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Middle East war costs world economy $3.5 trillion a year, says new report
Iran, Israel, Iraq and 6 GCC countries face $493 billion in output losses due to regional war involving the US, Israel and Iran, says 2026 Global Peace Index
- PUBLISHED: Tue 9 Jun 2026, 10:06 AM
The Middle East war is costing the global economy up to $3.5 trillion (Dh12.84 trillion) a year and threatening food supplies across South Asia and East Africa, according to the 2026 Global Peace Index (GPI).
Released by the Institute for Economics and Peace (IEP) on Tuesday, the report said that the ongoing military conflict in the Middle East could strip nine of the region’s economies – Iran, Israel, Iraq and six GCC countries – of nearly $493 billion (Dh1.81 trillion) in output within the first year alone, equivalent to 6.2 per cent of their combined GDP.
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It projected that losses could more than double should hostilities resume.
“It is why a durable settlement matters as much economically as it does politically,” said Steve Killelea, founder and executive chairman of IEP.
He warned that the financial toll of the war extends well beyond direct battlefield destruction, touching everything from foreign investment flows to global food security.
Under IEP's central scenario, which assumes an extended ceasefire with the Strait of Hormuz only partially reopened, Iran stands to lose between 15 and 25 per cent of its GDP depending on how the conflict unfolds. Qatar faces losses of up to 15 per cent, given that all of its liquefied natural gas exports transit the Strait.
Infrastructure damage across directly affected countries is estimated at between $183 billion and $291 billion under the current ceasefire, a figure that could balloon to $625 billion if fighting resumes.
On February 28, the US and Israel launched attacks on Iran, targeting its top leadership and military infrastructure. Tehran attacked Israel and the Gulf countries with drones and missiles. A fragile ceasefire was announced nearly two months ago.
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Hormuz closure
Neighbouring economies, including Egypt, Jordan, Lebanon, Syria and Türkiye, face an additional $136 billion in first-year losses through disrupted tourism, reduced trade and falling remittances. That figure doubles under a renewed war scenario.
At the global level, IEP estimates the war and the closure of the Strait will cut world output by 0.6 per cent in the first year, roughly $1.3 trillion in purchasing power parity terms.
Should the war resume and the Strait remain shut for six months or longer, the first-year loss rises to around $3.5 trillion, or 1.6 per cent of global GDP, surpassing the economic shock caused by the Ukraine war in its first year.
"These estimates are deliberately conservative and should be read as the minimum likely impact," Killelea said.
Reserves offer only months of cushion
He said the world's combined emergency oil reserves of more than two billion barrels would cover only two to three months if the Strait were fully closed again, with more than 13 million barrels per day currently cut off.
He added that economic modelling suggests oil averaging $140 per barrel for two months would be sufficient to push the Eurozone, the United Kingdom, Japan and much of the global economy into recession.
It said global public debt currently stands at 93 per cent of world GDP, a record peacetime high, leaving far less capacity for stimulus than during the 2008 financial crisis or the 2020 pandemic.
FDI inflows collapse
According to IEP, early data already signals a severe pullback in investment appetite in the Middle East region.
FDI inflows into the region fell by an estimated 60 to 70 per cent in the first quarter of 2026 compared with a year earlier, with major European and American investment funds pausing new commitments to Saudi Arabia. Parts of the kingdom's $840 billion Vision 2030 project pipeline are now described as being "in limbo."
"The longer the uncertainty persists, the more of this paused investment becomes permanently lost, because capital that waits eventually goes elsewhere," Killelea cautioned
