With the crisis in the Middle East widening and the Israel-Iran conflict escalating, many are wondering about which economies would be exposed to risks in the event of a generalized war in the region. One of these is Greece’s economy.
In its analysis, BMI, part of the Fitch Solutions Group, analyzed the countries that would be at risk one-by-one, placing the Greek economy among the economies that face the greatest exposure to risk.
Notably, since October1st, BMI Fitch upgraded the risk of an all-out war breaking out in the Greater Middle East North Africa (MENA) region, giving it a 22 percent chance, which is twice as high as a month ago.
Middle East won’t be the only region affected
The disruption caused by a direct war between Israel and Iran would be most painful in the Middle East, but an escalation would also have negative economic consequences for other regions. In the event of a generalized war, the resulting rise in oil prices and disruption to trade through the Strait of Hormuz would pose significant global economic impacts.
If war does escalate in the Middle East, global GDP in 2025 is expected to range between contraction as low as -0.5 percent and anemic growth as high as 0.5 percent, depending on the size and duration of the conflict. Greece is particularly exposed, with net oil imports from MENA amounting to 6.9 percent of GDP.
Israel – Iran conflict poses threat to Greece’s economy
Greece is high on the “danger map” in the event of an all out Israel-Iran war due to a number of factors. As BMI’s analysis writes, “Greece is particularly exposed, with net oil imports from MENA amounting to 6.9% of GDP and energy making up 8.2% of the Consumer Price Index basket. Its public debt of 161.9% of GDP exacerbates its vulnerability to economic shocks from oil supply and price fluctuations.”
According to the relevant table, Greece’s dependence on Middle Eastern oil is the highest among developed economies, which is why the index raises a red alert for Greece. Japan and the Netherlands follow with an ‘orange alert.’
Inflation and exports in Greece’s economy due to potential Israel-Iran conflict escalation
Another risk factor for Greece is the high contribution of energy to inflation. Together with fuel, energy amounts to 8.2 percent of the national Consumer Price Index.
In this respect, the consequences of an Israel-Iran war place our country in the orange risk zone. The share of energy costs in inflation is highest for Germany (9.7 percent) as well as Belgium and Italy (9.5 percent). Spain and France follow with 8.6 percent and 8.5 percent of the CPI, respectively.
Greece also “blushes” in terms of the importance of exports to the Middle East for domestic GDP. Specifically, exports of Greek products to MENA markets contribute 1.8 percent of GDP, the highest share of all developed economies. This means that any “closure” of markets in these countries would have a disproportionately negative impact on Greece’s economy in the event of a conflict between Iran and Israel as well as a wider war breaking out in the Middle East.
The “green” countries
In the event that Israel’s war against Palestine and Lebanon expands throughout the Middle East, the most “shielded” of the so-called “developed markets” are the Scandinavian countries.
Norway, as a net oil exporter, is at a “green” safety distance in case of a generalized war, while a strong cushion against shocks is provided by its fiscal surplus (16.3 percent of GDP) and low public debt. The same applies with variations for Sweden and Denmark.
The “red” countries
Analysts believe the economies of Europe and Latin America are less exposed in the event of an escalation of war in the Middle East than the economies of Africa and Asia.
Brazil, however, is an exception. While it is an oil exporter, the large weight of energy in the CPI basket and the country’s weak fiscal position would make it more exposed to an energy shock than its Latin American peers.
In Asia and Africa, Pakistan, Kenya, and Ethiopia face the greatest risks, as hydrocarbon imports through the Straits of Hormuz account for more than 50 percent of all imported oil products.