Raad Mahmoud Al-Tal

Beyond traditional growth indicators, data on human development, as well as the services and financial sectors, reveal the depth of the war’s long-term economic impact, even amid the announcement of a two-week truce. While this de-escalation may reduce the intensity of military confrontation, it does not eliminate the economic effects that have already begun to materialize. Estimates indicate a decline in the Human Development Index in the region by between 0.2 per cent and 0.4 per cent, equivalent to a loss of between half a year and a full year of development progress. In some Gulf countries, losses may reach between 1.2 and 2 years, while in the Mashreq they range between 0.9 and 1.5 years. These figures suggest that part of the region’s development gains has already been eroded, even before any potential recovery begins.

This regional disparity reflects the nature of the shock. Losses remain relatively limited in North Africa, but they are deeper in countries more directly linked to trade and energy or those suffering from structural fragility. In less developed countries, even a small numerical decline represents a significant setback, given their already low development levels, making recovery more difficult. The truce does not imply an immediate restoration of the development path, but rather a temporary halt in deterioration, while the losses themselves remain.

On the fiscal front, governments continue to face clear pressure despite the truce. The war has led to declining revenues in some countries, particularly due to disrupted trade and heightened uncertainty, while expenditures have increased as a result of rising military and security spending. Although higher oil prices may provide partial relief for some countries, the overall fiscal burden is increasing, limiting governments’ ability to expand spending or provide broad-based support.

The truce may ease pressures slightly, but it does not restore fiscal conditions to their pre-crisis state.

In the health sector, the impact of the war is immediate and not easily reversible. Medical supplies worth $18 million have been disrupted, with an additional $8 million in shipments unable to reach their destinations, alongside the closure of 43 health centers and two hospitals. Even with the truce, restoring operations and ensuring the flow of supplies will take time, meaning continued pressure on healthcare systems, especially in countries with already weak infrastructure, according to the United Nations Development Programme report.

In the education sector, the long-term cost is even more pronounced. More than 325 schools have been converted into shelters hosting around 12,000 displaced families, leading to a widespread disruption of the education process. This impact does not end with the cessation of hostilities. The loss of weeks or months of schooling creates a gap in human capital that is difficult to recover, particularly in systems that already suffer from weak educational quality. While the truce may allow for a gradual return to schooling, it does not eliminate the losses that have already occurred.

The water sector is equally critical. Around 100 million people in Gulf countries depend on approximately 400 desalination plants that provide about 40 per cent of the world’s desalinated water. Any disruption to this infrastructure, even if temporary, creates serious risks to water security. The truce does not remove these risks entirely, but only reduces the likelihood of further escalation.

These indicators show that the current truce, despite its political importance, does not mark the end of the economic cost of the war. The effects on development, services, and economic structures have already materialized and will persist even if escalation stops. Economies do not recover at the same pace as the cessation of military operations; rebuilding what has been damaged takes time. The region has effectively entered a post-shock phase, where the economic cost remains present even amid relative calm.