Conflict Drains Economic Growth Across Middle East and North Africa
The ongoing conflict between the United States, Israel, and Iran, which began in February 2024, is taking a significant economic toll on the Middle East, North Africa, Afghanistan, and Pakistan (MENAAP) region. The World Bank, in its regional economic update released on June 6, 2024, highlighted that oil-exporting Gulf countries are bearing the brunt of the economic strain. The closure of the Strait of Hormuz has had a unique impact compared to previous energy shocks, leading to a projected 2.1% contraction in the MENAAP region's output for 2024, down from 3.3% growth anticipated for 2025.
The Gulf Cooperation Council (GCC) countries, comprising Saudi Arabia, Bahrain, Qatar, the United Arab Emirates, Kuwait, and Oman, are expected to face a 4.3% contraction. The economic repercussions extend beyond energy, affecting tourism, aviation, logistics, and financial markets. Lower oil export volumes are resulting in substantial losses in output and declines in government revenues for oil-exporting nations. Inflationary pressures are rising across the region, driven by higher food prices and transport disruptions that are straining supply chains.
In fragile economies already affected by conflicts, the shock is exacerbating existing vulnerabilities. However, the World Bank suggests that if the conflict eases by the end of 2024, regional growth, excluding Iran, could rebound to 7.8% in 2027, driven by a recovery in hydrocarbon production and exports. Oil-importing countries in the region remain comparatively resilient, with economic growth projected at 4.3% in 2026, up from 3.9% in 2025.
The report, titled 'From Divide to Opportunity: AI, Jobs, and Growth,' also highlights new opportunities emerging in artificial intelligence, which has the potential to boost productivity in up to 20% of jobs in the region. World Bank Vice President for MENAAP Ousmane Dione emphasized the need for the region to prepare for a second long-term transformation: the rise of artificial intelligence.