New estimates released by the United Nations Development Program (UNDP) indicate that the ongoing military escalation in the Middle East, now in its fifth week, could significantly impact regional economies, with projected losses ranging between 3.7 and 6.0 percent of combined Gross Domestic Product (GDP).
This equates to an estimated economic setback of between US$120 billion and US$194 billion, surpassing the total GDP growth achieved across the region in 2025.
The assessment also warns of a sharp deterioration in labor market conditions, with unemployment expected to rise by up to four percentage points, potentially resulting in around 3.6 million job losses. This figure exceeds total job creation recorded in 2025. As a consequence, as many as four million people could fall into poverty, according to the report.
The findings are detailed in a UNDP study titled “Military Escalation in the Middle East: Economic and Social Implications for the Arab States Region”, which highlights structural vulnerabilities across the region that amplify the economic and social impact of short-term conflicts, with effects likely to persist in the long term.
UN Assistant Secretary-General and Director of the UNDP Regional Bureau for Arab States, Abdallah Al Dardari, said the findings underscore the need for a reassessment of regional economic strategies.
He called for strengthened fiscal, sectoral, and social policy frameworks; alongside greater regional cooperation aimed at economic diversification beyond hydrocarbons. He also emphasized the importance of expanding production capacity, securing trade and logistics networks, and broadening international economic partnerships to reduce exposure to external shocks.
The study uses Computable General Equilibrium modelling to assess the scale of disruption caused by a four-week conflict scenario. It examines key transmission channels, including higher trade costs, temporary productivity declines, and localized damage to capital assets.
Five simulation scenarios were developed, ranging from moderate disruption, where trade costs increase tenfold, to an extreme scenario involving severe disruption and an energy shock, including a halt in hydrocarbon production, where trade costs rise up to a hundredfold.
The report finds that the economic impact varies significantly across subregions due to differing structural characteristics. The Gulf Cooperation Council (GCC) countries and the Levant are projected to experience the most severe macroeconomic losses, driven by high exposure to trade disruptions and volatility in energy markets.
GDP losses in these subregions are estimated at between 5.2 and 8.5 percent for the GCC and 5.2 to 8.7 percent for the Levant, reflecting declines in output, investment, and trade.
Poverty impacts are also expected to be unevenly distributed, with the Levant and least developed Arab countries facing the most severe increases due to higher baseline vulnerabilities. North Africa is projected to experience more moderate but still significant economic effects in absolute terms.
In the Levant, poverty levels could rise by approximately five percent, pushing an additional 2.85 to 3.30 million people into poverty, representing more than three-quarters of the total regional increase. Across the region, human development is projected to decline by around 0.2 to 0.4 percent, equivalent to a setback of approximately half a year to nearly one year in human development progress.
