Shockwaves from the Gulf: How the Iran war could reshape Africa’s economic outlook

The war between the US and Israel on Iran has erupted at a time when the international system is already under pressure. Diplomatic channels remain open and institutions are still functioning, yet their ability to prevent escalation has diminished. The outcome is a geopolitical environment where shocks spread swiftly through global markets before political leaders can contain them. It has immediately impacted the Middle East, a region at the centre of global connections. This is a region where energy production, financial networks, logistics infrastructure and trade routes intersect.

When instability occurs there, the economic repercussions extend far beyond the battlefield.

For Africa, the exposure is unusually direct. Over the past two decades the continent has become deeply connected with the Gulf through investment, finance, labour migration and trade logistics.

Gulf states have become some of the most active external investors in Africa. Financial centres such as Dubai increasingly act as platforms for African firms and capital flows. Shipping routes linking the Gulf to the Red Sea and the Mediterranean are vital for African trade. Additionally, millions of African workers across Gulf economies send remittances back home.

This dense web of connections means that the Iran war is not a distant geopolitical event for African economies. It is a shock that transmits through energy prices, commodity trading, shipping, air corridors and financial channels almost immediately. The economic effects are already visible in markets, logistics systems, and policy responses across the continent.

Africa-Middle East economic integration

Gulf countries’ foreign direct investment into Africa reached about $97-billion in 2024, a 75% increase from the previous year, with a significant share driven by projects in north Africa and Gulf-backed development finance in Egypt. The surge reflected a wider trend: Gulf sovereign wealth funds, logistics companies and energy investors are increasingly viewing Africa as a key frontier for capital deployment.

The Gulf’s influence is evident across various sectors. Infrastructure, ports, renewable energy, agriculture and urban development have all attracted Gulf investment. Renewable energy initiatives alone have secured commitments surpassing $100-billion across the continent in recent years

These investments are not confined to sub-Saharan Africa. Egypt, Morocco and other north African economies have become key destinations for Gulf capital, reflecting both geographic proximity and strategic alignment.

Alongside investment, the Gulf has become an increasingly important financial centre for African economic activity as well. Dubai, in particular, has emerged as a key hub connecting African firms to global markets. By the end of 2024 more than 26,900 African companies were registered as active members of the Dubai Chamber of Commerce, following an annual growth of nearly 30%.

Thousands more firms use the emirate’s free zones for trade finance, commodity transactions and wealth management.

This expanding offshore financial ecosystem reflects a wider shift in Africa’s integration into the global economy. Increasingly, financial intermediation occurs outside the continent itself. Capital is channelled through international hubs such as Dubai, Singapore or Hong Kong before being reinvested in Africa. This framework offers flexibility and access to international finance, but it also introduces vulnerabilities. When geopolitical tensions disrupt these hubs, the impacts swiftly spread through African investment and financing channels.

Remittances are another vital link. African workers employed in Gulf economies send billions of dollars home each year. Remittance inflows to sub-Saharan Africa reached nearly $65-billion in 2024, maintaining a steady increase after the pandemic. Total remittances to north Africa are about $40-billion annually, with a substantial portion coming from Gulf labour markets, especially to Egypt.

These transfers are essential in supporting household consumption and stabilising external balances in many African economies. Disruptions to labour markets or aviation routes in the Gulf, therefore, directly affect financial stability for families and communities across the continent.

These interconnected systems – investment, finance and remittances – have created a dense economic corridor linking Africa to the Gulf.

The economic transmission channels

The economic paralysis affecting several sectors of Gulf economies is causing ripple effects in Africa through many channels, showing how closely linked the two regions are. The most immediate channel is energy. The Gulf remains the world’s key energy hub, and the current conflict has already unsettled global oil markets. Brent crude prices rose towards $120 per barrel in the early stages of the crisis before settling at about $100, reflecting concerns that shipping through the Strait of Hormuz could be restricted. Further price rises cannot be ruled out.

The importance of Hormuz is hard to exaggerate. About 20 million barrels of oil daily, roughly 20% of worldwide petroleum use, usually pass through the strait. About one-fifth of the global liquefied natural gas trade also moves via this route. When conflicts threaten these flows, energy markets react immediately.

For African economies, the effects are mixed but mostly negative in the short term. Oil-exporting countries like Nigeria, Angola, Libya and Algeria could potentially benefit from higher prices. However, production limits, subsidy policies and currency pressures restrict the benefits. For the many African nations that import oil, the impact is much more immediate. Rising fuel costs push up inflation, increase transport expenses and put pressure on foreign exchange reserves.

The shock also reaches Africa through commodities. Many African minerals and precious metals are traded or refined through Gulf hubs. Gold provides a striking example. The United Arab Emirates imported about 748 tonnes of gold from African countries in 2024, representing more than half of its total gold imports worth more than $105-billion. Dubai’s role as a refining and trading hub means that disruptions to Gulf logistics or financial systems can affect the flow of African gold exports to global markets.

