The economic cost of the war against Iran is beyond official estimates

A new research report reports on the intensification of inflation, decrease in investment and increase in inequality in the region following the war.

According to Ambassador Arjan, a research report published by Nuria Research Institute, entitled "Back to the Future? The war, the shock of basic goods and the Middle East and North Africa" ​​warns that the economic consequences of the war of the US and the Zionist regime against Iran have spread beyond the conflict fields and can face the countries of the region and parts of the global economy with increased inflation, reduced investment, pressure on government budgets and increased inequality.

This report, focusing on the economic and social consequences of the war in the Middle East and North Africa region, especially the countries that import energy, emphasizes that the disruption in the supply of basic goods and the increase in prices can lead to energy rationing, financial pressures on governments and the aggravation of food insecurity in parts of the world.

Two factors of the vulnerability of regional economies to the shock of war

According to this report, the structure of economic growth models and the position of countries in the global financial system are the two main factors that make regional economies vulnerable to shocks caused by war and the increase in prices of basic goods.

The authors believe that the dependence of some regional economies on export earnings and activities related to fossil fuels has made their economic performance sensitive to developments outside their borders. In such a situation, sudden changes in commodity prices, trade routes and export earnings can affect the economic growth and financial resources of governments.

On the other hand, the conditions of international financial markets and dependence on foreign capital flows increase the vulnerability of these countries. According to the researchers, the change in the conditions of the global capital markets can lead to a decrease in investment, and if the US Federal Reserve adopts contractionary monetary policies, the pressure on government debt and the value of the national currency of some countries in the region will also increase.

Forecasting more economic damage than the estimates of international institutions

One of the main points of the report is the probability that the economic damage of the war in 2026 will be higher than the current estimates of the International Monetary Fund and the United Nations Development Program.

The authors of the report believe that part of this difference is due to over-optimism in estimating the price of basic goods; An issue that they believe can cause the economic effects of the war on the countries of the region to be underestimated.

The report also warns that the consequences of war may not be limited to a short-term shock and, over a longer time horizon, increase the risk of recession and prolonged economic stagnation. According to the authors' analysis, the tightening of monetary and financial restrictions at the global level could worsen this situation.

However, in the published executive summary of the report, detailed figures related to the extent of economic growth reduction for each country or numerical predictions of damages were not provided.

Increase in the cost of living and pressure on the middle and low-income classes

Nuria's report, in addition to the macro-economic consequences, also discussed the distributional effects of the war and assessed the increase in inequality and the spread of poverty as possible consequences of the crisis.

According to this analysis, the decrease in employment and the drop in the real income of households can put more pressure on the middle and low-income classes in the coming months. The increase in the price of basic goods and energy, along with the increase in the cost of production and transportation, reduces the purchasing power of households and makes access to essential needs more difficult for vulnerable groups.

On the contrary, according to the authors, groups with capital assets may benefit from the increase in the value of assets and the growth of interest income; A process that can increase the economic gap between different groups of society.

This situation shows that the economic consequences of the war are not limited to the reduction of production or the increase of prices, but the distribution of the costs of the crisis among income groups is also important.

Contagion of the war shock from the energy market to the entire economy

According to the analytical framework of the report, the disruption in the supply of basic goods can spread to different sectors of the economy through the increase in the cost of energy, food and production inputs. The increase in the cost of production and transportation intensifies the inflationary pressure and further affects the economic activities and employment by reducing the purchasing power and investment.

In the meantime, energy importing countries are under double pressure due to their dependence on foreign supply and the increase in import costs. At the same time, these countries may face an increase in the cost of providing basic goods, a decrease in government financial resources, and a more difficult foreign financing.

Of course, the severity of these consequences will not be the same in different countries and it depends on the economic structure, the degree of dependence on imports, the financial capacity of governments and the possibility of accessing alternative ways of supplying goods.

The strategic importance of disruption in the Strait of Hormuz for the world economy

The consequences mentioned in this report also highlight the importance of disrupting the strategic routes of energy transfer and global trade, including the Strait of Hormuz. Disruption in these routes can affect the supply chain of other basic goods, the cost of transportation and international trade in addition to the oil market.

For energy-importing countries, increasing global prices and making it more difficult to access supply sources can increase the pressure on the trade balance, the public budget and the purchasing power of households. On the other hand, the effect of these developments on energy exporting countries depends on factors such as the amount of real exports, continuity of production, access to markets, and the possibility of transferring and receiving export revenues.

Therefore, the increase in global energy prices alone cannot be the basis for judging the amount of economic benefit or loss of exporting countries; Because the decrease in export volume or disruption in transmission routes may neutralize part of the effects of price increases.

Warning about turning a short-term shock into a long-term crisis

It is worth mentioning that the war against Iran can create consequences beyond direct military damages through increasing the prices of basic goods, disrupting trade and intensifying financial pressures.

According to the authors' assessment, the reduction of investment, the increase in debt pressure, the weakening of the real income of households and the intensification of inequality are among the consequences that may affect the economies of the region if the crisis continues.

Criticizing the optimism in some international estimates, the report also warns that the economic cost of the war could be higher than current estimates if the commodity price shock continues and global financial conditions tighten.