Middle East: Conflict risks and GCC flows – Standard Chartered

Standard Chartered Bank economists Madhur Jha and Ethan Lester assess how the Middle East conflict could affect global remittances. They argue that Gulf Cooperation Council (GCC) economies are key sources of remittance inflows for countries such as Egypt, Pakistan, Philippines, Bangladesh and Sri Lanka. While the non-oil impact is seen as smaller than COVID-19, a prolonged conflict could trigger expat relocation and weaker remittance flows.

GCC-driven remittance risks under conflict

"The ongoing energy price shock is the biggest risk to the global outlook, potentially tipping the global economy into recession if sustained. Our concerns are compounded by the physical disruption to oil and gas supply, which is already beginning to impact activity across many economies, especially in Asia. Disruption to the supply of other key products that pass through the Strait of Hormuz also threatens many downstream production activities."

"In this note, we highlight some other broader ramifications that could become more evident over time if the conflict persists. The Middle East, especially GCC economies, hosts a large number of expats who drive significant personal remittances, bolstering balance of payments (BoP) positions for other economies. The Middle East has increasingly also become a destination, as well as a source, for international travel and tourism."

"The impact of the ongoing conflict on remittances is not straightforward. During COVID-19, initial multilateral estimates assumed a sharp drop in remittances (a 20-40% drop) due to the sudden seizing up of activity. Surprisingly, however, remittances fell only by a small 2.4% y/y in 2020 for several reasons."

"The non-oil economic impact of this conflict is unlikely to be comparable to what we saw during COVID, given how extreme the pandemic impact was. So far, there is also limited evidence of any significant withdrawal of expats from the region. However, if the conflict persists, it raises the risk of a more significant relocation of expats out of the region, with remittances falling."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)