The military escalation in the Middle East, now entering its fifth week, is projected to cost the Arab States region between 3.7 percent and 6 percent of its total Gross Domestic Product (GDP).
According to a new assessment by the United Nations Development Programme (UNDP), this represents a financial loss ranging from $120 billion to $194 billion, a figure that surpasses the entirety of the regional growth recorded in 2025.
The report, titled “Military Escalation in the Middle East: Economic and Social Implications for the Arab States region,” warns that the conflict could result in 4 million people falling into poverty.
Unemployment is expected to rise by as much as 4 percentage points, equating to the loss of 3.6 million jobs – effectively cancelling out all employment gains made across the region last year.
“This crisis rings alarm bells for countries of the region to fundamentally reevaluate their strategic choices of fiscal, sectoral, and social policies,” stated Abdallah Al Dardari, UN Assistant Secretary General and Director of the UNDP’s Regional Bureau for Arab States.
He emphasised the urgent requirement for enhanced regional cooperation to diversify economies away from a dependence on hydrocarbons, expand industrial bases, and fortify trade and logistics networks against future shocks.
Modelling the impact
To determine the scale of the disruption, the UNDP utilised Computable General Equilibrium modelling based on a four-week conflict period.
Researchers examined several transmission channels, such as increased trade expenses, temporary drops in productivity, and the destruction of local capital.
The study included five distinct scenarios, varying from a “moderate disruption” involving a tenfold rise in trade costs to an “extreme disruption” characterized by a hundred-fold increase in costs and a complete halt in hydrocarbon production.
Subregional consequences
The assessment highlights that the economic burden is not distributed evenly across the region.
The Gulf Cooperation Council (GCC) and the Levant are expected to suffer the most significant macroeconomic losses due to their high exposure to energy market volatility and trade interruptions.
GDP in the GCC could drop by 5.2 to 8.5 per cent, while the Levant faces a potential decline of 5.2 to 8.7 per cent.
While the economic impact in North Africa is considered moderate, it remains significant in absolute terms.
However, the rise in poverty is heavily concentrated in the Levant and the region’s Least Developed Countries. In the Levant alone, poverty is forecast to increase by 5 per cent, pushing between 2.85 million and 3.30 million additional people into financial hardship.
This subregion accounts for more than 75 per cent of the total increase in poverty across the entire Arab world.
Additionally, the region’s Human Development Index (HDI) is projected to fall by 0.2 to 0.4 per cent. This decline represents a regression of approximately six months to a full year in human development progress.
