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Last update on Monday, June 23, 2025 At 9:40 AM
The economic consequences of the war between Israel and Iran are uncertain and will depend on the intensity and duration of military operations. Initially, the impact on the Middle Eastern economies appears to be mixed. Three countries are directly affected: Iran, Israel, and the Palestinian Territories (PT). The other economies (Egypt, Jordan, Iraq, Lebanon, and Syria), which are fragile to varying degrees and already disrupted since October 7, 2023, could be indirectly affected.
Vital economic infrastructure is being targeted in both Iran and Israel.
In terms of energy, one of Iran’s main refineries has been hit, as well as fuel depots. An explosion hit the Asalouyeh complex (the processing center for the South Pars gas field) in the Bushehr region, as well as South Pars Phase 14, resulting in a partial suspension of production (-12 million m³/d of gas, intended for the domestic market).
In Israel, the Bazan Group shut down its oil refinery in Haifa Bay after a direct missile hit damaged its power plant. Furthermore, operations at the Leviathan (89% of whose production is exported) and Karish (intended for the domestic market) gas fields have been suspended. Air travel is also severely disrupted. In Israel, Ben Gurion Airport has been closed and El Al flights have been canceled.
In Iran, airport infrastructure has been targeted, particularly in Mehrabad and Mashhad.
The macroeconomic impact in all three countries could be significant.
The war is severely disrupting workers’ activity and travel. In Israel, the extensive mobilization of reservists and disruptions to supply chains are fueling inflationary pressures. On the budgetary front, Israel may be forced to adopt a supplementary budget law. In Iran, the shortfall from halting crude oil exports represents approximately $80 million per day. In the PT, the war context is exacerbating already exacerbated socioeconomic difficulties.
Other economies in the region are expected to be indirectly impacted, particularly in terms of energy.
While rising oil prices could cause inflationary pressures, Jordan and Egypt’s energy supplies are dependent on Israel and are therefore threatened following the suspension of Israeli gas exports. While this could be accompanied by electricity shortages in Egypt during the summer, Jordan (where 80% of its electricity is generated from Israeli gas) fears a shutdown.
Furthermore, the Iraqi economy is highly dependent on Iran, as 20% to 30% of its electricity is reportedly produced from Iranian gas, raising fears of power shortages.
The conflict could also exacerbate macroeconomic fragilities in Egypt and Jordan.
The tourism sector is already severely affected in Egypt, Jordan (where it represents 15% of GDP), and Lebanon (where its revenues are equivalent to 17% of GDP). In Jordan, consumption has been sluggish since October 2023, and the current account deficit (-5.9% in 2024) is likely to worsen. In Egypt, pressure on the pound has increased due to foreign capital outflows, and inflation could be fueled by rising oil and gas prices.
Furthermore, Egypt’s traditional sources of income could be further weakened (diaspora remittances, tourism revenues, Suez Canal revenues). A significant depreciation of the pound and a rise in oil prices would exacerbate budgetary pressures.
However, an increase in public debt would weigh on debt service, which is already reaching worrying levels (45% of expenditures and 80% of revenues).
Source: French Embassy in Lebanon
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