The Economic Consequences of the U.S.-Israeli War on Iran: The Open-Ended Calculation and Its Aftermath
War is not an isolated military event whose consequences end at the boundaries of the battlefield. Rather, it generates ripple effects whose repercussions extend to both productive and service sectors. Major wars throughout modern history have demonstrated that economic losses often exceed military losses in both scale and duration. The Second World War destroyed nearly one-third of Europe’s human capital, while the First Gulf War showed that merely threatening oil sources and supply flows was sufficient to shake the global economy even before military operations had begun.
Within the context of the ongoing U.S.-Israeli war on Iran – a conflict that remains an an open-ended conflict – direct and indirect economic consequences have expanded far beyond the immediate parties involved, affecting the global arena as a whole. Many countries that are not directly engaged in the conflict nevertheless continue to endure its negative repercussions.
This article examines several levels through which the economic impacts of the war can be analyzed: the energy crisis; disruptions to supply chains and shortages of goods; the implications for Arab economies, both oil-producing and non-oil-producing alike; and finally, the indirect costs associated with setbacks to economic reform programs and the implementation of future development visions in several countries across the region.
The U.S.–Israeli war on Iran reveals that the economy is no longer merely a domain that absorbs the consequences of conflict, but has itself become part of the architecture of power. Maritime chokepoints, energy markets, supply chains, maritime insurance, food, and fertilizers have all evolved into instruments in the management of strategic pressure. In this sense, the economic repercussions of war cannot be understood as mere side effects, but rather as expressions of geoeconomics, whereby states and other actors leverage their positions within networks of interdependence to impose political and economic costs simultaneously on adversaries, allies, and global markets alike.
Energy Supply Crisis
Before the outbreak of the war, Brent crude prices hovered around $70 per barrel. However, the American and Israeli attacks on Iran pushed prices within days to between $80 and $82, before surpassing the $120 threshold during certain periods. According to reports and assessments issued by the International Monetary Fund, only a limited number of countries are expected to escape the repercussions of rising energy prices, as recently stated by IMF Managing Director Kristalina Georgieva during the Fund’s Spring Meetings in April.
The most visible impact resulted from the closure of the Strait of Hormuz, through which nearly 20% of global oil supplies and massive quantities of liquefied natural gas pass each day. The disruption of this strategic artery effectively threatened energy supplies to countries such as China, India, Japan, South Korea, and Pakistan. Several states subsequently declared emergency measures and adopted consumption austerity policies as part of broader efforts to adapt to the severe market disruptions. At the same time, a number of oil refineries in producing countries were targeted, disrupting production capacities and placing energy infrastructure under the constant threat of attack.
Here, the significance of interdependence as a weapon becomes evident. The closure of the Strait of Hormuz would not target the United States or Israel alone; it would disrupt a vast network of importers, producers, insurance firms, shipping companies, and financial markets. The broader the circle of affected actors becomes, the greater the ability of the party generating the disruption to transform a limited military confrontation into a multidirectional global pressure crisis. In this sense, the danger of Hormuz lies not only in its geographic position, but in its function as a central node within a deeply interconnected global economy.
Disruptions to Supply Chains and International Trade
The first weeks of the confrontation exposed the extreme fragility of global trade arteries passing through the region. The sharp increase in maritime shipping costs along certain routes – in some cases multiplying several times over – alongside the significant rise in air freight prices, demonstrated that the crisis threatens not only the flow of goods, but also the cost of producing and transporting them. Maritime insurance companies increased their premiums by between 300% and 500% for voyages crossing the Strait of Hormuz, forcing shipping companies to reroute vessels around the Cape of Good Hope and thereby adding between two and three weeks to each journey.
The projections issued by the International Monetary Fund reflect a growing recognition that the war is likely to leave a profound mark on global economic growth, as the Fund lowered its growth forecasts while simultaneously raising inflation expectations. The impact intensified further when Gulf airspaces were closed, effectively paralyzing air freight traffic for sensitive goods such as pharmaceuticals and electronics, whose transportation costs rose by between 60 and 80% on some routes.
All of this unfolded within the context of highly interconnected global markets and supply chains characterized by an unprecedented level of complexity compared to previous energy crises. As a result, the wave of inflation experienced by consumers was not driven solely by higher oil prices; rather, it emerged from a combination of rising energy costs, soaring freight rates, shortages of production inputs, and escalating insurance expenses. Consequently, the compounded costs of the crisis gradually shifted to the final consumer. This perhaps explains part of the growing concern among world leaders regarding the consequences of a war in which they did not choose to participate, yet whose repercussions are likely to affect their political standing and electoral prospects.
