Clearly, the world is currently in a strange place and the possibility of World War 3 cannot be downplayed. It is imperative that the parties to the conflict find a solution at the earliest.

WORLD WAR 3?

Disclaimer

The conflict in the Middle East between Iran and a coalition of the USA and Israel began on 28^th February 2026 and at the time of writing it has entered day 15. Information flow of what is happening is abundant, but the difficulty is in weeding out fact from the fiction. There have been several incidents of both sides providing updates that have later been rebutted. This commentary attempts to paint a realistic picture with a greater focus on the economic aspects of the war.

Historic perspective: Middle East

The Middle East has seen conflicts for centuries, driven predominantly by religion and imperial expansion, particularly after the birth of Islam in the 7^th Century. The 19^th and 20^th Centuries saw colonial powers from Europe with Britan and France dividing the area under the Sykes-Picot Agreement which did not necessarily take into account ethnicity, religion, tribal groupings and politics, which perhaps, added to state of conflict in the region.

The Arab Spring uprising in 2010 to 2011 was initially seen as a way forward to democracy, a change in the politics and much needed social change. The reality has been far from that and much of the Middle East has been in civil war since – Yemen, Libya and Syria being cases in point. Several groups have emerged from these which were also a function of the Soviet incursion in Afghanistan, the US in Iraq, and the birth of terrorist organisations. The war on terror continues despite a measure of success over the years.

A region rich in oil brought interest of the superpowers in the post-World War 2 era, coupled with conflicts among states there.

Historic perspective: Israel

Perhaps, the most far-reaching impact on the Middle East came with the creation of the State of Israel in 1948, under the Balfour Declaration, which brought about a never-ending series of wars affecting the Israelis the Palestinians, and the wider region. The current conflict involving Israel and the US on one side, and Iran on the other is the latest war which is destabilising the region and indeed may be creating a global economic crisis.,

The first Israeli – Arab war took place in 1948 between Israel and five of the surrounding Arab countries. The maps changed with Egypt in the Gaza Strip, Jordan the West Bank and East Jerusalem, and Israel West Jerusalem. More problematic was as many as 750,000 Palestinians being displaced.

The 1967 conflict – which is known as the Six-Day War – once again saw the maps redrawn with Israel in the Sinai Peninsula and Gaza, the Golan Heights, and the West Bank. The Sinai was returned to Egypt in 1979 under a Peace Treaty. In effect Israel controls the area known as the Occupied Palestinians Territory and there have been many skirmishes over the years with the most significant being the attack by Hamas on 7^th October 2023 with several hostages being taken. This resulted in a major offensive by Israel which 2 years later saw a ceasefire under a peace plan brokered by the US.

Historic perspective: Iran

Iran has a history stretching back millennials. In essence, the country’s history can be divided into 3 distinct parts: the ancient period from circa 559 BC to 651 AD; the Islamic period from 651 AD to 1800 AD; followed by the modern era (source History Extra). The country covers a large area comprising mountains, deserts, and fertile valleys.

Iran, as we know it today, was formed during the Qajar Empire between 1779 and 1925, during which there was unification and Tehran became the capital. But Iran saw the then ruler, Naser Al-Din Shah, give the British and Russians large monopolies over mines, oil, and tobacco, which led to the Constitutional Revolution of 1905. By the end of World War 1, Iran was a nation in turmoil.

In 1925, Reza Khan ascended to power by way of a coup creating the Pahlavi Empire. This period saw considerable reforms and development and the official change of name from Persia to Iran. The last Shah of Iran, Mohammad Reza, became king in 1941 until the Islamic Revolution in 1979. His attempt to “modernise” Iran was met with resistance from the clergy and there was general discontent from Iranians on his rule, which gave rise to the revolution. Iran has been ruled by the Ayatollah, with an anti-American and Israel sentiment since 1979.

