“The longer and more intense the conflict becomes, the greater the economic cost.” James Swanston, a Middle East and North Africa economist with Capital Economics in a note.

Of the major wars across EMs in the past three decades, Capital Economics reports that GDP has, on average, contracted by 33% peak-to-trough. Of those in the Middle East that rises to almost 50% – notably Kuwait (56.5%) and Iraq (64.0%) during the Gulf war in 1991.

Iran’s economy is relatively small so the impact of the conflict will not have large regional repercussions. Its economy accounts for 0.85% of global GDP and, if it is assumed a similar fall in output, this would directly knock around 0.4% percentage points off of global GDP growth – equal to Capital Economics’ estimate of the damage Trump’s tariff policies do.

A slump in Iran’s economy would spill over onto those with close trade ties. The UAE is the most vulnerable with its exports to Iran equal to 1.2% of GDP, followed by Oman (0.5%), and Turkey (0.3%).

But this assumes the conflict is contained in Iran itself and does not spill out to engulf the surrounding countries. Previously, a thawing of relations between the Gulf states and Iran has significantly reduced the risk of a regional war. But Ayatollah Ali Khamenei has spoken of repercussions if the US were to get directly involved. Iran has threatened to hit US military assets in the region -- such as major bases in Qatar, Bahrain, Kuwait, the UAE, and Iraq -- that could pull the US directly into the conflict and spark hostilities in several neighbours.

“In this high-tension environment, there is a greater chance of a misstep that inadvertently pulls these countries into the conflict,” says Swanston.

The key consideration is if oil assets are targeted, firstly in Iran itself, and more generally in the region as a whole. Likewise, Iran has already threatened to shut down the passage of oil via the Straits of Hormuz, which it could easily do simply by threatening to mine the channel that accounts for around a fifth of the world’s oil and LNG exports.

The conflict has already pushed oil prices higher: Brent is currently trading at $77pb, a 20% rise since the start of the month. The combination of rising oil output volumes and higher prices will have boosted oil export receipts and government revenues. Russia in particular is a big winner for the war after budget revenues collapsed in the first four months of this year on lower oil prices. If prices remain high then Russia will see its budget deficit forecast for 1.7% of GDP or RUB3.9 trillion ($44bn) drop significantly back towards the original estimate of 0.5% of GDP.

So far Israel has only targeted oil production for the domestic market and left that for export untouched. However, as Iran only accounts for 2-4% of global supplies, removing its production would increase prices, but the supply could easily be absorbed by other OPEC members.

“As a rough exercise, if Saudi Arabia opted to offset the loss of Iran’s ~1.5mn bpd of oil exports that would boost the Kingdom’s oil export receipts by 2.5% of GDP at current oil prices (on an annualised basis). And if prices rose to $100pb it would be equal to nearly 4% of GDP (assuming that its ability to export oil hasn’t been affected),” says Swanston. “For now at least, that would enable fiscal policy to remain loose. That would go some way to supporting non-oil sectors which may otherwise suffer if the conflict weighs on business and consumer confidence.”