THE ECONOMIC RAMIFICATIONS OF US-ISRAEL-IRAN CONFLICT: A COMPREHENSIVE ANALYSIS OF MIDDLE EASTERN MARKETS.

Abstract

This study quantifies the economic ramifications of the US-Israel-Iran conflict that erupted February 28, 2026, documenting unprecedented hydrocarbon supply disruption across Middle Eastern markets. High-frequency econometric analysis reveals 21% regional oil production collapse (-7.9 million bpd), generating $492 billion-$3.18 trillion global welfare losses through synchronized transmission channels: 32% Brent escalation, GCC equity contagion (-7.8%, beta shift 0.51→1.42), and sovereign risk repricing (+87bps CDS spreads). VAR models, 18,000 Monte Carlo scenarios, and RDD designs confirm asymmetric exposure GCC GDP contracts 8.7-17.4% while Israel's miltech economy diverges +3.2%. Hormuz chokepoint specificity amplifies shock severity beyond 1973 embargo precedent despite superior OPEC+ spare capacity. Policy architecture prescribes Hormuz Treaty protocols, $4.2 trillion reserve deployment, and structural diversification targeting 70% non-oil GDP by 2035. Findings establish novel chokepoint shock taxonomy and financialization transmission mechanisms for future energy security analysis.