Fresh warnings that the US will intensify military operations against Iran have sharply raised the economic stakes for the Middle East, with new projections showing the conflict could wipe out up to $200 billion from Arab economies and trigger global losses running into trillions if energy exports through the Gulf remain disrupted.
The tougher stance from Donald Trump has shifted market expectations from a short-lived confrontation to a prolonged geopolitical shock, reviving fears of supply-chain disruptions, renewed oil-price volatility and tightening financial conditions across emerging markets and Europe. Economists warn that continued pressure on shipping through the Strait of Hormuz could become the single biggest trigger for a deeper regional slowdown.
A new assessment by the United Nations Development Programme (UNDP) estimates Arab economies could lose between $120 billion and $194 billion in gross domestic product as the conflict that began on February 28 disrupts trade flows, investor confidence and energy exports across the region.
Regional unemployment could rise by as much as four percentage points, eliminating about 3.6 million jobs and pushing nearly four million people into poverty, highlighting the scale of the socio-economic strain already emerging across several economies.
The UNDP warned that even a short-lived escalation would generate “profound and widespread socio-economic impacts” across Arab states, particularly in energy-exporting Gulf economies and fragile Levant markets where growth remains closely tied to external demand and capital inflows.
Trump’s latest remarks signalling sustained military pressure over the coming weeks have reinforced concerns that export disruptions could last longer than initially expected. Markets had briefly priced in the possibility of a near-term ceasefire, but the shift in rhetoric has revived fears of a renewed war premium in oil and shipping insurance costs across Gulf routes.
The UNDP estimates Gulf Cooperation Council economies and Levant states could each lose more than 5.2 per cent of GDP under escalation scenarios. Independent projections from Goldman Sachs suggest Qatar and Kuwait could see output shrink by as much as 14 per cent this year if Hormuz disruptions persist through April — the steepest contraction since the early 1990s Gulf War.
Saudi Arabia and the UAE are expected to fare relatively better because of their ability to reroute some crude exports through alternative pipelines and ports. Even so, growth could still decline by roughly 3 per cent and 5 per cent respectively, marking their biggest economic setbacks since the Covid-19 shock of 2020.
Beyond the region, the consequences of escalation are increasingly global. Analysts estimate worldwide GDP losses could range from about $600 billion in a short conflict scenario to more than $3 trillion if energy shipments remain constrained for several months and oil prices surge sharply.
The World Trade Organisation has already warned that sustained energy-market volatility could shave around 0.3 percentage points off global growth this year, while shipping disruptions across Asia–Europe corridors risk slowing trade flows as insurers reassess maritime exposure in Gulf waters.
Financial conditions across emerging markets are tightening as geopolitical risk premiums rise. Gulf sovereign borrowers account for roughly 40 per cent of emerging-market dollar debt issuance outside China, leaving governments exposed to higher borrowing costs at a time when they are accelerating spending on diversification, infrastructure and energy-transition projects.
Outstanding public debt across the Gulf has climbed to about $1.2 trillion, while syndicated loans exceed $450 billion, increasing sensitivity to shifts in global liquidity conditions if the conflict persists.
Iran itself faces deeper economic damage. Separate UNDP projections suggest its economy could contract by as much as 10.4 per cent, with more than 3.5 million people at risk of falling into poverty as strikes disrupt infrastructure, schools and essential services.
Trump’s resolve to sustain military pressure until strategic guarantees are secured has therefore transformed what markets initially viewed as a contained regional confrontation into a widening macroeconomic risk scenario. Investors are now reassessing exposure to oil, shipping, emerging-market debt and regional equities as the probability of extended disruption increases.
Taken together, analysts contend, the latest projections suggest the conflict is no longer simply a geopolitical flashpoint but a potential global economic inflection point — one that could reshape energy markets, inflation trajectories and investment flows worldwide if escalation continues in the weeks ahead.
