AhlulBayt News Agency (ABNA): The war of America and the Zionist regime against Iran has placed the Middle East economies before a difficult test. A test accompanied by disruption in energy supply, shipping, and trade and has pushed the region's economic growth outlook into negative territory.
According to an Al Jazeera report, while the International Monetary Fund predicts that the region's economy will shrink by 1.3 percent this year, the Arab countries of the Persian Gulf littoral, despite the increase in oil and gas prices, are more exposed to losses than others.
The consequences of this war go beyond the reduction of production and exports and encompass the increase in the costs of food, maritime transportation, and insurance, as well as the intensification of inflationary pressures on consumers and government budgets. In contrast, the International Monetary Fund considers the expected economic recovery in 2027 dependent on the subsiding of conflicts and the gradual return of production and trade to their normal course.
In this context, "Rabah Arezki," the director of research at the French National Center for Scientific Research and the former chief economist for the Middle East and North Africa region at the World Bank, believes that this region faces an exceptional situation. Because it is predicted that this year, following the consequences of the war, it will be the only region that records negative economic growth figures.
Arezki, in an interview with Al Jazeera, explains that the extent of the war's impact on different countries varies depending on their degree of dependence on the Strait of Hormuz. A passage through which an important part of vital energy shipments and trade passes. According to him, countries such as Qatar, Kuwait, and Bahrain face more severe pressures due to their greater dependence on this maritime route.
In contrast, Saudi Arabia and the United Arab Emirates are predicted to perform relatively better despite the decline in economic growth rates. Based on Arezki's assessment of the region's economic outlook, Oman's different geographical position may also help this country experience positive economic growth this year.
These differences show that the increase in energy prices does not necessarily mean that all producing countries benefit. Disruption in production and exports can prevent the damaged economies from fully benefiting from higher prices. This is in circumstances where the cost of repairing infrastructure and returning economic activities to normal conditions increases.
Losses Beyond Price Increases
Arezki, in explaining why the increase in oil prices cannot compensate for the economic losses, says that the decline in production levels in countries such as Kuwait, Qatar, and Bahrain is greater than the additional revenue that may be obtained from price increases. In addition, the reconstruction and re-preparation of production infrastructure can take years.
International Monetary Fund data also reinforces these concerns. This institution predicts that the economies of the member countries of the Persian Gulf Cooperation Council will shrink by 4.8 percent this year. While these economies last year, before the full effects of the disruptions caused by the war in the energy and trade sectors became apparent, had recorded growth of more than 4 percent.
The consequences of the war against Iran have also been accompanied by a significant increase in fuel and energy prices. The price of natural gas has increased by 150 percent since the start of this war until last month. During the same period, the price of aviation fuel rose by 85 percent, diesel by about 70 percent, and gasoline by 45 percent.
The International Monetary Fund also predicts that global food prices will increase by 5 percent this year, under the influence of energy, chemical fertilizer, maritime transportation, and insurance costs.
This institution also warns about a more pessimistic scenario that if the war and the disruption in production and trade continue until the second quarter of next year, the average oil price may reach $130 per barrel. In such circumstances, despite the increase in oil prices, the real GDP of the damaged oil-exporting countries may decrease by about 4 percent.
Oil-Importing Economies; Greater Flexibility, but Persistent Pressures
On the other side, oil-importing economies show relatively greater flexibility compared to the damaged oil-producing countries. The International Monetary Fund predicts that these economies will grow by more than 4 percent this year. A growth supported by domestic demand, foreign exchange remittances from workers employed abroad, tourism, and government measures.
Arezki believes that the distance of some of these countries from the direct impact of the war increases their ability to adapt to the new conditions. However, the cost of importing energy and food will remain high.
However, greater flexibility does not mean the absence of economic pressures. The increase in living costs creates growing risks for low-income segments. Arezki notes in this regard that these groups spend a large part of their income on energy and food; therefore, supporting them should be a priority.
Nevertheless, he emphasizes that accurately identifying eligible individuals for receiving support and delivering aid to them remains one of the challenges facing governments.
In conditions of limited financial resources, the continuation of government subsidies and increased dependence on international aid may place more pressure on budgets. Especially in countries that are simultaneously facing several economic problems.
Therefore, the response of governments should include measures that preserve the purchasing power of the most vulnerable segments without severely eroding public resources or exacerbating financial imbalances.
Economic Recovery in 2027; Conditional on the End of the War
Although the International Monetary Fund expects the region's economy to experience growth of 6.6 percent in 2027, the realization of this outlook depends on the subsiding of the war and the gradual return of production and trade to their normal course.
This prediction does not necessarily mean the return of the region's economies to the growth rates that were expected for them before the beginning of the conflicts.
Arezki emphasizes that a political solution to the crisis is the starting point for the return of economic activities to normal conditions. He also emphasizes the importance of diversifying economies and creating economic networks more resilient to shocks.
According to this economist, the challenge facing the region is not only to overcome the current losses but also to reduce dependence on vital routes that are vulnerable to disruptions and crises.
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