In the Red Sea, attacks by Iran-backed Houthi militants on commercial ships continue to disrupt a crucial trade route and raise shipping costs. The threat of escalation there and around flashpoints in Lebanon, Iraq, Syria, Yemen and now Iran and Pakistan increases every day.
Despite the staggering death toll and heartbreaking misery of violence in the Middle East, the broader economic impact has so far been largely contained. Oil production and prices, a key driver of global economic activity and inflation, have returned to pre-crisis levels. International tourists continue to fly to other Middle Eastern countries such as Saudi Arabia, the United Arab Emirates and Qatar.
However, for Israel’s neighbors (Egypt, Lebanon and Jordan) the economic damage is already severe.
A assessment The United Nations Development Program estimated that in just three months the war between Israel and Gaza has cost the three countries $10.3 billion, or 2.3 percent of their combined gross domestic product. Another 230,000 people in these countries are also expected to fall into poverty.
“Human development could set back at least two to three years in Egypt, Jordan and Lebanon,” the analysis warned, citing refugee flows, rising public debt and declining trade and tourism, a vital source of income. income, foreign exchange and employment.
That conclusion echoed a update last month by the International Monetary Fund, which said it would likely lower its forecasts for the most exposed countries when it published its report. World economy perspectives at the end of this month.
The latest economic blows couldn’t come at a worse time for these countries, said Joshua Landis, director of the Center for Middle East Studies at the University of Oklahoma.
Economic activity in the Middle East and North Africa was already in decline, falling to 2 percent growth in 2023 from 5.6 percent the previous year. Lebanon has been caught in what the World Bank calls one of the worst economic and financial crises in more than a century and a half. And Egypt has been on the brink of insolvency.
Since Hamas fighters attacked Israel from Gaza on October 7, Israel has killed about 25,000 Palestinians, according to Gaza’s Health Ministry. The strip has suffered widespread destruction and devastation. In Israel, where Hamas attacks killed about 1,200 people, according to officials, and resulted in 240 being taken hostage, life has been turned upside down, with hundreds of thousands of citizens called up for military service and 200,000 displaced from areas borders.
In Jordan, Lebanon and Egypt, uncertainty over the course of the war is eroding consumer and business confidence, which will likely reduce spending and investment, IMF analysts wrote.
Egypt, the Arab world’s most populous country, has yet to recover from the rising cost of essential imports such as wheat and fuel, a drop in tourism revenue and a drop in foreign investment caused by the coronavirus pandemic. and the war in Ukraine.
Lavish government spending on flashy megaprojects and weapons caused Egypt’s debt to skyrocket. When central banks around the world raised interest rates to curb inflation, those debt payments skyrocketed. Increasing prices within Egypt They continue to erode the purchasing power of households and the expansion plans of companies.
“No one wants to invest, but Egypt is too big to fail,” Landis said, explaining that the United States and the IMF are unlikely let the country default on its $165 billion in foreign loans given its strategic and political importance.
the fall in maritime traffic Crossing the Red Sea from the Suez Canal is the final blow. Between January and August, Egypt earned an average of $862 million a month in revenue from the canal, which carries 11 percent of global maritime trade.
James Swanston, emerging markets economist at Capital Economics, said that according to the head of the Suez Canal Authority, traffic is down 30 percent this month since December and revenue is 40 percent weaker compared to 2023 levels.
“That’s the biggest spillover effect,” he said.
For these three struggling economies, the decline in tourism is particularly alarming. In 2019, tourism in Egypt, Lebanon and Jordan accounted for 35 percent to almost 50 percent of their combined exports of goods and services, according to the IMF
As of early January, confirmed tickets for international arrivals to the broader Middle East region for the first half of this year were 20 percent higher than last year, according to ForwardKeys, a data analytics firm that tracks global air travel bookings.
But the more intense the fighting, the greater the decrease in travelers. Tourism to Israel has largely evaporated, further hitting an economy upended by a full-scale war.
In Jordan, airline bookings fell 18 percent. In Lebanon, where Israeli troops are fighting Hezbollah militants along the border, stockpiles fell by 25 percent.
“Fears of further regional escalation are clouding travel prospects in the region,” Olivier Ponti, vice president of insights at ForwardKeys.
In Lebanon, travel and tourism have previously contributed one-fifth of the country’s annual gross domestic product.
“The number one place in Lebanon is Baalbek,” said Hussein Abdallah, general director of Lebanon Tours and Travels in Beirut. The sprawling 2,000-year-old Roman ruins are so spectacular that visitors have suggested that genies built a palace there for the Queen of Sheba or that aliens built it as an iintergalactic landing pad.
Now, Abdallah said, “it is totally empty.”
Abdallah said that since Oct. 7, his reserves have fallen 90 percent from last year. “If the situation continues like this,” he said, “many tour operators in Beirut will close.”
Travel to Egypt also decreased in October, November and December. Landis, of the Middle East Center in Oklahoma, mentioned that even his brother canceled a planned trip along the Nile and opted to vacation in India.
Khaled Ibrahim, consultant Amisol Travel Egypt and a member of the Middle East Travel Alliance, said the cancellations started coming in after the attacks began. Like other tour operators, he offered discounts to popular destinations such as Sharm el-Sheik on the southern tip of the Sinai Peninsula, and occupancy reached about 80 percent of normal.
He is less optimistic about salvaging the remainder of what is considered the main tourist season. “I can say that this winter, from January to April, will be very challenging,” Ibrahim said from Medina, Saudi Arabia, where he was leading a tour. “Maybe business will drop by 50 percent.”
Jim Tankersley contributed reporting from Davos, Switzerland.
