Economy
2 months into Iran war, economic toll mounts
Two months since the outbreak of the Iran war, data shows the economic toll is spreading beyond the Middle East, with emerging and developing markets facing rising inflation, growing fiscal strains and trade disruptions.
Middle East nations and those nearby are seeing the most direct economic hit.
Qatar posted its first-ever trade deficit at $1.2 billion in March after the closure of the Strait of Hormuz slashed exports by more than 90% and halved imports.
JPMorgan economists expect Qatar’s economy to shrink 9% this year following damage to a liquefied natural gas (LNG) plant, a deeper contraction than the International Monetary Fund’s minus 6.1% forecast for Iran.
The IMF cut growth projections for emerging and developing economies as a group to 3.9% from 4.2%. And this month’s IMF and World Bank meetings in Washington included stark warnings.
“A full-fledged impact is coming and it is not far away,” Qatari Finance Minister Ali Ahmed Al-Kuwari told the event.
Emerging Asian markets are particularly vulnerable, as more than 50% of crude imports and more than a third of gas imports traditionally come through the Strait of Hormuz.
However, distant producers have benefited from higher crude prices.
Brazil and Kazakhstan’s currencies strengthened more than 9% year-to-date, and emerging market stocks have bounced back to record highs, with tech-heavy markets such as South Korea and Taiwan adding to the boost.
Turning tankers
The jump in energy costs and the resulting inflationary pressures have curbed central banks’ room to cut interest rates and started pushing them in the other direction instead.
The Philippines hiked rates last week, while Türkiye, Poland, Hungary, Czechia, India and South Africa have started turning more hawkish, given the dangers of “second-round effects,” where wages and other key knock-on costs rise.
JPMorgan says markets in most of the 15 major emerging economies it tracks are pricing in tighter monetary policy over the next six months. Economists are predicting it, too.
“Rising inflationary pressures and risk-off sentiment could tighten financing conditions, pushing bond yields higher,” Zahabia Gupta at S&P Global said in a note.
Subsidy strains
Emerging market governments already spend hundreds of billions of dollars a year cushioning households from high energy prices, and the latest spikes are set to push those numbers higher.
The IMF estimates that global fossil fuel subsidies amounted to $725 billion in 2024, or 6% of global gross domestic product (GDP). That is down from 12% in 2022, when Russia’s full-scale invasion of Ukraine sparked a jump in energy costs.
While the calculations do not isolate emerging markets, the fund says the Middle East, North Africa, Europe and Central Asia region dishes out three-quarters of the subsidies globally.
“We see growing fiscal risks in EM from capping prices, from tax cuts and subsidies if this energy shock is more persistent,” Citi’s Joanna Chua said in a note, pointing to Egypt, Türkiye, Indonesia, India, Hungary and Poland as particularly vulnerable.
The fragile few
Egypt, Sri Lanka and Pakistan belong to a group of crisis-scarred, lower-income countries that analysts fear are being pulled back toward economic trouble.
In Egypt, fuel and food costs are surging while tourism revenues, which brought in nearly $20 billion last year, could drop alongside remittances from those working in the Gulf.
A 9% slump in the Egyptian pound this year also means the cost of repaying its debt, with nearly $30 billion in payments due, has soared.
Sri Lanka, which defaulted in 2022, has reintroduced fuel subsidies and negotiated a temporary easing on its IMF financing to get some breathing space.
Pakistan’s gross foreign exchange reserves stood at $16.4 billion by the end of March, covering less than three months of basic imports. Analysts warn they are actually negative if the central bank’s foreign currency liabilities are factored in.
Another blow for Africa
Poorer countries in sub-Saharan Africa are being hit particularly hard.
In many cases, a dependence on imported oil overlaps with stretched government finances; the longer crude prices stay high, the more fiscal pressure builds.
“We have a negative supply shock,” IMF Managing Director Kristalina Georgieva said at an event in London last week.
She stressed that “the worst thing to do is to try and balloon demand,” as some countries are doing by providing population-wide subsidies, rather than offering them just to those who need it most.
Georgieva expects the fund will have to provide $20 billion to $50 billion in additional emergency support due to the crisis.
President Donald Trump’s approval rating has fallen to its lowest point of his current term as Americans grow more dissatisfied with his handling of the cost of living and the unpopular war with Iran, a new Reuters/Ipsos poll found.
