US Iran escalation raises energy and inflation risks for Morocco

10:38

By: Dakir Madiha

US Iran escalation raises energy and inflation risks for Morocco

The latest military escalation between the United States and Iran has unsettled global financial markets and revived concerns about energy security, with potential consequences extending beyond the Gulf to economies such as Morocco. Reciprocal strikes on Iranian positions and American bases across the region, with reported impacts in Qatar, the United Arab Emirates, Bahrain and Jordan, have intensified fears of disruption in one of the world’s most strategic energy corridors.

The Strait of Hormuz lies at the center of these concerns. The US Energy Information Administration estimates that about 20 million barrels per day of petroleum liquids transited through the strait in 2024, representing roughly one fifth of global consumption. Any threat to navigation through this route could quickly raise shipping costs and push oil prices higher worldwide.

Jason Bordoff, director of the Center on Global Energy Policy at Columbia University and former White House adviser, has warned that a direct confrontation between Washington and Tehran, or even credible threats to maritime transit, would drive oil prices upward and return energy security to the forefront of the global economic agenda. For energy importing countries such as Morocco, this would translate into higher import bills and tighter financing conditions.

Energy and inflation pressures

Energy remains the most immediate transmission channel. Crises in the Gulf have historically led to spikes in oil and gas prices on international markets. Morocco imports a large share of its energy needs, making it vulnerable to prolonged increases in global prices. Higher fuel costs affect transport, manufacturing and distribution, eventually feeding into consumer prices and weighing on household budgets.

The link between oil prices and inflation has already been demonstrated. During the Russia Ukraine war, Morocco experienced its highest inflation in decades. The International Monetary Fund projected average inflation at around 6.5 percent in 2022, largely driven by imported food and energy costs. The World Bank’s Morocco Economic Monitor for winter 2022 to 2023 reported that annual consumer price inflation peaked at approximately 8.3 percent at the end of 2022 amid overlapping global supply shocks.

Although more recent IMF assessments indicate inflation eased toward 2 percent in 2024, a renewed surge in energy prices could reverse that trend. International financial institutions continue to warn that energy importing economies remain especially exposed to external price shocks.

Tourism, markets and financing risks

Geopolitical tensions also affect tourism and investment flows. Previous regional crises prompted some travelers to postpone trips and led airlines to adjust flight capacity in response to elevated risk. Even destinations far from conflict zones can experience shifts in bookings when instability rises across the Middle East.

Financial markets have reacted with volatility as investors reassess exposure to emerging and frontier economies. The IMF and World Bank have repeatedly noted that heightened geopolitical uncertainty tends to increase risk premiums and tighten financing conditions. A sustained inflation shock could slow or reverse the recent decline in global interest rates, raising borrowing costs for sovereign issuers.

For Morocco, which is advancing major infrastructure projects tied to upcoming international sporting events and investing in transport, energy and urban development, higher financing costs would create additional fiscal pressure. William de Vijlder, group chief economist at BNP Paribas, has argued that spikes in Middle East geopolitical risk often translate rapidly into higher risk premiums for fuel importing countries, even when geographically distant from the conflict.

Since the Covid 19 pandemic, global financing conditions have become more restrictive, according to IMF reports. Countries with significant funding needs are more sensitive to any increase in interest rates. Morocco must balance efforts to sustain investment, maintain fiscal discipline and protect social spending at a time when both energy import costs and borrowing costs could rise simultaneously.

The scale of the economic impact will depend on the duration and intensity of the confrontation. Initial market reactions to conflicts are often sharp but may moderate if escalation remains contained. If the current flare up proves brief, the effects could be limited to temporary oil price spikes and short term volatility. A prolonged conflict affecting Gulf shipping routes, however, would likely result in persistently high energy prices and stricter international financing conditions.

Although Morocco is not directly involved in the US Iran confrontation, its open and globally integrated economy leaves it exposed to external shocks. With oil markets highly sensitive to developments in the Strait of Hormuz, the cost of escalation could be felt through inflation, purchasing power and the policy decisions facing authorities in Rabat.