The ongoing conflict in the Middle East has had devastating implications for the region’s economies. In its wake, regional trade routes have been blocked, resulting in a dramatic decrease in trade and shipping volumes. The cost of shipping goods out of the Middle East has also skyrocketed, severely impacting many exporters that were already operating on thin profit margins.
The Red Sea, which normally handles 10% of global shipping, has seen volumes drop to just 30% of normal levels due to Houthi missile strikes. Countries bordering the Red Sea, such as Eritrea and Sudan, are particularly vulnerable, as the sea serves as their primary route for exports and humanitarian aid.
Egypt, one of the region’s largest countries, heavily relies on the Red Sea for the income it generates from the Suez Canal. A 40% decrease in Suez income has put Egypt at risk of running out of foreign exchange reserves, which could lead to a severe financial crisis.
The conflict has also taken its toll on various industries. Israel’s tech sector, previously a bright spot in its economy, is now struggling as investors withdraw funding and employees are called up to fight. Jordan has been hit hard by a decline in tourism and faces the threat of default due to lost revenues.
However, the most devastating effects have been felt in Lebanon and the West Bank. Lebanon has been struggling since its economic collapse in 2019, exacerbated by recent displacement, destruction, and desertion of foreign tourists and banks. In the West Bank, factory workers have lost their jobs, and civil servants have not been paid since the start of the war. The risk of a financial crisis looms large over these vulnerable economies.
The impact of these economic struggles is not limited to the Middle East. If much of the region slides into a debt crisis, it could have far-reaching consequences for global growth and inflation. It would also disproportionately affect young, urban, and increasingly unemployed populations, potentially leading to more extreme politics in strategically significant and volatile countries.
It is clear that the conflict in the Middle East has far-reaching socio-economic implications. As we observe the situation, it is essential to recognize the potential for broader global impact and to advocate for peaceful solutions and support for affected populations.
