By Al-Fassel and AFP | 2023-10-26

RIYADH -- The raging war between Israel and Hamas is already battering regional economies, the managing director of the International Monetary Fund (IMF) told a Saudi investor forum Wednesday (October 25).

Neighboring countries, especially those that rely on tourism, are feeling the effects of the conflict triggered by the October 7 Hamas attack on Israel, Kristalina Georgieva said at the Future Investment Initiative (FII) in Riyadh.

"You look at the neighboring countries -– Egypt, Lebanon, Jordan –- there the channels of impact are already visible," Georgieva told global banking elites.

A day earlier, Wall Street titans told the forum that the war could deal a heavy blow to the world economy, especially if it draws in other countries.

The war risks drawing in other countries, notably Lebanon, home to Iran-backed Hizbullah, which has engaged in daily exchanges of fire with Israeli forces.

"What we see is more jitters in what has already been an anxious world," Georgieva said.

"You have tourism-dependent countries -- uncertainty is a killer for tourist inflows," she said, describing the potential economic cost for countries in the region before listing specific risks.

"Investors are going to be shy to go to that place. Cost of insurance -- if you want to move goods, they go up. Risks of even more refugees in countries that are already accepting more," she said.

'Dangerous juncture'

"What just happened recently in Israel and Gaza -- at the end of the day you put all this together, I think the impact on economic development is even more serious," World Bank president Ajay Banga told FII on Tuesday.

"I think we're at a very dangerous juncture," he added.

"If these things are not resolved, it probably means more global terrorism, which means more insecurity, which means more society is going to be fearful, less hope," said BlackRock CEO Larry Fink.

"And when there's less hope, we see contractions in our economies."

The annual FII event, dubbed "Davos in the Desert," typically has served as a chance for Saudi Arabia to showcase domestic economic reforms whose success Saudi officials say partly hinges on regional stability.

This year, the kingdom has restored ties with Iran and Syria, pushed for a durable ceasefire in Yemen and was in talks towards recognizing Israel before the violence erupted on October 7.

"Before October 7, a lot of de-escalation happened which brought a lot of hope for the region, and we don't want recent events to derail that," Saudi Finance Minister Mohammed al-Jadaan told an FII panel on Wednesday.

His counterpart from Bahrain, which recognized Israel as part of the US-brokered 2020 Abraham Accords, also preached regional integration.

Hopes for economic stability

Saudi officials have signaled they intend to forge ahead with their economic reform plans despite fears of wider regional turmoil.

"Saudi Arabia today is all about their internal transformation, which demands a stable neighborhood," Kristin Diwan of the Arab Gulf States Institute in Washington said Tuesday.

"It's harder to get people to invest, to golf in Riyadh, or to sun along the Red Sea coast when the region is associated with war and terrorism," she said.

Some FII attendees struck a positive note despite grim headlines.

The war "is in the minds of each and everyone," said Laurent Germain, CEO of construction engineering firm Egis Group.

"But I guess in the economic world we're optimistic people. We're hoping for the comeback to stability as soon as possible."

"In Saudi Arabia itself, everything will go ahead," Middle East analyst Naser al-Tamimi of the Italian Institute for International Political Studies said Wednesday.

"The companies in Western countries and India and China will not miss out on the Saudi market," he added. "You're talking about the biggest economy in the Middle East, the biggest construction market in the Middle East."