A recent assessment from the United Nations Development Programme (UNDP) warns of severe economic and social repercussions across Arab states should a conflict erupt between the United States, Israel, and Iran.

Projected Economic Contraction and Financial Fallout

The study models the impact of a hypothetical four-week military engagement commencing in late February 2026. It cautions that even a limited escalation carries the risk of widespread regional fallout transmitted through energy, trade, and financial channels.

Quantifying the Losses

Economic output across Arab nations is forecasted to contract significantly, ranging between 3.7 and 6.0 percent. This contraction translates to potential financial losses estimated between $120 billion and $194 billion.

Uncertainty is expected to cause a sharp decline in investment activities. Furthermore, exports and imports are projected to decrease due to higher transportation costs and disruptions to global shipping routes.

Impact on Employment and Poverty Rates

The social consequences outlined in the assessment are stark, particularly under high-intensity conflict scenarios. Nearly four million more individuals could be forced into poverty across the region.

Vulnerable Populations and Unemployment Surge

The sharpest increases in poverty are anticipated in fragile nations such as Sudan and Yemen, as well as in the Levant region. Unemployment is also projected to rise, potentially affecting an additional 2.5 to 3.5 million people.

Lower-skilled workers are identified as the most vulnerable demographic. Unemployment rates for this group could see an increase of up to 4.5 percentage points.

Drivers of Economic Shock and Regional Variation

The primary drivers of this severe economic shock are disruptions to maritime trade and energy flows. These disruptions increase operational costs and fuel inflation, especially impacting economies heavily reliant on imports.

Uneven Distribution of Economic Impact

The study notes that the economic effects will not be uniform across the Middle East. The Gulf and Levant regions are expected to absorb the largest financial blows.

Conversely, North Africa might experience more varied outcomes, with some oil-exporting nations potentially benefiting from resultant spikes in global energy prices. The assessment also projects a decline in human development, potentially erasing up to one year of progress in certain countries.

Government Response Limitations

A further complication highlighted is the potential for declining government revenues and expanding fiscal deficits. These factors could severely restrict the capacity of states to implement effective crisis response measures.

Context of Current Regional Tensions

The context for this study relates to the ongoing conflict that the US and Israel launched against Iran starting February 28. This conflict has reportedly resulted in over 1,340 fatalities, including the death of then-Supreme Leader Ali Khamenei.

Iran has responded with missile and drone strikes targeting Israel, along with infrastructure in Gulf countries, Iraq, and Jordan that host US military assets. These actions have caused casualties, damaged infrastructure, and disrupted global aviation and markets.

Furthermore, Iranian authorities have reportedly closed the Strait of Hormuz to vessels associated with the US, Israel, and supporting nations. Several tankers have allegedly been attacked for transiting the strait without Tehran's approval during this period.