The four-day poll completed Monday showed 34% of Americans approve of Trump’s performance in the White House, down from 36% in a prior Reuters/Ipsos survey, which was conducted from April 15 to 20.
The majority of responses were gathered prior to the Saturday night shooting at the White House Correspondents’ Association dinner, where Trump was due to speak.
Federal prosecutors have charged the accused shooter with attempting to assassinate the president.
Trump’s standing with the U.S. public has trended lower since taking office in January 2025, when 47% of Americans gave him a thumbs-up.
His popularity has taken a beating since the U.S. and Israel launched a war against Iran on Feb. 28 which has led to a surge in gasoline prices.
Only 22% of poll respondents approved of Trump’s performance on the cost of living, down from 25% in the prior Reuters/Ipsos poll.
The survey, which was conducted nationwide and online, gathered responses from 1,014 U.S. adults and had a margin of error of 3 percentage points.
Türkiye’s credit guarantee fund has inked a cooperation protocol with a major fund for Southeast Europe to develop a new program supporting sustainable agriculture, according to a report on Tuesday.
The Credit Guarantee Fund (KGF) has signed a cooperation protocol with the European Fund for Southeast Europe (EFSE) to develop a new guarantee program for sustainable agriculture, aimed at strengthening farmers’ and agricultural enterprises’ access to finance in Türkiye, the Anadolu Agency (AA) report said.
In his speech at the signing ceremony, KGF’s general manager, Hasan Basri Kurt, stated that they have taken significant steps toward establishing “a green list” and supporting agriculture through this method.
Kurt drew attention to the fact that the green list method had never been implemented in Turkish agriculture before, and said: “We see this as a project that will provide access to international funds, contribute to the development of Turkish agriculture, prevent waste in sustainable agriculture, increase efficiency and serve as a key solution.”
He noted that they have now launched the Agricultural Guarantee Program, and that a limit of approximately TL 30 billion (around $667 million) has been allocated across 10 banks, emphasizing that sustainability stands before them as an entirely new perspective.
“Thanks to this sustainable green list, banks in Türkiye will have access to international finance and will be able to offer loans to our farmers under better terms with lower funding costs,” he suggested.
EFSE Portfolio Manager Jasminka Begert highlighted the special importance of this project that promotes sustainable agriculture for them, and expressed pride in cooperating with KGF in this context.
Begert stated that while supporting the financing of sustainable agriculture, they share a common vision with KGF and said, “In addition to the urgency of the actions we aim to implement, we also see the opportunities it will create for Türkiye’s agricultural sector.”
“For this purpose, we aim to enhance both KGF’s and the participating banks’ technical capacity to properly finance sustainable agriculture, thereby supporting farmers’ more climate-smart, sustainable, and efficient production,” she added.
Scope of the protocol
Under the protocol, EFSE is expected to provide a fund of approximately 100 million euros (nearly $117 million) in Türkiye through certain banks, with the resources to be allocated to agricultural enterprises that meet “green list” criteria.
KGF will design a guarantee product for these loans, particularly aiming to facilitate access to finance for enterprises with insufficient collateral.
The Pilot Sustainable Agriculture Guarantee Program to be developed will provide partial credit guarantees for working capital and investment loans. Climate-friendly technologies, resource efficiency and environmentally sustainable agricultural activities will be encouraged. Green list criteria will be integrated into both the credit and guarantee processes, establishing a standardized approach to sustainable agricultural finance.
Additionally, a special technical support program for KGF has been designed under the cooperation. Within the program, the design and operational processes of KGF guarantee product will be improved, and the green list will be integrated into KGF’s Portfolio Guarantee System.
The “green list” is also known as sustainable agricultural activities and investments.
The list includes topics such as the production of protein crops, the improvement of agricultural input efficiency, water efficiency, zero tillage, organic production, beekeeping, circular agriculture, sustainable livestock, and aquaculture.
Energy prices are projected to jump 24% in 2026, reaching their highest level since Russia’s full-scale invasion of Ukraine four years ago, assuming the most severe disruptions from the Middle East war subside by May, the World Bank said on Tuesday.
Commodity prices could rise even further if hostilities in the region escalated and supply disruptions lasted longer than expected, the global development bank said in its latest Commodity Markets Outlook.
