Raad Mahmoud Al-Tal

Wars are not only measured by how long they last, but by how deeply they affect economies. Even a short conflict in the Middle East can disrupt production, energy markets, trade, and financial systems. According to the United Nations Development Programme report, a war lasting just four weeks could reduce regional GDP by about 5 per cent, with losses reaching around $150 billion. This decline is mainly driven by higher energy and trade costs, lower productivity, and reduced investment. In some cases, capital itself shrinks, as seen in Lebanon where it fell by about 5 per cent. In simple terms, the economy does not just slow down, it becomes less able to function normally.

The impact is not evenly spread across the region. Gulf countries face the largest losses at around $150 billion, followed by the Mashreq at about $23 billion, North Africa at roughly $2 billion, and the least developed countries at around $0.2 billion. However, smaller economies are often more affected in relative terms because they have weaker economic structures and fewer resources to absorb shocks.

In percentage terms, Gulf economies may contract by about 7 per cent, with investment falling by around 12 per cent Similar declines are expected in the Mashreq, while the impact in North Africa remains limited at about 0.4 per cent, with some countries possibly benefiting slightly from higher energy prices.

A major reason for this shock is the disruption of trade and energy flows. Shipping through the Strait of Hormuz has dropped by more than 70 per cent, even though it carries about 20 per cent of global oil and 20 per cent of liquefied natural gas. Activity through the Suez Canal has fallen by around 50 per cent, while air cargo capacity between Asia, Europe, and the Middle East has declined by about 40 per cent within days. This creates bottlenecks in global supply chains.

As a result, prices have risen quickly. Oil prices increased from around $72 per barrel to about $120 before stabilising near $110, while European gas prices jumped by more than 50 per cent These increases spread across sectors through higher transport and production costs.

Trade costs have also risen sharply. Marine insurance in conflict zones increased from about 0.02 per cent to nearly 1 per cent of a vessel’s value, while dry bulk shipping activity dropped by more than 90 per cent in some periods. This raises the cost of transporting goods and contributes to imported inflation.

The financial sector is also affected. Egypt experienced foreign capital outflows of around $6 billion, along with currency depreciation from 47 to over 52 pounds per dollar. At the same time, remittances, which are a key source of income, remain vulnerable. They account for about 33 per cent of GDP in Lebanon, around 9 per cent in Jordan, and roughly 7 per cent in Egypt. Any decline in these flows would reduce consumption and increase poverty.

The cost of war is not limited to direct financial losses. It is a broad supply shock affecting production, trade, energy, and finance at the same time. If the conflict continues, it may lead to long-term structural changes in the regional economy. History shows that such shocks leave lasting effects, especially in already vulnerable economies. The main challenge is not only dealing with the immediate impact, but also adapting to it and building stronger economic resilience for the future. Even if a war ends politically, its economic effects often last much longer, making its true cost far greater than what current figures suggest.