ISTANBUL
The European Bank for Reconstruction and Development (EBRD) warned Thursday that tensions in the Middle East are likely to weigh on growth across its regions of operation through higher energy and fertilizer prices, disruptions to trade and tourism flows, and tighter financing conditions.
According to the EBRD’s latest Regional Economic Update, titled Potential Economic Impact of the Conflict in the Middle East, energy prices have risen sharply due to disruptions in production and transport routes in the Persian Gulf.
Although oil and natural gas prices remain below historical peaks, the report said prices could climb further if disruptions persist.
The analysis said that if oil prices stay above $100 per barrel for an extended period and supply chain disruptions in chemicals and metals continue, global economic growth could decline by at least 0.4 percentage points, while inflation could rise by more than 1.5 percentage points.
Under the same scenario, economic growth across the EBRD regions could also be revised downward by as much as 0.4 percentage points.
The impact of the tensions is also being felt across agricultural inputs and industrial supply chains. A significant share of global trade in fertilizer feedstocks passes through the Strait of Hormuz, heightening the risk of rising food prices. Disruptions along Gulf trade routes could also affect critical inputs such as aluminum, sulfur, helium, petrochemicals, and plastics, adding to global inflationary pressures.
While trade with the Gulf Cooperation Council (GCC) is important for many economies in the EBRD regions, direct trade with Iran remains limited.
Economies such as Iraq, which rely on exports via the Strait of Hormuz, could face particular challenges. However, existing stocks of essential commodities such as wheat provide some buffer in such countries.
Meanwhile, the bank said tourism-dependent economies in the Middle East are expected to see a decline in visitor numbers, while the tensions are also tightening financial conditions across countries in the region. Capital outflows from some economies have so far remained manageable, but they could accelerate if global financial conditions deteriorate further.
According to the EBRD, the extent to which economies can absorb shocks to their terms of trade will depend on the strength of their fiscal and external buffers.
Among the more than 40 countries where the EBRD operates are Türkiye, Egypt, Iraq, Kenya, Lebanon, Jordan, Moldova, Mongolia, Senegal, Tunisia, Ukraine, Azerbaijan, Greece, and Nigeria.
Commenting on the report, EBRD Chief Economist Beata Javorcik said the tensions in the Middle East show how quickly geopolitical shocks can spread through energy markets, supply chains, and financial conditions.