The Middle East is facing a serious and dangerous situation. A direct war has started between two countries. This is different from past conflicts in the region it is not a small or indirect fight, but a full military battle. The war is costly not only in military terms but also for their economies. Its effects could spread beyond the region, especially to energy markets and global trade.

 

Before the war began, Israel’s economy was doing well. It was expected to grow by 3.5 per cent in 2025, after growing 3.4 per cent in the first part of the year. But the war quickly changed things. In the first two days, Israel lost more than $1.5 billion. The International Monetary Fund (IMF) says the war might reduce Israel’s growth by 2.5 per cent of its total economy. That means growth could fall below 1 per cent or even lead to a small recession if the war continues all year.

 

Israel’s economy is expected to reach $583 billion in 2025 and $611 billion in 2026. But those numbers don’t show the full picture. Israel’s economy depends a lot on stability and investor trust. It also relies on high-tech industries. The war, with its rockets and drone attacks, makes the country feel unsafe and could scare away investors.

 

At the same time, Israel is also fighting a war in Gaza, which started in October 2023. That war alone costs around $100 million every day. These costs are adding up and putting pressure on Israel’s budget. There is also growing criticism of Israel in other countries, and some are even boycotting Israeli products. This could hurt exports. A long war may also cause some people to leave the country, leading to a loss of skilled workers, which is bad for the economy.

 

Iran is also in a difficult position. It has faced economic sanctions for many years, and now the war is making things worse. The IMF says Iran’s economy may grow only 0.3 per cent in 2025 -almost nothing. Iran is losing about $1 billion every day due to the war. If the war spreads or key oil facilities are hit, losses could grow even more.

 

Iran produces about 3 million barrels of oil each day, but it only sells half of that and at low prices. Most of the oil goes to China. Because of this, Iran doesn’t have many options, and it depends heavily on China. If Iran tries to block oil traffic through the Strait of Hormuz, it could upset China and harm its own economy.

 

Iran also has other problems: inflation is very high (over 43 per cent), it doesn’t have enough foreign currency, and it has a large trade deficit. Its economy was worth about $401.3 billion in 2024 and was expected to grow in 2025, but now that seems unlikely. The war may slow down Iran’s non-oil sectors like farming, services, and mining, which are important for its future.

 

This war is not like others in the past. It may last a long time and change the economic future for both Iran and Israel. The direct cost of war is high, but the longer-term damage like slow growth, trade problems, and high energy prices could be even worse.

 

Raad Mahmoud Al-Tal is head of Economics Department – University of Jordan– r.tal@ju.edu.jo