The World Bank Group's latest economic update said on Tuesday that the United States-Iran conflict, which "began in February 2026," "continues to impose serious economic costs" across the Middle East, North Africa, Afghanistan and Pakistan. Unlike earlier 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 United Arab Emirates. Diesel prices rose by more than 80 per cent in Lebanon, nearly 70 per cent in the United Arab Emirates, and over 40 per cent in Pakistan and the West Bank and Gaza.
Price controls and subsidies have cushioned consumers but raised fiscal pressure. Debt exceeds 80 per cent of gross domestic product in Egypt, Jordan and Tunisia, and 130 per cent in Lebanon.
Algeria, Djibouti, Iraq, Morocco and Pakistan also face significant debt or financing pressure, and rising prices have fuelled protests in Syria and Pakistan. A stronger-than-usual El Niño is forecast for late 2026, bringing heat stress, erratic rainfall, drought, localised flooding and crop losses.
Pakistan is directly exposed through changing monsoon conditions. Afghanistan has already seen greater heat stress and a rising risk of localised floods.
Labour-market effects can reach beyond the countries that receive visitors. A substantial share of workers in Gulf tourism and hospitality are foreign workers who send income to households elsewhere in the region.
A prolonged slowdown in tourism, construction and related services could cut 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-dollar-a-day poverty line.
Its poverty rate rose by 6.4 percentage points at the 3.00-dollar line and 3.2 percentage points at the 4.20-dollar line between 2018/19 and 2024/25, after Covid-19, the 2022 floods, high inflation, currency depreciation and a prolonged economic adjustment. These adverse trends are projected to persist through 2026.
Pakistan also has the highest estimated coefficient for tertiary-educated workers, a sign of greater concentration in cognitive occupations exposed to artificial intelligence. Women are less exposed overall, because more of them work in occupations relatively protected from artificial intelligence, including craft and related trades, elementary occupations and skilled agricultural, forestry and fishery work.
In the rest of the region's economies, use of artificial intelligence is concentrated in a smaller number of occupations. Pakistan records the highest absolute conversation count in the region, but use is concentrated in arts and media, including graphic design, content creation and translation, rather than software, which may reflect a large presence on international freelance platforms where those services are in demand.
Across the region, internet use is often higher than income levels would predict, but uneven broadband and gaps in electricity still limit the physical base for adopting artificial intelligence. Eight countries fall below the mobile-broadband benchmark: Djibouti, Egypt, Iraq, Jordan, Oman, Pakistan, the Syrian Arab Republic and the Republic of Yemen.
Pakistan is positioning itself as a talent-led exporter of artificial-intelligence services, drawing on 75,000 information-technology graduates a year and a record 4.6 billion dollars in information and communication technology exports in fiscal year 2025/26. A 1 billion dollar programme to 2030 pursues sovereignty in the field through shared graphics-processor infrastructure, a sovereign multilingual model, 1,000 doctoral scholarships and training for one million professionals outside information technology.