Economic Fallout of Middle East Conflict
In the wake of escalating conflict in the Middle East, particularly after Iran’s rocket strikes on Israel on October 1, the region faces devastating economic repercussions. Tens of thousands are dead, millions displaced, and the economy across the region is suffering immensely. To better understand the economic toll and future implications, Wyoming Star spoke with Ragui Assaad, an Egyptian economist and Professor of Planning and Public Affairs at the University of Minnesota, who is regarded as one of the leading experts on Middle Eastern economies.
Wyoming Star: What are the economic consequences for the region and the broader world?
Assaad: Conflict and instability in the Middle East have major economic consequences for the region itself and more broadly for the world. The countries directly involved are experiencing and will continue to experience the largest negative effects. This includes Israel, Gaza, of course, the West Bank, and Lebanon. Yemen was already in deep economic trouble and on the verge of famine when all this started, and it will sink further as a result. Iran’s economy is already teetering as a result of sanctions. It could collapse if Israel decides to target its oil exporting infrastructure. That would also result in a spike in oil prices, which has implications beyond the region. For the rest of the region, the conflict already resulted in major declines in tourism revenue in Egypt and Jordan and big declines in Suez Canal revenues for Egypt. Egypt’s growth rate this year has been cut in half.
Wyoming Star: Since the beginning of October, we have seen the rise of oil prices. Is this a way to put pressure on Israel and the US by the members of OPEC+?
Assaad: No, it is primarily a reaction by the market to anxiety about future supplies. I don’t see any concerted actions by OPEC+.
Wyoming Star: Is there any economic action that can force Israel to seek peace?
Assaad: Israel has decided to pay the economic price of the war. I don’t see any economic actions that can force it to seek peace, with the possible exception of arms embargoes by the US and Germany.
Wyoming Star: What can you say about the economic damage done to the region?
Assaad: Outside the conflict countries, the damage is temporary, but it is enduring in the conflict countries.
Wyoming Star: Since October 7, we have seen Gaza lose nearly all its infrastructure, from universities to hospitals. The UN estimates it could take up to 15 years and nearly $650 million to clear just debris and rubble. Do you find this assessment correct?
Assaad: I agree with the UN’s assessment. It will take a major commitment by outside actors to rebuild Gaza, and this will only happen if a durable political settlement is reached.
Wyoming Star: Can you name any noteworthy initiatives aimed at restoring the region’s economy once the conflict is over?
Assaad: Not yet, but any initiative will have to involve major financing by the US, EU, and the oil-rich Gulf countries.
Wyoming Star: Is it viable to invest in the region when the conflict is resolved?
Assaad: Not only viable, but necessary to avoid future conflicts. If Israel and the Palestinians agree to a two-state solution, this could be a huge spur for external investments, but these investments won’t happen if there is a mere cessation of hostilities and no durable peace deal.
As the conflict rages on, the economic outlook for the Middle East remains grim. However, long-term recovery and the hope for a more stable future depend heavily on a lasting commitment to rebuilding and achieving a sustainable peace.