Mohammed Reza during his tenure, oversaw a huge expansion in Iran’s military which was considered, at the time, to be the fifth largest in the world, saying “Nobody can dictate to us”, and “Nobody can wave a finger at us because we will wave back”. These sentiments seem prevalent in Iran today as well. He also reformed the education system and gave more rights to women. He then began the build-up of nuclear facilities in the country which is at the centre of the conflict today. Iran also saw significant growth and expansion during this period but not all of it from oil revenues.

The Islamic Revolution against the Shah of Iran began in October 1977. In January 1978, an article accusing Ayatollah Khomeini (in exile in Iraq at the time) of being a drug addict and homosexual, was published which saw the start of riots and the downfall of the last Shah of Iran. Coupled with this was the impact of the Shah’s White Revolution, rising inflation, and economic issues. The revolution changed Iran completely and with the taking of hostages at the American Embassy in Tehran, the country fast became a pariah state.

Over the years Iran has been a sponsor of terrorist activity primarily against Israel, which perhaps, explains the current conflict. The country has been under sanctions for many years and has experienced protests from its citizens on freedom, particularly for women. Concern has also been raised about the country’s nuclear ambitions through the enrichment of uranium, although there appears to be no concrete evidence that they are to be used for weapons.

The current conflict

It is clear that Iran has been prejudiced against both Israel and the US since the 1979 revolution. The country is considered “the world’s leading state sponsor of terrorism” according to a statement from the White House this month. President Donald Trump in starting this conflict said the intention is to “eliminate the threat once and for all”. Concern about Iran having a nuclear weapon has also been cited as a reason for the war, and indeed in July 2025 the country was attacked and the US claimed that the nuclear facilities had been destroyed. It is surprising therefore that the current conflict has destruction of nuclear capability as one of the objectives, together with regime change. Overall, the ultimate reason for the conflict seems confused with different messages emanating from the US.

The war began on 28^th February while discussions were ongoing in Oman who were acting as a facilitator between Iran and the US, and reports suggested that the parties were close to a settlement. Given the proximity to an agreement, it was strange that a war started.

The intention of the conflict from the US and Israeli perspective appears to be firstly to ensure that Iran’s nuclear capability is stopped (see above); secondly to affect a regime change; and thirdly to ensure that Iran will no longer be a threat in the region. Initial indications suggested that all three could be accomplished in approximately 4 days. The reality on the ground seems somewhat different and at the time of writing this commentary, the battle is in its fifteenth day with little or no sign that it will end soon.

In the early stages, Iran’s leader for almost 40 years, Ayatollah Ali Khamenei, and several members of his family were killed by a targeted strike which was thought to be sufficient to move towards regime change. This did not, in fact happen, even though subsequent strikes killed several senior Iranian officials. It was also believed that the killing of the Supreme Leader would bring dissidents out on to the streets, which also did not happen. Indeed, it seems that the severeness of the attack was such that even the most ardent protestors against the Government switched their views, although this may just be temporary.

What has become apparent is that Iran might have been prepared for what happened and a new Supreme Leader – the former’s son, Ayatollah Mojitaba Khamenei – has taken over, although he is also believed to have been with his father when the initial strikes took place. While the new Leader’s father was more cautious, he is by all accounts far more radical. So instead of changing the regime to one that is acceptable to the US, Iran may now be far more radicalised.

It also seems that the country has decentralised decision making as to when and at what targets missiles should be aim. Iran has also shown that it has a large stock of munitions that was not envisaged and has had some success in retaliating against Israel and other Gulf States that have American bases. The risk here is that the Gulf States may decide that having American bases is not giving the protection needed and insist that they be closed. The Gulf States have also indicated that they are reviewing their investments in the US in terms of whether they should pull out. On the other hand, there are reports that the US and Israel are running out of interceptors to block missile and drone attacks from Iran.

President Donald Trump has called for an “unconditional surrender” which has not been accepted with Iran saying that the conflict will only come to an end if some stringent conditions it has set are agreed to, suggesting that they “are the ones who will determine the end of the war”. Clearly, this war which has stretched beyond the initial three countries, may go on for a while, with most Gulf countries being attacked by Iran. At best we may see a temporary ceasefire rather than an end to the conflict. This uncertainty will not help.

