EBRD Warns Middle East Conflict Suppresses Economic Growth

(MENAFN) The European Bank for Reconstruction and Development (EBRD) cautioned Thursday that escalating Middle East tensions are poised to suppress economic growth across its operating regions, as soaring energy costs, disrupted trade arteries, and tightening financial conditions converge into a mounting headwind.

The warning was contained in the EBRD’s latest Regional Economic Update, titled Potential Economic Impact of the Conflict in the Middle East, which found that energy prices have surged sharply following widespread disruptions to production and shipping routes across the Persian Gulf.

Although oil and natural gas prices have yet to breach historical highs, the report cautioned that further escalation in supply disruptions could drive prices considerably higher.

The analysis painted a sobering picture under a prolonged stress scenario: should oil prices remain above $100 per barrel for an extended period — compounded by continued supply chain disruptions in chemicals and metals — global economic growth could contract by at least 0.4 percentage points, while inflation could overshoot by more than 1.5 percentage points. Growth across EBRD operating regions faces an equivalent downward revision of up to 0.4 percentage points under the same conditions.

The reverberations are already being felt well beyond energy markets. A substantial portion of global fertilizer feedstock trade transits through the Strait of Hormuz, raising the specter of climbing food prices. Disruptions to Gulf trade corridors also threaten the flow of critical industrial inputs — including aluminum, sulfur, helium, petrochemicals, and plastics — compounding inflationary pressures across global supply chains.

While trade ties with the Gulf Cooperation Council (GCC) carry significant weight for numerous economies in EBRD regions, direct commerce with Iran remains comparatively limited. Iraq, whose export pipelines run heavily through the Strait of Hormuz, stands among the most exposed, though the report noted that existing stockpiles of essential commodities such as wheat offer a partial cushion.

Tourism-reliant economies across the Middle East face an additional blow, with visitor numbers expected to decline as the conflict drags on. Capital outflows across the region have remained manageable thus far, though the EBRD cautioned that a deterioration in global financial conditions could rapidly accelerate the pace of flight. The bank stressed that each economy’s capacity to absorb terms-of-trade shocks will hinge critically on the depth of its fiscal and external reserves.

The EBRD operates across more than 40 countries, including Türkiye, Egypt, Iraq, Kenya, Lebanon, Jordan, Moldova, Mongolia, Senegal, Tunisia, Ukraine, Azerbaijan, Greece, and Nigeria.

EBRD Chief Economist Beata Javorcik underscored the broader lesson embedded in the report, noting that the Middle East tensions demonstrate how swiftly geopolitical shocks can cascade through energy markets, supply chains, and financial systems worldwide.

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