In recent years we have seen an increased frequency of external shocks with impacts routinely extending far beyond the parties directly involved or affected. The current military conflict between Iran, the United States and Israel – also impacting nearby neighbouring Gulf countries– marks just the latest in a succession of geopolitical shocks to have destabilised the global economy with rapidly rising oil prices. And the speed at which its economic consequences are propagating globally is consistent with a troubling pattern: modern crises transmit faster and further than ever before.

By ASSEM ABU HATAB

Countries in North Africa are especially vulnerable to these external shocks because they sit at the intersection of multiple transmission channels, including energy imports, Gulf trade, remittance corridors, tourism, and development finance, that leave the sub-region exposed whenever distant crises escalate.

The COVID-19 pandemic, the Russia–Ukraine war, and Red Sea shipping disruptions have already shown how shocks originating elsewhere can rapidly generate food insecurity, fiscal stress, and social instability thousands of kilometres away.

Brent crude rose above $110 per barrel in mid-March 2026 External link, opens in new window., marking an increase of over 50 percent in recent weeks and reaching its highest level since 2023, as disruptions to the Strait of Hormuz and regional energy infrastructure tightened global supply.

Three patterns now stand out: global crises are increasing in frequency, giving economies less recovery time; transmission is faster and more interconnected, and secondary effects, such as fiscal stress, currency depreciation, debt distress, are amplified in developing economies with limited buffers. UNCTAD has also documented External link, opens in new window. a strong historical correlation between agrifood price spikes and political instability, from the 2007–08 food riots to the Arab Spring. These realities mean that the Iran conflict’s effects on North Africa could escalate rapidly if energy prices remain elevated for more than one quarter and Gulf economic activity contracts meaningfully.

Crisis transmission channels: energy prices

The war threatens North African economies through six well-defined channels that policymakers must monitor from the macro level down to households.

The Strait of Hormuz, through which 20.9 million barrels per day of crude oil and petroleum liquids passed in 2023, External link. has tightened global supply, with the U.S. Energy Information Administration forecasting Brent crude above $95 per barrel External link, opens in new window. for the next two months before easing toward $70 by year-end. LNG flows External link, opens in new window. have also been curtailed, raising European and Asian gas prices. For net importers such as Morocco (which imports 90 percent of its energy needs External link.), Egypt, and Tunisia, the spike is immediately inflationary: a sustained $20-per-barrel increase can add 1–2 percentage points to headline inflation and widen current-account deficits by several billion dollars. Governments already operating under tight fiscal space and IMF programmes face difficult choices between higher energy subsidies and pass-through-induced social tensions. Net exporters Algeria and Libya may register short-term revenue gains – Algeria’s hydrocarbons historically generate over 90 percent of export revenue External link., while Libya’s were valued at $26.3 billion in 2024 External link. – yet production and logistics constraints could prevent them from fully capitalising on the windfall, leaving households exposed to higher domestic fuel costs and reduced purchasing power.

Trade and exports

Gulf Cooperation Council (GCC) economies are both conflict participants or neighbours and major trading partners to North African countries. Egypt’s exports to Arab countries rose 18 percent in 2024 External link., with agricultural products – largely from smallholder farms External link. which constitute nearly 70% of cultivated land – forming a large share. Reduced Gulf demand, shipping re-routing, or port damage would cut these flows, directly lowering export revenues at the macro level while transmitting income losses to rural smallholders who have few alternative livelihoods. The knock-on effect would tighten domestic food supply and push local prices higher precisely when global commodity markets are already strained, eroding household food security.

Investment, development cooperation, and loans

GCC sovereign wealth funds and state-linked entities have been among the largest foreign investors in North Africa, exemplified by Egypt’s 2024 Ras El-Hekma deal with the UAE and sustained Emirati and Saudi commitments in Moroccan renewables and Tunisian infrastructure. War-related fiscal pressures in the Gulf—higher defence spending and lower non-oil revenues—could slow or redirect these flows. A contraction in foreign direct investment would compound existing imbalances, given that remittances already account for over 60 percent of external finance in the sub-region compared with 17 percent for official development assistance and 13 percent for FDI External link., intensifying fiscal and debt-sustainability pressures especially in Egypt, where gross financing needs are already elevated. At household level, slower investment translates into fewer jobs in construction, renewables, and infrastructure.