The bank said its baseline scenario assumed that shipping volumes through the crucial Strait of Hormuz waterway would gradually return to near pre-war levels by October, but said the risks were “markedly tilted” toward higher prices.
The bank’s baseline projects a 16% increase in overall commodity prices in 2026, given soaring energy and fertilizer prices and record-high prices for several key metals.
Oil prices continued to rise on Tuesday as efforts to end the U.S.-Iran war stalled and the Strait of Hormuz remained largely shut, keeping energy supplies, fertilizer and other commodities from the key Middle East producing region out of the reach of global buyers.
Attacks on energy infrastructure and shipping disruptions in the strait, which before the war carried 35% of global seaborne crude oil trade, have triggered the largest oil supply shock on record, the World Bank said.
It said Brent crude oil prices remained more than 50% higher in mid-April than they were at the start of the year. Brent oil is forecast to average $86 a barrel in 2026, up sharply from $69 a barrel in 2025, the bank said.
Oil prices could average as high as $115 a barrel this year if critical energy facilities suffered more war damage and export volumes were slow to recover, it said.
Brent crude futures for June were trading around $109 a barrel on Tuesday after hitting their highest close since April 7 on Monday.
“The war is hitting the global economy in cumulative waves: first through higher energy prices, then higher food prices, and finally, higher inflation, which will push up interest rates and make debt even more expensive,” World Bank chief economist Indermit Gill said.
The shock would hit the poorest hardest, adding to the woes of highly indebted developing countries.
Pressure seen on food supply
Fertilizer prices were projected to increase by 31% in 2026, driven by a 60% jump in the price of urea, the most widely used solid nitrogen fertilizer, which is produced by converting natural gas to produce ammonia and carbon dioxide.
The surge in fertilizer prices would fuel pressures on food supply, eroding farmers’ incomes and threatening future crop yields. The World Food Programme estimates that 45 million more people could face acute food insecurity this year if the war continues for a prolonged period.
The World Bank said inflation in developing economies was now projected to average 5.1% in 2026, under the baseline scenario, up from 4.7% last year and a full percentage point higher than pre-war forecasts. But inflation could rise as high as 5.8% in developing economies if the war was prolonged.
Growth would also take a big hit, the bank said. Developing economies were now projected to grow by just 3.6% in 2026, down from a pre-war forecast of 4% growth.
Belgian companies see Türkiye as deeply integrated with European economic value chains, Belgium’s ambassador to Ankara, Hendrik Van de Velde, said in a recent interview, ahead of a major trade mission led by Queen Mathilde scheduled for next month.
Van de Velde said the value chains of Turkish and European economies are “fully integrated,” adding that more than half of Türkiye’s economy is linked to European markets.
His remarks to Anadolu Agency (AA) came before the Belgian Economic Mission to Türkiye planned for May 10-14, with meetings in Istanbul and Ankara.
The delegation, led by Queen Mathilde, is expected to include about 450 participants, including roughly 250 business leaders.
The mission will focus on pharmaceuticals, logistics, sustainable energy, digital transformation, and defense and aviation cooperation.
Belgian officials also expect agreements in air transport, social security, agriculture and health care during the visit.
Van de Velde said Türkiye’s defense sector has grown significantly over the past decade and has become a major driver of the country’s economy.
The delegation, working with the Presidency of Defense Industries (SSB), plans visits to major defense firms including Baykar, Turkish Aerospace Industries (TAI) and Aselsan, he noted.
The ambassador said Belgium also has strong firms in the sector, though generally smaller in scale than their Turkish counterparts, adding that Belgium’s space and aviation cluster could align with Turkish manufacturing capacity.
On the logistics side, the bilateral trade volume between Türkiye and Belgium is valued at around 13 billion euros ($15.2 billion).
Belgium ranks fifth among EU countries in trade with Türkiye, according to the ambassador.
Van de Velde also said improved predictability for foreign direct investment (FDI) would support long-term cooperation, with Belgium serving as a hub in the eurozone and Türkiye acting as a transit gateway linking Asia, Europe and Africa.
Budget carrier Wizz Air is seeing a strong rebound in travel demand to markets such as Türkiye and Egypt, which had initially been affected due to their proximity to the conflicts in the Middle East, its CEO said Monday.
