The Israel-Iran war dealt another economic blow to North Africa

Fighting between Iran and Israel impacted North Africa, where surging prices may disrupt budgets and plans. But for North Africa’s energy exporters, higher oil prices are a reason to cheer.

Reuters

A worker inspects pipes at the Amal oil field in eastern Libya, October 7, 2011.

The Israel-Iran war dealt another economic blow to North Africa

Kawthar Zantour

last update on 24 Jun 2025

Thousands of kilometres away from where the bombs dropped, people in North Africa watched footage of Israeli and Iranian missiles targeting one another’s military and infrastructure. Despite the distance from events, the effects of the Israel-Iran war—or the 12-Day War as US President Donald Trump termed it—were felt in North Africa, whether at gas stations and supermarkets, or in treasuries, dealing a third economic shock in less than five years after the COVID-19 pandemic and the Russian invasion of Ukraine, which stunted growth, exacerbated inflation, and impacted monetary policies, resulting in successive interest rate hikes.

The tentative ceasefire announced by US President Donald Trump in the early hours of 24 June may alleviate the worst fears of governments in North Africa, given that the prospect of a long-term war could affect oil prices, food costs, and financing conditions, putting pressure on the budgets of Tunisia, Morocco, and Mauritania. But the impact of those 12 days is still being felt.

Before the war, Algeria was weighing up possible funding sources to cover an anticipated $62bn budget deficit, while in Tunisia, there was relief at having saved $510mn due to the drop in oil prices compared to the reference price per barrel used to calculate the 2025 budget. Likewise, falling oil prices in Mauritania were seen as a valuable opportunity to ease the budgetary burden through structural reforms and policies that could control import costs.

Oil exporters

Libya’s economy relies almost entirely on crude oil exports, which account for over 95% of the state's income, so rising oil prices will enable the government to pay salaries and fund subsidies. Yet despite its institutional and political fragility and nationwide insecurity, Libya is home to some astonishing economic indicators.

According to the World Bank, it is the only country to record a double-digit growth rate this year, estimated at 12.3%. Oil production is at its highest level in years. According to the ALTAQA platform, crude oil production has notched up almost 1.42 million barrels per day in 2025, in addition to more than 45,000 barrels of condensates.

According to the Libyan Administrative Control Authority, 80% of its oil revenues (around $15.5bn in 2024) finance massive government spending. They also cover 85% of Libya’s food and medicine needs and pay three million public sector salaries (out of a total population of seven million). Oil revenues are expected to increase by 17% this year, driven by the resumption of production in most oil fields and rising oil prices.

Before the Iran-Israel war, Algeria was trying to cover an anticipated $62bn budget deficit, while in Tunisia, there was relief at having saved $510mn

Algeria is the other country to benefit from rising oil prices. The International Monetary Fund (IMF) ranks it as the third-largest economy in Africa (after South Africa and Egypt). Fossil fuels account for 93% of its exports. Every additional dollar in the price of a barrel of oil helps reduce the deficit and finance the 2025 budget, which was based on a price of $70 per barrel.

For half a century, Algeria has struggled to diversify its economy away from carbon, leaving it vulnerable to global market fluctuations and price changes. Dependent on the same price changes, but for different reasons, are Tunisia, Morocco, and Mauritania, which rely heavily on energy imports and operate within limited financial margins.

Oil importers

Morocco's dependence is huge. It imports 96% of its energy, which weighs heavily on its budget. According to ALTAQA, its energy imports cost $12.4bn in 2024, $13.3bn in 2023, and a record $16.7bn in 2022, after Russia invaded Ukraine. Until Trump announced the ceasefire, banks were expecting barrel prices of around $80 to factor in a possible Iranian closure of the Strait of Hormuz, a vital shipping lane.

Morocco's 2025 budget assumed an oil price of $66.9 per barrel (worst case war scenarios predicted $100 per barrel), but there are other consequences of rising oil prices, including a decline in foreign currency reserves, currency depreciation, difficulties financing investments, and an increased need for external borrowing to cover the budget deficit resulting from increased energy imports, government subsidies, and the higher cost of food, transport, and services.

In Tunisia and Mauritania, the story is similar, but Mauritania is hoping to become an energy exporter after significant offshore gas field discoveries, including the Greater Tortue Ahmeyim field, which is shared with Senegal. Full export production is expected later this year, which will help the country become a major exporter of liquefied natural gas (LNG) in the future.

Shutterstock — Sidi Bou Said is a city located in northern Tunisia, about 20 kilometers from the capital.

Tunisia, which imports 54% of its energy needs (mostly from Algeria), fears that war in the Middle East could negatively impact its vital tourism sector, which employs around 400,000 people and contributes around 9% of the country's gross domestic product (GDP). Last season, more than ten million tourists visited, with Morocco proving to be another popular regional destination, having hosted 17.4 million the previous year.

Effect on budgets

Tunisia's 2025 budget anticipates a 7.2% deficit, based on a barrel of oil being $77.4. Economics professor Reda Al-Shakandali said Tunisia's treasury would have benefited from falling energy prices, if not from the war, saving around $500mn. The 2025 budget allocated $2.7bn to fuel subsidies, more than 61% of total subsidy expenditures.

All North African countries will want to increase government subsidy spending, but Morocco and Mauritania are limited by IMF loan conditions, the money having been offered in return for reforms, especially those related to subsidies. Tunisia, Libya, and Algeria, on the other hand, have more wiggle room because they do not have financing agreements with the IMF.

Casting a dark shadow over North Africa has been the threat of a new wave of inflation, necessitating a tightening of monetary policies through interest rate increases, not unlike the measures taken in 2022, when Russia invaded Ukraine. Central banks claim this is done to contain inflation and protect local currencies from depreciation and a loss of value against foreign currencies.

With Trump warning both Israel and Iran not to violate a ceasefire agreement both countries signed up to, the markets have all eyes on the skies, where oil importers and tourist destinations will hope that the missiles stop flying soon. If they do, budgets will undoubtedly be revised yet again.

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