The war has already damaged the economies of Israel’s closest neighbors

In the Red Sea, attacks by Iran-backed Houthi militants on commercial ships continue to disrupt a crucial trade route and increase transportation costs. The threat of escalation there and around the hotspots of Lebanon, Iraq, Syria, Yemen and now Iran and Pakistan grows stronger every day.

Despite the staggering death toll and heartbreaking misery of the Middle East violence, the broader economic impact has so far been largely contained. Oil production and prices, a key driver of global economic activity and inflation, have returned to pre-crisis levels. International tourists continue to travel to other Middle Eastern countries such as Saudi Arabia, the United Arab Emirates and Qatar.

Yet for Israel’s immediate neighbors – Egypt, Lebanon and Jordan – the economic damage is already severe.

A assessment The United Nations Development Program estimates that in just three months, the war between Israel and Gaza cost the three countries $10.3 billion, or 2.3 percent of their combined gross domestic product. In these countries, an additional 230,000 people are also expected to fall into poverty.

“Human development could decline by at least two to three years in Egypt, Jordan and Lebanon,” the analysis warns, citing refugee flows, skyrocketing public debt and declining trade and tourism – a vital source of income, foreign exchange and employment.

This conclusion echoed a update last month by the International Monetary Fund, which said it was certain to revise downwards its forecasts for the most exposed countries when publishing its World Economic Outlook at the end of this month.

The latest economic blows couldn’t come at a worse time for these countries, said Joshua Landis, director of the Center for Middle East Studies at the University of Oklahoma.

Economic activity in the Middle East and North Africa was already declining, falling to 2% growth in 2023 from 5.6% the previous year. Lebanon is mired in what the World Bank calls one of the worst economic and financial crises in more than a century and a half. And Egypt is on the verge of insolvency.

Since Hamas fighters attacked Israel from Gaza on October 7, around 25,000 Palestinians have been killed by Israel, according to the Gaza Health Ministry. The strip suffered widespread destruction and devastation. In Israel, where Hamas attacks have killed about 1,200 people, according to authorities, and led to the taking of 240 people hostage, life has been upended, with hundreds of thousands of citizens called up for military service and 200,000 people displaced from border areas.

In Jordan, Lebanon and Egypt, uncertainty over the progress of the war is eating away at consumer and business confidence, which risks lowering spending and investment, IMF analysts wrote.

Egypt, the Arab world’s most populous country, has still not recovered from the rising cost of essential imports like wheat and fuel, falling tourism revenues and falling foreign investment caused by the coronavirus pandemic and the war in Ukraine.

Lavish government spending on spectacular megaprojects and weapons has caused Egypt’s debt to skyrocket. When central banks around the world raised interest rates to curb inflation, debt payments skyrocketed. Rising prices within Egypt continue to erode the purchasing power of households and the expansion plans of businesses.

“No one wants to invest, but Egypt is too big to fail,” Landis said, explaining that the The United States and the IMF are unlikely let the country default on its $165 billion in foreign loans given its strategic and political importance.

The fall maritime traffic crossing the Red Sea from the Suez Canal is the final blow. Between January and August, Egypt generated an average of $862 million in monthly revenue from the canal, which carries 11% of global maritime trade.

James Swanston, emerging markets economist at Capital Economics, said that according to the head of the Suez Canal Authority, traffic is down 30% this month compared to December and revenues are 40% lower compared to 2023 levels.

“That’s the biggest ripple effect,” he said.

For these three struggling economies, the decline in tourism is particularly alarming. In 2019, tourism in Egypt, Lebanon and Jordan represented 35 percent to almost 50 percent of their combined exports of goods and services, according to the IMF

As of early January, confirmed tickets for international arrivals in the broader Middle East region for the first half of this year were 20% higher than last year, according to ForwardKeys, a data analytics company that tracks air travel reservations worldwide.

But the closer the battles are, the greater the decline in the number of travelers. Tourism in Israel has largely evaporated, further harming an economy upended by large-scale war.

In Jordan, airline bookings fell 18 percent. In Lebanon, where Israeli troops are battling Hezbollah militants along the border, bookings are down 25 percent.

“Fears of further regional escalation cast a shadow over the region’s travel prospects,” Olivier Ponti, vice president of research at ForwardKeys.

In Lebanon, travel and tourism previously accounted for a fifth of the country’s annual gross domestic product.

“The number one location in Lebanon is Baalbek,” said Hussein Abdallah, general manager of Lebanon Tours and Travels in Beirut. The vast 2,000-year-old Roman ruins are so spectacular that visitors have suggested that jinn built a palace there for the Queen of Sheba or that aliens built it as an iIntergalactic landing pad.

Today, Mr. Abdallah says, “it’s totally empty.”

Mr Abdallah said that since October 7, his bookings have fallen by 90 percent compared to last year. “If the situation continues like this,” he said, “many tour operators in Beirut will cease operations.”

Travel to Egypt also declined in October, November and December. Mr. Landis, of the Middle East Center in Oklahoma, mentioned that even his brother canceled a planned trip to the Nile, choosing instead to vacation in India.

Khaled Ibrahim, consultant for Amisol Travel Egypt and a member of Middle East Travel Alliance, said the cancellations started pouring in after the attacks began. Like other tour operators, it offered discounts on popular destinations like Sharm el-Sheikh, on the southern tip of the Sinai Peninsula, and occupancy reached about 80 percent of normal.

He is less optimistic about saving the remainder of what is considered the main tourist season. “I can say that this winter, from January to April, will be quite difficult,” Mr. Ibrahim said from Medina, Saudi Arabia, where he was leading a tour. “Maybe business will drop to 50 percent.”

Jim Tankersley contributed reporting from Davos, Switzerland.