The War in the Middle East and the Ukrainian Economy: Why the Risk of Expensive Fuel Goes Far Beyond Gas Stations
The escalation of the war in the Middle East may become a serious economic challenge for Ukraine, even if the fighting is taking place far from its borders. The main channel of impact is oil prices, fuel, logistics, and imported goods. The Ukrainian economy remains highly dependent on external energy resources, so any prolonged price increase on the global market is quickly felt by businesses, consumers, and the state budget. Time for Action has analyzed what risks the National Bank of Ukraine sees and why a prolonged war in the Middle East may increase pressure on inflation, GDP, foreign trade, and the security situation. The NBU considers two main scenarios. The baseline scenario assumes a gradual decrease in tensions from the end of the second quarter and a decline in the Brent oil price to around 80 dollars per barrel by the end of 2026. The alternative scenario is much more difficult: the war lasts longer, and oil does not fall below 100 dollars per barrel until the end of 2026. For Ukraine, the difference between these scenarios is very noticeable. If oil stabilizes and gradually becomes cheaper, the economy will receive less external pressure. But if the price remains high, the consequences will move through a chain more expensive fuel, more expensive logistics, higher business costs, and rising prices for goods and services.
The fuel market will feel the impact of expensive energy resources the fastest. Ukraine is largely dependent on imported gasoline and diesel, so global oil prices quickly translate into domestic prices. This is not only about the boards at gas stations. Fuel is built into almost every process food delivery, transport operations, agricultural production, industry, construction, and defense needs. That is why rising oil prices create a secondary effect. Businesses cannot work for long with higher costs without changing prices. Logistics becomes more expensive, transportation becomes more expensive, and these costs gradually move into the price of goods and services. For consumers, this means not only more expensive fuel, but also higher prices in stores, for services, and for transportation. For economic recovery, this is a dangerous signal. Expensive energy resources reduce the profitability of enterprises, especially in transport and energy-intensive industries. If production costs rise and demand does not keep up with prices, businesses may reduce output. As a result, this slows GDP and complicates recovery from the losses caused by the war.
Foreign trade also comes under additional pressure. Ukraine needs to spend more on importing energy resources required for defense, industry, and daily business activity. A separate risk is fertilizers. If natural gas and other resources become more expensive, prices for imported fertilizers may rise, and this already affects the agricultural sector and the future cost of production. These losses may be partly offset by external demand for Ukrainian goods. The NBU expects that amid global instability, prices for food products and metallurgical goods exported by Ukraine may rise. Demand for Ukrainian defense technologies may also increase. But these factors do not remove the main risk: more expensive imports of energy resources and fuel directly pressure the entire economy.
A separate and very sensitive dimension is security. High oil and gas prices increase Russia’s financial resources. This does not solve its deep economic problems, but it gives it more money to continue the war. For Ukraine, this means that the energy market is not only an economic factor, but also a military and political one. Another risk is the attention of international partners. If events in the Middle East require more diplomatic, military, and financial resources from key allies, Ukraine may face new competition for support. At the same time, such a situation may also create opportunities, including through growing interest in Ukrainian defense technologies and wartime experience. The NBU has already stated its readiness to respond to changes in external conditions. If inflationary pressure increases, the regulator may make monetary policy tighter to preserve macrofinancial stability. This means that the war in the Middle East may affect not only the price of fuel, but also financial decisions inside Ukraine.
The main conclusion is that for Ukraine, a prolonged war in the Middle East is dangerous not because of one separate indicator, but because of an entire chain of consequences. Expensive oil pushes fuel prices up, fuel raises logistics costs, logistics affects inflation, and inflation complicates economic recovery. If tensions decrease quickly, the impact will be noticeable but controlled. If the war drags on and oil remains around 100 dollars per barrel or higher, Ukraine will face stronger pressure on prices, businesses, foreign trade, and security. In such a situation, the resilience of the economy will depend on the state’s ability to react quickly, contain inflation, and maintain partner support.
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