Why ending the Israel–Iran conflict matters for global economic recovery

Given today’s fragile economic landscape, the world can ill afford another conflict to derail its recovery efforts. Since 2020, growth has been uneven — an unprecedented 2.88 percent contraction during the COVID-19 pandemic was followed by only a 2.8 percent expansion in 2023 amid the lingering fallout of the Russia–Ukraine war. These figures underscore an urgent truth: global prosperity depends on peace and the stability of key growth drivers.

Even before hostilities erupted between Iran and Israel, the global economy was already mired in deep-seated crises. Sovereign debt had swollen to an unprecedented $324 trillion, while commodity and service markets contended with persistent inflationary pressures. Supply-chain bottlenecks continued to disrupt trade, and escalating tariff disputes undermined export capacities across both advanced and emerging economies.

At the same time, fierce competition among major reserve currencies added further strain to the international monetary system. The outbreak of conflict has only compounded these vulnerabilities — shaking oil-market stability, prompting abrupt capital flight, spurring a rise in cyberattacks between the belligerents, and magnifying threats to vital shipping lanes that link East to West and North to South.

Toll of armed conflict

The human and economic toll of armed conflict extends far beyond the battlefield. In warring countries, resources are swiftly redirected from growth and development to the prosecution of the war effort, derailing long-term aspirations for prosperity. Critical physical and digital infrastructure — each project representing billions in investment — is damaged or destroyed as fighting intensifies, setting reconstruction costs soaring and postponing economic progress by years.

Equally devastating are the social consequences. Daily military operations cripple ordinary life: markets struggle to deliver essential goods and services, unemployment surges, and families lose their livelihoods. Public and private institutions — hospitals, relief centres, schools — face chronic disruption, undermining health, psychological well-being, and community resilience.

Economic activity grinds to a halt as conflict intensifies. Households abandon savings in favour of hoarding, investment incentives collapse, and production and employment come to a standstill. Trade flows — both imports and exports — virtually cease, deepening economic paralysis. These outcomes are hardly accidental: undermining an adversary’s economic and industrial capacity — civilian as well as military — is often a deliberate objective of wartime operations.

In light of the devastating human and economic toll an Iran–Israel conflict would inflict — both within the combatant states and across an already fragile global and regional economy — urgent intervention is imperative. International actors, from governments and multilateral organisations to regional blocs and civil-society coalitions, must marshal every diplomatic, economic, and humanitarian resource to ensure we do not see a repeat of hostilities. Through sustained dialogue, targeted incentives, and coordinated pressure, they should convey to both parties that continued hostilities will yield only widespread ruin, not security, and that the true path to stability lies in de-escalation and negotiation.

Stability cornerstone of development

Gulf states — led by the UAE and Saudi Arabia — have long understood that stability is the cornerstone of sustainable development and that armed conflict yields only losses.

Accordingly, they have consistently called for restraint, rejected escalation, and championed political solutions and dialogue. In recent days, Gulf diplomacy has engaged all relevant parties in a concerted effort to contain tensions and avert a wider confrontation.

Ultimately, hope for peace rests on the united, sincere efforts of influential, credible states around the world — an approach that drives the UAE’s regional initiatives. From Abu Dhabi’s perspective, every step back from the brink and toward negotiation is a lifeline for global economic recovery, a safeguard for people’s well-being, and a renewed promise of shared prosperity.

Mouza Almarzooqi is Researcher/ Head of Economic Studies Section, TRENDS Research & Advisory