Escalation in Middle East Reverses more than a Year of Economic Growth in the Region

Credit: UN Photo/Pasqual Gorri

By UN Development Programme
AMMAN / NEW YORK , Apr 1 2026 (IPS)

New estimates by the United Nations Development Programme (UNDP) suggest the military escalation in the Middle East, now into its fifth week, may cost economies in the region from 3.7 to 6.0 percent of their collective Gross Domestic Product (GDP).

This represents a staggering loss of US$120-194 billion and exceeds the cumulative regional GDP growth achieved in 2025. Coupled with an estimated rise in unemployment of up to 4 percentage points or 3.6 million jobs lost—more than the total jobs created in the region in 2025, these reversals will push up to 4 million people into poverty.

The assessment — “Military Escalation in the Middle East: Economic and Social Implications for the Arab States region” — exposes the concerning reality of structural vulnerabilities characteristic to the region, which enable a short lived military escalation to generate profound and widespread socio economic impacts that may persist over a long-term.

“This crisis rings alarm bells for countries of the region to fundamentally reevaluate their strategic choices of fiscal, sectoral, and social policies, representing an important turning point in the development trajectory of the region,” said Abdallah AlDardari, UN Assistant Secretary General and Director of the Regional Bureau for Arab State in UNDP.

“Our findings underline the pressing need to strengthen regional collaboration to diversify economies—beyond reliance on growth driven by hydrocarbons, and to expand production bases, secure trade and logistics systems, and broaden economic partnerships, to reduce exposure to shocks and conflicts.”

The assessment employs Computable General Equilibrium modelling to capture the magnitude of disruptions caused by a four-week conflict, and models its effects through key transmission channels, including increased trade costs, temporary productivity losses, and localized capital destruction.

It conducted five simulation scenarios, representing escalating levels of conflict scenarios, ranging from a “moderate disruption,” where trade costs increase by tenfold, to an “extreme disruption and energy shock,” where trade costs increase a hundred-fold, intensified by a stop of hydrocarbon production.

The findings highlight that impacts are not uniform, varying significantly across the region due to structural characteristics of its main subregions. Estimates suggest that the largest macroeconomic losses are concentrated in Gulf Cooperation Council and the Levant subregions, where strong exposure to trade disruptions and energy market volatility drives significant declines in output, investment, and trade.

Both subregions stand to lose 5.2-8.5 percent and 5.2-8.7 percent of their GDP, respectively. Increases in poverty rates are concentrated in the Levant and Least Developed Arab Countries, where baseline vulnerability is highest and shocks translate more strongly into welfare losses. In North Africa, impacts remain moderate but still significant in absolute terms.

In the Levant, the crisis is expected to increase poverty by 5 percent, pushing an additional 2.85-3.30 million people into poverty—accounting for over 75 percent of the rise in poverty across the region. Across the region, human development as measured by the Human Development Index (HDI) is expected to decline by approximately 0.2 to 0.4 percent, corresponding to a setback of roughly half a year to nearly one year of human development progress.

Footnote

• The Assessment will be available online—through the following link.
• This Assessment if part is part of a series of rapid assessments that UNDP is producing on the impacts of the Middle East military escalation on Iran, the Arab States in the region, Africa, the Asia Pacific region and on the global development outlook.
• Results presented in this brief should be interpreted as illustrative estimates of potential outcomes under different shock intensities, rather than realized impacts.
• Impact estimates are presented for four Arab States subregional groupings, including:
• Gulf Cooperation Council (GCC) countries, including Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates
• The Levant, including Iraq, Jordan, Lebanon, the State of Palestine and Syria
• North Africa, including Algeria, Egypt, Libya Morocco and Tunisia
• Least Developed Arab countries (LDCs), including Sudan and Yemen—insufficient data did not allow for simulating impacts on Djibouti and Somalia.

IPS UN Bureau