Conference Paper
The Economic Impact of the Israel-Iran Conflict on GCC Countries and Strategies to Mitigate Adverse Effects
No.
ERF32AC_55
Publisher
ERF
Date
May, 2026
Topic
E3. Prices, Business Fluctuations, and Cycles
F5. International Relations, National Security, and International Political Economy
This paper investigates the impact of the Israel-Iran conflict on the macroeconomic performance of Gulf Cooperation Council (GCC) countries, focusing on energy, trade, and finance. Using annual data from 2010 to 2023 and a Double Machine Learning (DML) framework, the analysis establishes causal relationships between conflict intensity and GDP growth, inflation, and exchange rate volatility, while accounting for high-dimensional confounding factors and nonlinear transmission mechanisms. The findings reveal that higher conflict levels hinder economic development and increase price and currency instability, with structural differences observed across nations depending on their economies' characteristics. Channel-specific estimates show that reliance on oil, trade exposure, and capital-flow sensitivity influence how geopolitical shocks affect these economies. These adverse effects can be mitigated through fiscal discipline, economic diversification, and foreign reserves, highlighting vulnerabilities in existing policies. Counterfactual simulations demonstrate that stronger fiscal policy, economic diversification, and increased reserves help enhance macroeconomic stability even amid persistent geopolitical tensions. Overall, the study provides empirical insights into resilience strategies for conflict-prone, hydrocarbon-dependent economies.
Research Fellows
Salaheddin Abosedra
Fulbright Fellow, Qatar University
Authors
Md. Qamruzzaman
Professor of Finance, United International University