Economist Suleiman Al-Shahoumi writes about the 2026 geopolitical crisis in the Arabian Gulf and its impact on the Libyan economy. He explains that the international system is witnessing a notable escalation in geopolitical tensions in the Gulf region. However, this crisis should not be viewed as a traditional political conflict, but rather as a transformation in the structure of the global political economy of energy. It has moved from political threats to direct impacts on supply security, supply chains, transportation and insurance costs, and global market expectations.
The seriousness of the crisis lies in its connection to the Strait of Hormuz, one of the most critical chokepoints in the global economy, through which a significant share of oil and gas trade passes. With rising tensions, energy prices have surged sharply, alongside disruptions in maritime shipping and increased insurance premiums, as well as warnings of slower global growth and rising inflation. These factors indicate that the current crisis represents a complex geo-economic shock extending beyond the region to impact the global economy, leading to a global repricing of risk.
In this context, three main features of the current crisis can be identified:
- Disruption of energy flows, leading to higher and more volatile prices.
- Increased global trade costs due to higher shipping and insurance expenses.
- Declining global economic confidence, affecting investment and growth.
Al-Shahoumi notes that Libya represents a typical rentier economy, where oil is the primary source of revenue, accounting for more than 90% of exports. This makes the economy highly sensitive to global price fluctuations. While the Gulf crisis creates a paradox—Libya benefits from higher oil prices and increased revenues—it simultaneously faces higher import costs and inflationary and fiscal pressures.
This contradiction reflects what economic literature describes as a “dual shock,” where positive and negative effects occur simultaneously. The net impact depends largely on domestic economic policy management rather than global market developments alone.
The effects of the crisis—especially potential disruptions to energy routes through the Strait of Hormuz—are transmitted to the Libyan economy through several interconnected channels:
- Oil price channel: revenues increase in the short term but remain volatile.
- Import channel: higher transport and insurance costs raise prices of imported goods, fueling domestic inflation.
- Exchange rate and reserves channel: increased demand for foreign currency puts pressure on reserves.
- Global economy channel: prolonged crisis may slow global demand, reducing future oil demand.
These channels confirm that the impact on Libya is not only direct but systemic and multidimensional.
Strategically, Al-Shahoumi emphasizes that Libya’s real challenge is not merely generating higher revenues, but managing risks associated with uncertainty. He highlights the importance of economic resilience—enhancing the economy’s ability to absorb shocks and adapt. This requires a strategy based on the following:
- Adopting a counter-cyclical fiscal policy by saving part of oil revenues during boom periods instead of spending them entirely.
- Restructuring the import system by prioritizing essential goods and reducing reliance on non-essential imports, in line with World Bank recommendations.
- Strengthening coordination between economic institutions (Central Bank, Ministry of Finance, National Oil Corporation) through an early warning mechanism to monitor global developments and enable rapid decision-making.
- Most importantly, viewing the crisis as an opportunity to accelerate economic reform, as crises often serve as catalysts for structural reforms, especially given Libya’s need for comprehensive reform programs.
