Israel-Iran escalations have created an air of uncertainty over the MENA region’s economic prospects for the year. The escalating conflict between Israel and Iran will have considerable implications for the MENA region and for the global economy at large — the only question being just how significant the effects will be. Analysts and researchers have said that it is too early to tell just how far the conflict will go, instead giving different scenarios depending on both the intensity and the duration of the war.

The oil market could be particularly affected by the conflict, with Fitch Solutions’ research unit BMI saying in a webinar attended by EnterpriseAM that “all options are on the table” both for the conflict and for its impact on oil prices in the near term. BMI laid out a number of possibilities for oil prices by 3Q:

  • Iran conducts limited attacks and a new nuclear deal is reached, which would lead to crude oil being priced at USD 60-65 per barrel;
  • Iran’s missile programs are weakened and US does not pursue a new nuclear deal, which would lead to crude oil barrels being priced at USD 60-70 per barrel;
  • Israel and Iran engage in retaliationary strikes before eventual de-escalation, keeping prices elevated at USD 70 per barrel before stabilizing at between USD 60-80;
  • Retaliatory exchanges between Israel and Iran lead to military confrontation with the US, leading to prices of USD 75-100;
  • The situation develops into a broader conflict that pits the US directly against Iran, bringing prices up to around USD 100-150 should a closure of the Strait of Hormuz take place.

“So long as oil exports of producers in the region remain unaffected, the global oil market is set to be well supplied over the next few months on the back of OPEC+’s well-documented pivot towards a faster unwinding of voluntary output cuts,” Capital Economics’ James Swanston wrote in a research note.

As things stand, Gulf countries stand to benefit economically — at least for the time being. “If anything, the Gulf economies benefit for the time being from higher production and oil prices,” Swanston said. This notion was seconded by Fitch’s Head of MENA Country Risk Ramona Moubarak, who said in the webinar that as long as the conflict remains confined to Iran and Israel, GCC economies will only be affected by the air of uncertainty. But in parallel to that, they will benefit from the higher oil prices.

But the overall impact on the GCC remains difficult to gauge at the moment as “risk concerns may delay investment decisions in the region and increase ins. and other costs,” GCC Economist and Khalij Economics Director Justin Alexander told EnterpriseAM previously.

However, Egypt and other non-oil exporting nations like Jordan will face a “greater negative impact,” Swanston said. Coming to a similar conclusion, Moubarak pointed to Egypt’s country’s proximity to Israel, resultant swings in investor sentiment, the risk of capital outflows, higher oil prices raising the current account deficit, and the cutting of Israeli gas flows behind her assessment.

But the real concern for many is if the Iranians decide to close the Strait of Hormuz, which could lead to the cutting off about 30% of the world’s daily oil supply and 20% of global LNG trade, according to a factsheet (pdf) by the International Energy Agency. Closing the strait and cutting off key energy exporters Iran, Iraq, Kuwait, Saudi Arabia, and the UAE from the global market has the potential to completely disrupt global energy supply chains and violently ramp up energy costs, making Egypt’s increased reliance on imported energy even more costly and increasing the risk of severe energy disruptions to the national grid.

“The risk of a ‘closure’ of the Strait of Hormuz is more nuanced than some might suggest, not least because Iran relies on the strait to export its energy flows,” Swanston argued. “It seems unlikely to us that Iran would attempt to mine the Strait to cause long-term disruption to the shipping channel, not least because it would not just disrupt the West but

also Iran’s allies including China,” he said.

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