The US-Iran conflict continues to impose serious economic costs across the Middle East, North Africa, Afghanistan and Pakistan (MENAAP), the World Bank said on Tuesday. "The conflict that began in February 2026 continues to impose serious economic costs across MENAAP," according to the World Bank Group's latest economic update for the region. Unlike previous energy shocks, which typically benefited oil exporters, the closure of the Strait of Hormuz has imposed the largest costs on oil-exporting Gulf countries.
Gasoline prices rose by 40 per cent or more in Lebanon, Pakistan, the Syrian Arab Republic and the UAE, while diesel prices increased by more than 80 per cent in Lebanon, nearly 70 per cent in the UAE and over 40 per cent in Pakistan and the West Bank and Gaza. Price controls and subsidies have cushioned consumers but increased fiscal pressures, with debt exceeding 80 per cent of GDP in Egypt, Jordan and Tunisia, and 130 per cent in Lebanon.
Algeria, Djibouti, Iraq, Morocco and Pakistan also face significant debt or financing pressures, while rising prices have fuelled protests in Syria and Pakistan. A stronger-than-usual El Niño weather pattern is forecast for late 2026, bringing heat stress, erratic rainfall, drought, localised flooding and crop losses. Pakistan is directly exposed through changing monsoon conditions, and Afghanistan has already experienced greater heat stress alongside rising localised flood risk.
The regional labour market effects can extend beyond the countries receiving visitors. A substantial share of workers in GCC tourism and hospitality activities are foreign workers who send income to households elsewhere in MENAAP. A prolonged slowdown in tourism, construction and related services could reduce labour demand and weaken income flows to labour-sending economies, particularly Pakistan and parts of the Levant.
Pakistan accounts for about 48 per cent of people in the region living below the $3.00-a-day poverty line. Its poverty rate rose by 6.4 percentage points at the $3.00 line and 3.2 percentage points at the $4.20 line between 2018/19 and 2024/25, following Covid-19, the 2022 floods, high inflation, currency depreciation and prolonged economic adjustment. These adverse trends are projected to persist through 2026.
Pakistan also has the highest estimated coefficient for tertiary-educated workers, indicating greater concentration in cognitive occupations exposed to AI. Women are less exposed overall, as they are disproportionately employed in occupations relatively protected from AI, including craft and related trades, elementary occupations and skilled agricultural, forestry and fishery work. AI use is more concentrated in a small number of occupations in the rest of the MENAAP economies.
Pakistan records the highest absolute conversation count in MENAAP, but usage is concentrated in arts and media, including graphic design, content creation and translation, rather than software, potentially reflecting the country's large presence on international freelance platforms on which these services are in demand. Across MENAAP, internet use is often above what income levels would predict, but uneven broadband penetration and gaps in electricity access still limit the physical foundations for AI adoption.
Eight MENAAP countries - Djibouti, Egypt, Iraq, Jordan, Oman, Pakistan, Syrian Arab Republic and the Republic of Yemen - fall below the benchmark line, indicating lower mobile broadband subscriptions. Pakistan is positioning itself as a talent-led AI services exporter, drawing on 75,000 annual IT graduates and a record $4.6 billion in FY2025/26 ICT services exports, while pursuing AI sovereignty through a $1 billion programme to 2030. The programme supports shared GPU infrastructure, a sovereign multilingual model, 1,000 AI PhD scholarships and training for one million non-IT professionals.