A prolonged military escalation in the Middle East could shrink regional economies by 3.7 to 6.0 percent of GDP, translating into losses of $120-194 billion, according to a press release on the United Nations Development Programme website.

The assessment, titled “Military Escalation in the Middle East: Economic and Social Implications for the Arab States region,” warns that the economic damage could exceed the region’s total GDP growth recorded in 2025.

The report also projects a sharp labour market impact, with unemployment rising by up to 4 percentage points -- equivalent to 3.6 million jobs lost -- while up to 4 million people could be pushed into poverty.

“This crisis rings alarm bells for countries of the region to fundamentally reevaluate their strategic choices,” said Abdallah Al Dardari, UN Assistant Secretary-General and Director of the Regional Bureau for Arab States at UNDP. He stressed the need for stronger regional cooperation and economic diversification beyond hydrocarbon dependence.

Using computable general equilibrium modelling, the study examined multiple conflict scenarios, factoring in disruptions such as surging trade costs, productivity losses, and damage to capital.

The findings show uneven impacts across sub-regions. The Gulf Cooperation Council and the Levant are expected to face the largest GDP losses -- ranging from about 5.2 to 8.5 percent -- driven by trade disruptions and energy market volatility. Poverty increases are projected to be most severe in the Levant and least developed Arab countries.

In the Levant alone, poverty could rise by 5 percent, pushing up to 3.3 million more people into hardship -- accounting for over three-quarters of the region’s total increase.

Overall, the report warns that human development across the region could decline by 0.2 to 0.4 percent, setting back progress by up to a year.