The war has also demonstrated that the relationship between energy and food is far more organic and interconnected than is commonly assumed. Natural gas constitutes the primary raw material in the production of nitrogen-based fertilizers, and when Qatari gas supplies were disrupted – following Qatar’s suspension of production at the Ras Laffan Industrial City complex after the Iranian strikes – the energy crisis quickly evolved into a fertilizer crisis, with repercussions extending across global agriculture as a whole. Analyses by the International Fertilizer Association estimated that supply shortages would first and most severely affect corn and wheat crops, both of which rely heavily on nitrogen fertilizers. This indicates that the food supply dimension of the crisis may emerge in later stages as a direct extension of the energy shock – precisely what is meant by the cascading effects of this war.
In non-oil-producing Arab countries, where large segments of the population spend between 40% and 60% of their income on food, this second wave of the crisis is likely to be the most painful. Vulnerable households are often unable to absorb a new surge in food prices layered on top of already rising electricity and fuel costs, particularly within economies whose local currencies were already suffering from entrenched inflationary pressures.
One of the most striking characteristics of this logistical crisis has been the emergence of the phenomenon known as “precautionary stockpiling.” Governments, corporations, and households simultaneously rushed to increase their reserves of essential commodities, thereby amplifying demand and driving prices upward beyond the actual impact of the supply shortage itself.
The war demonstrated that global supply chains do not function as linear routes, but rather as highly sensitive and interconnected networks. The disruption of a single node—such as the Strait of Hormuz or Gulf airspace—does not merely generate a transportation crisis; it triggers a cascading chain of delays, rising costs, input shortages, and declining productive capacity. In this regard, the fragility of supply chains emerges as one of the war’s most significant consequences, revealing that the global economy built its efficiency on speed and low cost, yet incurred a substantial price once these networks were exposed to a major security shock.
Implications for Arab States
Although rising oil prices theoretically imply higher revenues for oil-producing countries, the reality on the ground proved far more complex. Producers do not benefit from elevated prices if they are unable to export their output. This was precisely the consequence of the closure of the Strait of Hormuz, as Gulf economies incurred losses estimated in the billions of dollars due to the disruption of export operations, in addition to severe damage affecting energy facilities and electricity infrastructure whose repair costs are likewise expected to amount to billions more. The degree of impact varies according to each country’s dependence on exports passing through the Strait of Hormuz, yet what remains constant is that the losses are likely to exceed by far the preliminary estimates currently being circulated.
Elsewhere, Egypt represents a model of a non-oil-producing state bearing the costs of a war in which it did not participate. The Suez Canal – one of the country’s most important sources of foreign currency – came under mounting pressure amid escalating maritime risks in the Red Sea and the Gulf region. Simultaneously, the closure of regional airspaces affected aviation and tourism flows alike. In an economy already burdened by inflationary pressures and a balance-of-payments deficit, rising energy, food, and shipping costs have compounded the strain borne by ordinary citizens.
For its part, Jordan is not a direct party to the war, yet it is disproportionate economic costs that exceed its relative economic capacity. The country depends almost entirely on imported energy and is geographically positioned between four simultaneous zones of tension: the occupied Palestinian territories to the west, Iraq to the east, Syria to the north, and a Gulf region experiencing unprecedented instability.
On the energy front, Jordan imports the overwhelming majority of its energy needs, meaning that every increase in oil and gas prices is directly reflected in citizens’ electricity bills and in higher production costs for companies, alongside broader inflationary effects across the economy. Under such circumstances, the Jordanian economy is unlikely to achieve the targets outlined in the country’s Economic Modernization Vision, which the government has sought to implement.
In terms of trade and shipping, the several-fold increase in maritime and air freight costs along certain routes means that the crisis threatens not only the movement of goods, but also the costs associated with producing and transporting them. As an economy reliant on imported industrial inputs, Jordan bears this doubled burden both when importing production materials and when exporting finished products, thereby reducing its potential competitiveness.
Tourism, one of the country’s principal sources of foreign currency, has likewise suffered a severe setback. The sector witnessed a sharp decline in summer bookings from the very first weeks of the war.
