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 shipping costs. The threat of escalation there and around flashpoints in Lebanon, Iraq, Syria, Yemen and now Iran and Pakistan increases every day.

Despite the staggering death toll and terrible misery of the violence in the Middle East, the wider economic impact has so far been largely limited. Oil production and prices, a crucial driver of global economic activity and inflation, have returned to pre-crisis levels. International tourists still fly to other Middle Eastern countries such as Saudi Arabia, the United Arab Emirates and Qatar.

But for Israel's neighbors – Egypt, Lebanon and Jordan – the economic damage is already severe.

A research According to an estimate by the United Nations Development Program, the war between Israel and Gaza cost the three countries $10.3 billion in just three months, or 2.3 percent of their combined gross domestic product. Another 230,000 people in these countries are expected to fall into poverty.

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

That conclusion resonated a lot update last month by the International Monetary Fund, which said it will certainly cut its forecasts for the most vulnerable countries when it publishes its figures. World economic prospects at the end of this month.

The latest economic setbacks 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 from 5.6 percent the year before to 2 percent in 2023. Lebanon has become mired in what the World Bank calls one of the world's worst economic and financial crises in more than a century and a half. And Egypt was on the brink of insolvency.

Since Hamas fighters attacked Israel from Gaza on October 7, about 25,000 Palestinians have been killed by Israel, according to the Gaza Health Ministry. The strip has suffered widespread devastation and devastation. In Israel, where officials say the Hamas attacks killed about 1,200 people and took 240 hostage, life has been turned upside down, with hundreds of thousands of civilians drafted into military service and 200,000 displaced from border areas.

In Jordan, Lebanon and Egypt, uncertainty about the outcome of the war is eroding consumer and business confidence, likely to reduce spending and investment, IMF analysts wrote.

Egypt, the Arab world's most populous country, has still not recovered from a rise in the cost of essential imports such as wheat and fuel, a drop in tourist revenues and a drop in foreign investment due to the coronavirus pandemic and the war in Ukraine.

Lavish government spending on flashy mega-projects and weapons caused Egypt's national debt to soar. As central banks around the world raised interest rates to curb inflation, debt payments ballooned. Rising prices inside Egypt continue to eat away at the purchasing power of households and the expansion plans of companies.

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

The drop in shipping traffic The crossing to the Red Sea from the Suez Canal is the final blow. Between January and August, Egypt averaged $862 million a month in revenue from the canal, which carries 11 percent of global maritime trade.

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

“That's the biggest spillover effect,” he said.

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

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

But the closer the fighting, the greater the drop in the number of travelers. Tourism to Israel has largely evaporated, putting further pressure on the economy due to a full-scale war.

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

“Fears of further regional escalation cast a shadow over travel prospects in the region,” said Olivier Ponti, vice president of insights at ForwardKeys.

In Lebanon, travel and tourism previously contributed to 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 djinns built a palace there for the Queen of Sheba or that aliens built it as a palace.intergalactic landing platform.

Now, Mr. Abdallah said, “it is completely empty.”

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

The number of trips to Egypt also fell in October, November and December. Mr Landis of the Middle East Center in Oklahoma said even his brother had canceled a planned trip across the Nile, choosing to holiday in India instead.

Khaled Ibrahim, an advisor for Amisol Travel Egypt and member of the Middle East Travel Alliance, said cancellations poured in after the attacks started. Like other tour operators, he offered discounts to popular destinations such as Sharm el-Sheik on the southern tip of the Sinai Peninsula, and occupancy rates were about 80 percent of normal.

He is less optimistic about making it through the rest of what is considered the prime tourist season. “I can say that this winter, from January to April, will be very challenging,” Mr Ibrahim said from Medina in Saudi Arabia, where he was leading a tour. “Maybe sales will drop to 50 percent.”

Jim Tankersley contributed reporting from Davos, Switzerland.