades.
This is reported by Finway
“Even a brief military escalation will have significant consequences for the labor market: the unemployment rate in Arab countries could rise by 4%. This means a loss of nearly 3.6 million jobs and an increase in the number of people living below the poverty line by another 4 million.”
Which Countries Will Be Most Affected
The countries that will feel the impact the most are energy-exporting nations that are part of the Gulf Cooperation Council (Bahrain, Qatar, Kuwait, UAE, Oman, Saudi Arabia), as well as Levantine states – Syria, Lebanon, Israel, Jordan, Palestine, and parts of Turkey. The economies of these regions could lose over 5.2% of their GDP due to the blockade of the Strait of Hormuz, which is crucial for oil and gas exports.
- Qatar and Kuwait risk losing up to 14% of their GDP as early as this year, marking the deepest decline since the early 1990s.
- Saudi Arabia and the UAE may be able to partially minimize losses by redirecting oil flows – their economies could shrink by 3% and 5% respectively.
A separate UN analysis indicates that the Iranian economy will also suffer a severe blow – a GDP decline of 10.4% is expected, along with an increase in poverty among over 3.5 million Iranians due to infrastructure destruction from airstrikes.
Debt Pressure and Financial Risks
The escalation of the conflict in the Middle East has negatively impacted the debt markets in the region. According to Fitch Ratings, spreads on dollar-denominated Islamic bonds and conventional bonds from Gulf countries have reached their highest levels in the last five years. The total public debt of the region exceeded $1.2 trillion in March, which is 14% higher compared to the previous year. Consequently, servicing debts for these countries is becoming increasingly expensive.