Economic impact

It is estimated that crude oil prices have increased 17% since the start of the conflict to approximately USD 90 per barrel, having climbed to USD 120 briefly. There have been significant fluctuations in the price as contradictory messages are being released by the US Government. It is important to appreciate that 20% of the world’s oil (estimated at 20 million barrels per day) passes through the Strait of Hormuz which is currently almost closed to traffic, and the major producers in the Middle East have reportedly reduced production as stocks cannot be moved. Given the price and supply crisis that is brewing, the US has “given permission” for countries to buy Russian oil despite sanctions.

In addition to oil, it is estimated that 30% of the world’s fertiliser passes through the Strait and this will affect agricultural output and push up food prices.

The impact of a reduction of this magnitude is likely to be quite significant with some countries are already placing restrictions on the use of oil & gas. The humanitarian effect could be significant and the impact on the global economy just as bad. The IMF has said that every 10% rise in oil prices will result in 0.4% in inflation and 0.15% reduction in GDP. If the Strait of Hormuz does not come back to normal soon, prices are likely to climb again with the knock-on inflationary pressures and drops in GDP.

Unfortunately, it is not just the Strait of Hormuz that is an issue. As Al Jazeera reports: “The Middle East remains the world’s dominant source of hydrocarbon reserves and a major driver of crude oil and natural gas output”. While in the early stages of the war Iran concentrated on US Military bases in the region, their missile and drone attacks have extended “to target civilian infrastructure, including hotels, airports and energy facilities” although Iran denies that it is targeting energy facilities, and it is possible that it could be debris from drones and/or missiles as was the case for Saudi Arabia. Given that Israel reportedly targeted oil reservoirs in Iran, retaliatory attacks on Gulf State facilities are ongoing which is further affecting the global oil market. Israel too has reportedly shut down gas production fields.

The World Travel & Tourism Council (WTTC) has estimated that the war has created daily losses of USD 600 million per day in the Middle East. It further estimates that 40,000 flights have been cancelled or diverted as a result of the war. Dubai and Doha are perhaps two of the largest airline hubs in the world which account for as much as 14% of international transit passengers. Continued targeting of these airports will be a huge disaster for not only the Middle East, including Israel, but the world as a whole. Even in the Eastern Africa region, a large proportion of our visitors’ transit through these hubs and with them closed, finding/using alternate routes is becoming more expensive.

The WTTC believes that if the conflict continues for 3 weeks, visitor spending could drop by USD 34 billion. A war that lasts up to 2 months will see losses of USD 56 billion. These are staggering numbers and Eastern Africa will take up their share of these losses.

The economic impact of the conflict is significant and the sooner the conflict ends the better. Clearly, things will not immediately bounce back if the war ends tomorrow given that oil and gas reproduction will need to be restarted and the airlines will have to clear major back logs.

Conclusion

The current conflict, while was perhaps predictable, has shocked the world. It is unfortunate that the parties maybe extending the war beyond just Israel and Iran and perhaps this could become World War 3. At the moment, there does not appear to be an “off ramp” for any of the parties and it is difficult to assess how long we will see missiles and drones in the Middle Eastern skies. The impact that this could have on the global economy is significant and is already being felt.

Closer to home, the conflict is undoubtedly going to impact fuel prices which in turn will result in an adverse impact on our economies. One of Iran’s conditions for the war to stop and thus the reopening of the Strait of Hormuz, is that oil trade should not be in US Dollars but Chinese Yuan. Most countries in the region have increased their Dollar reserves, so a change of this nature could have far reaching impact. With fertiliser supplies also being impacted, the regions agricultural output may also be affected. The closure of the Dubai and Doha airports – both major hubs for the region – will affect tourism which had been showing signs of a considerable improvement.