The Hungarian-based airline is also witnessing robust bookings across traditional European leisure destinations, including Italy, Greece, Spain, Portugal and France, Jozsef Varadi told reporters at a briefing.
In contrast, travel demand to the Middle East has dropped sharply, with passengers increasingly avoiding the region altogether, Varadi noted.
“No one wants to travel to the Middle East; passengers are not even transiting through the region,” he added.
Varadi said the airline’s leisure summer schedule would be 17% larger this year, with growth focused on the Balkan and Caucasus markets, despite concerns over jet fuel supply and costs tied to the Iran war.
“We are much stronger on summer bookings this year than last year,” he said, after airlines including easyJet and TUI announced drops in forward bookings and issued profit warnings in recent weeks.
European airlines are entering their first-quarter reporting season, with analysts uncertain about longer-term outlooks as jet fuel hedges start running out in the coming months.
Wizz Air is set to report its full-year results for the 2026 financial year on June 11 after it issued a profit warning in March.
Varadi said Wizz Air was 70% hedged for its fuel needs for the summer period and would receive 35 new Airbus aircraft during 2026.
The carrier was set to renew some of its hedges when they run out this summer in order to protect it against price volatility, he added.
He maintains that he doesn’t think jet fuel will run out in the coming weeks. At a price of $1,500 a metric ton for jet fuel, tankers were incentivised to head to the U.S. to collect it, Varadi said, which made up for shortfalls from the Middle East, a major source of jet fuel for European carriers.
However, he does think prices could remain high even for months after the war ends.
Varadi said it was a good moment for Europe to reassess its reliance on the Middle East for fuel, especially as the crisis could lead to broader capacity cuts across the industry, intensifying in the autumn.
“If you look at the very nature of how Europe is accessing jet fuel, I mean, we are far over-dependent on the Middle East. I mean, that’s kind of crazy,” he said.
Türkiye’s military spending increased by 7.2% in 2025, according to a report by a conflict think tank on Monday that also showed global expenditure hit a new all-time high, driven by wars and geopolitical tensions.
Türkiye’s expenditure reached $30 billion to make it the 18th biggest spender in the world, the Stockholm International Peace Research Institute (SIPRI) said.
The figure accounted for 1.9% of Türkiye’s gross domestic product (GDP), and the 2025 growth rate lifted the increase over the past decade to 94%.
The report showed global military spending rose by 2.9% compared with 2024 to nearly $2.9 trillion, marking an 11th consecutive year of growth.
That came despite a 7.5% reduction by the U.S., the world’s biggest spender, as President Donald Trump halted new financial military aid to Ukraine.
The 2025 total brought the growth over the past decade to 41% and took spending as a share of GDP to 2.5% – its highest level since 2009.
The top three military spenders, the U.S., China and Russia, accounted for a combined $1.48 trillion, or 51% of global spending.
The main contributor to higher global spending was a 14% rise in Europe to $864 billion.
In total, 22 European NATO members met the 2% of GDP benchmark. Their combined spending reached $559 billion to rise faster than at any time since 1953, according to SIPRI.
The expenditure of all the 32 NATO members amounted to almost $1.6 trillion in 2025, or 55% of spending globally.
In Türkiye, the overall increase was mainly driven by the country’s continuous investments in its domestic arms industry, SIPRI said.
Allocations to the special fund to support the Turkish arms industry rose by 25% year-over-year and accounted for 22% of Türkiye’s total expenditure in 2025, according to the report.
Türkiye has injected billions of dollars over the past two decades to transform it from a nation heavily reliant on equipment from abroad to one that is a major exporter and where homegrown systems now meet almost all of its defense industry needs.
For much of the past two decades, Ankara has expressed frustration over its Western allies’ failure to provide adequate defense systems against missile threats despite Türkiye being a NATO member.
Türkiye’s defense exports sealed a record 2025, rising about 48% year-over-year to more than $10 billion. The goal for 2028 is to lift the full-year figure to $11 billion, placing Türkiye among the world’s top 10 biggest defense exporters, according to officials.
Despite persistent tensions in the Middle East, military expenditure in the region rose only marginally, by 0.1%, to $218 billion, SIPRI said.
In Asia and Oceania, spending reached $681 billion, an 8.5% increase from 2024, the region’s largest annual increase since 2009.
Total military spending in Africa increased by 8.5% in 2025 to reach $58.2 billion, SIPRI said.
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