Geopolitical tension in the Middle East and the conflict between the United States, Israel and Iran show no signs of easing. On the contrary, all indicators suggest that the war is taking on the characteristics of a prolonged crisis, with no visible way out and no clear prospects for an end. For the global economy – and by extension for small, open economies such as Cyprus – this translates into sustained uncertainty, volatile energy prices and increased risks to growth.
Uncertainty carries a cost. It directly affects investment decisions, raises financing expenses and erodes consumer confidence. When businesses cannot predict energy costs or demand, they freeze investment plans. When households see prices remain unstable, they reduce spending. The result is a vicious cycle of slowdown that can undermine the real economy.
In such an environment, interventions are needed to shore up confidence. The experience of the COVID-19 pandemic and the severe inflationary spike that followed is still fresh. At the time, governments were forced to act under pressure, often with significant fiscal cost, in order to support businesses and workers. That crisis showed both the value of timely interventions and the cost of delay.
The lesson is clear: measures must be designed before a crisis turns into recession. Protecting citizens’ purchasing power must be central. This can be achieved through targeted policies – from supporting vulnerable groups, to measures that contain energy costs and strengthen competition in the market.
At the same time, periods of relative stability – whenever they occur – should not be wasted. Instead, they are the right moment for reforms that bolster economic resilience. In Cyprus, this means diversifying the energy mix, accelerating digital transformation and boosting productivity. “Good times” are when planning can take place without the pressure of emergency conditions.
With no end in sight to the conflict in Iran, there is no room for complacency. If the recent crises have taught us anything, it is that preparation and timely action determine the depth of the impact. Strategy, foresight and political will are needed before uncertainty turns into a crisis with real social and economic costs. The government must act swiftly and present its plan, making full use of available fiscal space.