Remittances

Remittances constitute the single most important external financial flow to North Africa, having more than doubled over the past decade External link., with Egypt alone receiving $41.5 billion in 2025 External link, opens in new window., Morocco around $13 billion in 2024 External link., and Tunisia $2.6 billion External link.. Egypt has some 14 million nationals External link. working abroad, concentrated in Saudi Arabia, the UAE, Kuwait, and Jordan. Even a 10–15 percent decline in flows – a plausible scenario based on historical precedents during the 2008–09 crisis External link, opens in new window. and early COVID-19 projections External link. (World Bank) triggered by job losses or reduced hours among Gulf migrants – would widen current-account deficits and weaken currencies at the macro level while directly cutting household spending on consumption, education, and healthcare, pushing millions toward poverty.

Tourism

The World Travel & Tourism Council estimates the conflict is already costing the Middle East’s Travel & Tourism sector at least $600 million per day External link. in lost visitor spending. North African destinations are directly exposed: Egypt’s sector contributed 8.5 percent of GDP External link. in 2024 and supported 2.7 million jobs External link.; Tunisia’s represented 14 percent External link. of the economy and nearly 418,000 jobs External link.; Morocco’s is similarly vital for employment and foreign exchange. Historical precedent from the post-2011 Arab Spring shows that regional insecurity can depress arrivals for one to three seasons, translating into macro-level losses in GDP and foreign earnings and household-level job cuts in hospitality and related services.

Shipping and supply-chain disruption

The conflict compounds existing Red Sea disruptions, with the IMF already recording $6 billion in Suez Canal revenue losses External link, opens in new window. for Egypt in 2024. Re-routing via the Cape of Good Hope lengthens transit times and raises costs, inflating import bills across coastal and landlocked African states alike and feeding through to higher consumer prices at household level.

Beyond North Africa, the continent faces compounding pressures. Rising fuel and food prices erode purchasing power in economies where households already allocate 40–60 percent of income to food. UNCTAD’s analysis of the Russia–Ukraine war showed External link, opens in new window. that more than 5 percent of the import basket of the poorest countries consisted of products likely to face conflict-driven price hikes, compared with under 1 percent for richer economies. Another external shock before full recovery from the COVID-19 contraction risks tipping fragile states—especially in the Horn of Africa, the Sahel, and Sudan—toward humanitarian crises.

Four-pronged strategy

In the short term, governments across North Africa and the broader continent should pursue a four-pronged strategy. They must stabilise food and energy supplies by diversifying import sources, drawing on strategic reserves, and securing emergency procurement agreements beyond Gulf partners. They should reinforce social safety nets with targeted cash transfers and food subsidies to protect vulnerable populations.

Exchange-rate pressures must be managed carefully—maintaining flexibility while using reserves judiciously to avoid disorderly depreciation. Finally, broadening trade partnerships and export destinations will reduce over-reliance on Gulf markets and mitigate concentration risks.

The Nordic countries can play a stabilising role by targeting the precise transmission channels now at work. On energy-driven inflation, they can accelerate IMF and World Bank disbursements and expand concessional financing so that Egypt, Morocco, and Tunisia can cushion subsidy reforms and finance targeted cash transfers without destabilising public finances.

To address trade and supply-chain disruptions linked to the Strait of Hormuz, Nordic export agencies and development bodies such as the Swedish International Development Cooperation Agency (Sida) can broker alternative supplier networks, offer trade finance guarantees, and support logistics re-routing.

In response to declining Gulf demand and potential cuts in investment and remittances, Nordic development finance institutions can deploy blended finance instruments to sustain investment in renewable energy, agri-processing, and SMEs, while channeling Nordic green-finance tools toward renewable-energy projects in Morocco, Egypt, and Tunisia.

To mitigate social fallout from tourism and remittance shocks, Nordic aid can be redirected toward scalable social protection systems, including digital cash transfers and employment support in tourism-dependent areas. In essence, the Nordic approach should emphasise coordinated, timely, and technically informed actions that reduce inflationary pressures, sustain external balances, and protect vulnerable populations —thereby preventing economic shocks from cascading into broader political and social instability across North Africa.