Bauxite exports illustrate another dimension of this dependency. Gulf-based aluminium companies rely heavily on raw material shipments from Guinea and other African producers. The Al Taweelah refinery in Abu Dhabi alone processes more than five million tonnes of bauxite each year into alumina.

These value chains link African mining output directly to Gulf industrial capacity, meaning that disruptions in the region can affect production and trade flows.

Shipping routes are equally crucial channels. The Bab el-Mandeb Strait, connecting the Gulf of Aden to the Red Sea, transports millions of barrels of oil daily and is a vital passage for global trade. Disruptions to this route have already compelled shipping companies to reroute vessels around the Cape of Good Hope, significantly extending transport times and increasing freight costs. For African economies reliant on imported food, fuel and manufactured goods, these higher shipping costs rapidly lead to inflationary pressures, while depriving Egypt of vital revenue streams from the Suez Canal.

Fertiliser markets are another particularly sensitive exposure for many countries. Gulf petrochemical producers are key suppliers of urea and other fertilisers used across African agriculture. Disruptions in production or transport could raise prices and are already constraining supply, potentially aggravating food insecurity in vulnerable regions.

Gulf aviation hubs such as Dubai and Doha have become key nodes connecting African cities to global markets. When airspace closures and security restrictions spread across the region, African airlines and passengers are quickly impacted. Recent disruptions have already led to flight diversions and cancellations across African routes, demonstrating how reliant the continent has become on Gulf-based transit networks.

The overall impact results in a significant vulnerability: instability in the Gulf echoes through the interconnected networks supporting African trade, finance and production.

The macroeconomic impact on Africa

These shocks arrived at a time when African economies were beginning to stabilise after several turbulent years. Growth across the continent had started to recover following the pandemic and the global economic disruptions caused by the war in Ukraine.

Before the current crisis, the economic narrative around Africa had started to shift towards a more optimistic outlook. According to IMF projections, several analysts indicated that the continent could be the fastest-growing region in the global economy in 2025, potentially surpassing Asia for the first time in decades. Bloomberg highlighted that IMF forecasts suggested Africa “emerging as the world’s fastest-growing region”, as large economies like Egypt, Nigeria and South Africa began to stabilise after years of macroeconomic turbulence. The Economist reached a similar conclusion, asserting that Africa might soon become “the fastest-growing region next year”, reflecting a recovery from the overlapping shocks of the pandemic, the war in Ukraine and tightening global financial conditions.

The escalation of conflict in the Middle East now threatens to complicate that trajectory, introducing a new external shock at the very moment the continent seemed to be regaining economic momentum. Rising fuel prices will increase inflation across the continent, forcing central banks to keep tighter monetary policies for longer. The availability of concessional development aid, already declining, will become even harder to access. At the same time, uncertainty in global financial markets can raise borrowing costs for African governments already facing limited fiscal space.

These pressures add to existing structural challenges. Many African economies still face limited access to international capital markets and high debt-servicing costs. Governments have increasingly relied on domestic borrowing to fund their budgets, reducing exposure to foreign-exchange shocks but also tightening domestic liquidity. Any new global shock, therefore, risks straining fiscal systems that are only beginning to recover.

The extent of the impact will depend on the duration of the conflict and how severely it disrupts energy supplies and shipping routes. A short-term crisis might only cause temporary volatility in oil markets and logistics networks. Conversely, a prolonged conflict could fundamentally alter global energy flows and supply chains, significantly changing Africa’s economic landscape.

There may also be opportunities in the longer term. Rising concerns about energy security could boost global interest in alternative sources of oil and gas, including projects in Mozambique, Tanzania, and Senegal. If investors aim to diversify away from the Gulf, African energy producers could benefit from renewed attention and financing.

The deeper lesson of the current crisis is not just that Africa is vulnerable to shocks originating elsewhere. It is that replacing one external dependency with another does little to reduce vulnerability.

Over the past 20 years the continent has diversified its partnerships and attracted new investors, including from the Gulf, but the core structure of many African economies remains tied to volatile commodity cycles, external financing conditions and logistical corridors beyond their control. Unless structural transformation accelerates – through industrial upgrading, stronger domestic capital markets and, most importantly, the expansion of intra-African trade – the pattern will persist. In that case, the true strategic importance of the African Continental Free Trade Area lies not only in boosting trade but in creating a larger internal market capable of absorbing shocks.

Without that shift, Africa risks remaining caught in a cycle where each new crisis merely replaces one external dependency with another, while limited access to capital and ongoing commodity reliance continue to hamper long-term growth. DM

Carlos Lopes is a professor in the Nelson Mandela School of Public Governance at the University of Cape Town and former head of the UN Economic Commission for Africa.