At the level of lost economic opportunities, Jordan had entered 2026 relying on two major channels for growth: expanding economic relations with Iraq and the Gulf states and benefiting from the reconstruction of Syria in the post-war phase. The latter represented a significant opportunity to increase Jordanian exports and logistical activity. However, the war disrupted these channels and weakened investor confidence. Regional tensions reshaped Iraq’s priorities, while the momentum surrounding Syrian reconstruction – which Jordan had hoped to leverage as an important economic gateway – declined substantially.
Disruptions to Reform Agendas and Delays in Implementing Strategic Visions
The war exposed deep structural vulnerabilities in the trajectory of Arab economic reform efforts. Saudi Vision 2030 – arguably the most ambitious transformation project in the region – was built upon three core pillars: predictable oil revenues, a secure regional environment, and the country’s reputation as a stable center for trade and investment. The closure of the Strait of Hormuz placed all three pillars under a serious and unprecedented test.
Saudi Arabia recorded a historic budget deficit during the first quarter of 2026, despite the Kingdom’s decision during the war to increase public spending by 20% in an effort to reassure both citizens and investors. Nevertheless, mega-projects such as NEOM, alongside several other initiatives associated with Vision 2030, experienced delays in implementation and a slowdown in the pace of concluding major contracts.
Similarly, the United Arab Emirates – which had advanced further than most regional economies in the path toward economic diversification – faced a difficult test of its own. The closure of the country’s airspace disrupted operations at Dubai International Airport, one of the busiest airports in the world, for several days, inflicting major losses on Emirati airlines as well as on the tourism, exhibition, and conference sectors. At the height of the crisis, the UAE also chose to withdraw from Organization of the Petroleum Exporting Countries – a move carrying significant strategic messages, yet one that may cast a shadow over its future negotiating leverage within the international oil production system.
Meanwhile, Jordan, Morocco, and Egypt have for years pursued reform trajectories governed by agreements with the International Monetary Fund and by national economic modernization programs. These initiatives provided financial support packages tied to reform measures related to subsidies, taxation, and public-sector restructuring. However, the sharp rise in energy and food prices made the implementation of such reforms exceptionally difficult for political and social reasons. Governments facing mounting public anger over rising living costs are unable, at the same time, to remove subsidies on essential goods or introduce further tax reforms without risking heightened instability.
One of the war’s most severe consequences for the reform process has been the erosion of business confidence across the region. Foreign direct investment does not flow toward environments dominated by uncertainty and strategic ambiguity. Moreover, several major investment decisions that had already entered advanced negotiation stages were postponed. Even after the announcement of a ceasefire, foreign investors remain hesitant due to the security threats and instability the region has experienced over the past two years.
It is increasingly evident that the repercussions of the war have imposed a double burden on the countries of the region: immediate economic losses on the one hand, and lost developmental opportunities on the other. These consequences are likely to manifest themselves through rising unemployment and poverty rates, alongside delays in implementing economic visions and necessary structural reforms. The central dilemma is that this conflict remains an open-ended file, vulnerable to all possible scenarios. The only certainty is that a profound transformation has already occurred, and restoring economic momentum will likely require years at best. As for the broader cumulative consequences of the war, their reverberations will continue to unfold progressively in the periods ahead.
The U.S.–Israeli war on Iran demonstrates that the economy can no longer be understood merely as a sphere that absorbs the consequences of conflict after it occurs; rather, it has become an integral component of the architecture of war itself. Rising energy prices, disruptions to maritime corridors, escalating insurance and shipping costs, and the possibility of a gas crisis spilling over into food markets through the fertilizer sector all indicate that economic security has become a direct pillar of both national and regional security. The central lesson, therefore, lies not only in the scale of the immediate losses, but also in the fragility of Arab development models when confronted with external shocks over which most states possess neither the power to initiate nor to terminate.
Accordingly, there is an urgent need for Arab states to shift from a reactive approach to crises toward a strategy centered on building preemptive economic resilience. This entails developing strategic reserves of food and energy, diversifying import and transportation routes, reducing dependence on single maritime chokepoints, and establishing regional coordination mechanisms in the fields of energy, shipping, insurance, and emergency financing. As this crisis demonstrates, future wars may no longer be measured solely by the number of missiles launched or strikes conducted, but by the capacity of states to keep their markets functioning, their currencies stable, their food supplies accessible, and their development programs sustainable under conditions of prolonged pressure.
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