Tourism, shipping, investment flows, energy costs, inflation and household purchasing power are expected to be affected by developments in the Middle East, economist Tasos Yasemides has told the Cyprus News Agency. He said the scale of the impact on the Cypriot economy will depend on the intensity and duration of the conflict.
He also noted that increases in energy prices for households and businesses are likely, given Cyprus’ significant reliance on imported fossil fuels for electricity generation.
Energy markets and inflationary pressures
Mr Yasemides said that extended conflict in an energy-sensitive region creates concerns and negative consequences for both the global and European economies. Any disruption to the production and transport of oil and natural gas, which are primary energy commodities, tends to drive up prices.
“It is understood that a prolonged period of elevated oil and natural gas prices will lead to a phase of price increases and inflationary pressures,” he said.
According to Mr Yasemides, beyond the issues in the Strait of Hormuz, through which 20 per cent of global oil trade passes, oil and gas production infrastructure has also been affected. Many tankers remain anchored in the Persian Gulf, with insurance companies either refusing coverage or raising premiums.
“As a result, beyond the price of fossil fuels, transport costs are also increasing,” he added.
He further stated that any rise in the cost of importing oil and natural gas is expected to increase production and transport costs within Cyprus.
Shipping sector implications
As a consequence, the shipping sector in Cyprus is also expected to be affected, although the scale will depend on developments in the coming weeks.
He noted that President Trump announced that the United States would offer political risk insurance for vessels transiting the Persian Gulf at favourable rates and, if deemed necessary, provide naval escorts in the Strait of Hormuz.
“We await to see whether the US President will release reserves if he observes a sharp rise in prices, an increase that would certainly be beneficial for Russia, which exports significant quantities of oil via pipelines to India and China,” Mr Yasemides added.
Impact on households and monetary policy
Mr Yasemides said inflationary pressures, primarily due to higher energy costs and rising import prices, could reduce household purchasing power and business profit margins, and potentially affect the general level of prices and wages in the economy.
“At the same time, a prolonged increase in energy prices is expected to reinforce global inflationary trends, with central banks potentially required to tighten monetary policy again and possibly raise interest rates,” he added.
Tourism concerns
Referring to recent events at the British bases and flight cancellations to and from Cyprus, Mr Yasemides said there is concern for the tourism sector.
“Geopolitical instability, particularly if international media amplify the perception of risk in the region, may reduce travellers’ confidence in visiting Cyprus,” he said.
He noted that tourism demand is sensitive to perceived safety and that any negative image may affect bookings and revenues. He added that careful management is required, as although the current period may not be peak season, it remains significant in terms of booking flows.
Investment uncertainty
Finally, Mr Yasemides stated that geopolitical uncertainty generally reduces business and investment activity worldwide.
“In Cyprus, foreign investment flows are also expected to be affected, as investors seek security in more stable markets,” he said.
Many investors, he added, may postpone their plans until conditions stabilise.
Source: Cyprus News Agency