Study: Africa may soon feel economic impact of Middle East conflict

The ongoing instability in the Middle East is projected to reduce economic growth across Africa by 0.2% in 2026. This assessment comes from a comprehensive joint policy document presented in the US during the spring meetings of the International Monetary Fund and the World Bank.

The report is a collaborative effort by the African Union Commission, the African Development Bank Group, the UN Economic Commission for Africa, and the UN Development Program.

The analysis warns that African nations are particularly vulnerable as they continue to recover from the combined effects of the global pandemic, the conflict between Russia and Ukraine, and increasing trade barriers. Experts suggest that the current geopolitical tensions in the Middle East create a new layer of economic pressure that could stifle the modest progress made by many developing nations over the last few years.

With the US and Israeli war on Iran stagnating and ongoing conflict in Lebanon appearing to drag on, the regional instability is gradually impacting wider markets. The restrictions to the flow of ships through the Strait of Hormuz, for example, has hit much of Asia with an unprecedented fuel crisis. Though other regions, including Africa, are more insulated from this fallout, the longer these major conflicts last, the farther the economic trouble will spread.

Disruptions to trade and energy

One of the primary drivers of this economic slowdown is the physical disruption of global trade routes. The closure or restricted access to the Strait of Hormuz has created significant obstacles for international transport and commerce. This narrow waterway is vital for the movement of goods, and its obstruction has led to increased shipping costs and delays that ripple through the entire supply chain.

Energy security is a major concern because Africa relies heavily on the Middle East for fuel. Approximately 80% of the crude oil imported into the continent originates from that region, along with 50% of refined petroleum products. As these supplies become less predictable or more expensive, the costs are passed on to consumers and businesses.

Officials noted that 31 African nations are already witnessing their local currencies lose value against the dollar as a result of these external shocks.

Beyond energy, the agricultural sector faces immediate threats. The conflict has caused a surge in the prices of fertilizers and food products. This price hike is occurring exactly as the primary farming season begins in several African regions. If farmers cannot afford necessary inputs like seeds and nutrients, the continent may face reduced crop yields, which would further drive up food prices and threaten food security for millions of people.

Strategies for economic stability

Economists are urging African governments to maintain a steady hand and avoid making reactive decisions that could damage long term financial health. Rather than implementing broad subsidies that can drain national budgets and lead to huge fiscal deficits, the report suggests targeted social protection measures. These programs should specifically help the most vulnerable citizens without destabilizing the broader economy.

Strict fiscal discipline is especially recommended for nations that export oil. While these countries may see a temporary increase in revenue due to higher global prices, experts advise them to manage these windfall gains prudently. The report encouraged them to strengthen their debt monitoring systems and use energy reserves strategically to buffer against future volatility. Managing inflation remains a top priority to ensure that the public maintains confidence in price stability over the short term.

Long term resilience depends on the ability of African nations to diversify their resources. This includes seeking out new partners for energy, food supplies, and industrial inputs. By reducing the reliance on any single geographic region, the continent can better withstand shocks that originate outside its borders.

Building continental independence

The report emphasizes that regional cooperation is the most effective tool for overcoming these challenges. Speeding up the implementation of the African Continental Free Trade Area would allow nations to trade more easily with one another, particularly in oil and fertilizers, two markets being hit hard by the Middle East wars. By creating a more integrated internal market, Africa can foster domestic growth that is less dependent on the shifting tides of global geopolitics.

There is also a growing movement toward energy independence. Investing in renewable energy and the natural gas sector could provide a more stable and sustainable power source for the future. Leaders are encouraging the use of innovation and technology, including AI, to find local solutions to these complex problems. The goal is to move away from being a passive recipient of global shocks and toward becoming a self-sustaining economic bloc.

The international community also has a role to play in this transition. Multilateral banks and development finance institutions are being called upon to provide emergency support and technical assistance to help nations navigate the current crisis.

Proponents of these reforms believe that a coordinated global response is the only way to safeguard the development gains achieved over the last decade. By focusing on domestic capital mobilization and structural reforms, African nations aim to emerge from this period of instability with stronger, more resilient economies.

“Africa is set to overtake Asia to become the fastest growing region of the world, with 12 of the 20 fastest growing economies in the world being African,” the report concludes.

“Navigating the impacts of the war in Iran on African economies will require the implementation of well-coordinated policy priorities. In the short term, African countries should implement coordinated monetary and fiscal policies to address inflationary pressures and ensure efficient management of windfall and fuel reserve, especially for oil-exporting countries. Authorities should also provide well-targeted subsidies to cushion impact of higher fuel and food prices.”