Wars and political tensions just do not stay on the battlefield; they ripple. Their impact moves through stock markets and currencies worldwide.
Violence and war are not new. Middle region or talk about – Russia-Ukraine conflict, or you can also think of the 59 state-based conflicts across 34 countries. In fact, the number is more than it has been since 1946. Even now, in 2025, as of September, the world is getting closer to the risk of nuclear war.
But then, this is the story of human lives, but the one thing that is affected most by this uncertainty is economic uncertainty.
The Heavy Economic Price of Conflict
Intense wars and the displacement of people create huge and lasting economic problems.
In countries like Iraq, Libya, Syria, and Yemen, conflicts have not only caused loss of life and destruction but also led to:
- Deep recessions
- Rising inflation
- Weaker finances
- Damaged institutions
The effects have spread to nearby countries such as Lebanon, Jordan, Tunisia, and Turkey, and even to wider regions like the Middle East, North Africa, and Europe. These countries now face large refugee populations, low trust and security, and weakening social unity, all of which make it harder for them to carry out important economic reforms.
- Economic Fallout
In Syria, by 2015, after four years of war, the economy had shrunk to less than half of what it was in 2010. Yemen lost about 25–35 percent of its GDP in just one year, 2015.
In Libya, where the economy depends heavily on oil, GDP dropped by 24 percent in 2014 as violence grew worse. The West Bank and Gaza show a longer-term example of how conflict damages growth: over the past 20 years, their economy barely grew at all, while other Middle East and North African countries grew by nearly 250 percent in the same period.
These sharp drops in GDP show how destructive conflict can be, though the exact impact depends on factors like the type of war, how intense it is, how long it lasts, and where it takes place.
- Wars Break Banking and Finance
Conflict makes investors nervous, often leading to people pulling their money out of banks, stock market crashes, and capital flight.
As financing conditions worsen, businesses slow down, property values fall, and insecurity rises, banks struggle to keep payment systems and lending running.
In Syria, for example, bank assets and deposits dropped sharply after the war began, and nonperforming loans rose from less than 5 percent in 2010 to about 35 percent by 2013.
More broadly, political instability has a direct negative effect on financial systems and growth. It reduces access to credit and investment, while whatever funding is available often ends up going to firms with political connections.
- Neighboring Economies Pay the Price Too
When wars destroy infrastructure and factories, the damage often spreads to nearby countries by hurting their production and trade.
In Jordan, for example, the Syrian war and worsening conflict in Iraq disrupted transport routes. This not only reduced trade between Jordan and those countries but also affected Jordan’s exports to Turkey and Europe. Lebanon faced similar problems, though overall its goods trade was less affected.
Another major challenge is also the sudden arrival of refugees. Most of them live in local communities, putting heavy pressure on already weak infrastructure. In fact, the refugee inflow increased the population as much as the other country had expected to grow naturally over the next 20 years.
The Risk of Deglobalization
Conflicts also raise the risk of deglobalization, just like the Ukraine war did.
The world is becoming less connected through trade, has grown sharply. Even before that, during the pandemic, many countries started talking about making supply chains stronger and depending less on imports for essential items like vaccines, antibiotics, and semiconductors, which are vital for the digital economy.
Russia will likely remain cut off from global trade for a long time, but the bigger concern is whether trade between advanced economies and China also slows down. That could seriously shake globalization and harm global stability. For centuries, experts have argued that trade helps prevent wars, since countries that depend on each other economically are less likely to fight.
In the short term, deglobalization would deliver a major shock to the global economy. The costs could be even higher if reduced trade gives more power to local monopolies, lowers innovation, and weakens competition.
Globalization has also been linked to stronger institutions and long-term growth, so pulling back may undo some of those benefits. And while globalization creates winners and losers, deglobalization will likely hit certain industries and countries harder than others, making the overall damage worse.
Conclusion
Global conflicts shape the global economy!
Wars shape economies and markets throughout the world. The ripple effects of war are deep and long-lasting. They shrink GDPs and collapse banking systems. Not only do the governments, but also the investors, feel the weight and pay the price.
As long as instability continues, markets will continue to remain on edge.
FAQs
Q1: How does conflict affect the economy?
One of the primary ways conflict can cause economic damage is by influencing investors’ expectations regarding political risks and the potential for future resurgence in violence.
Q2: What is global economic uncertainty?
Economic uncertainty refers to a situation in which the future economic environment is difficult to predict, and a high degree of risk or unknowns is involved.
