Conflict takes toll on labor market

The United States and Iran have reportedly agreed to halt fresh tit-for-tat strikes and held indirect talks with third-party mediators in Doha on Wednesday, following through on their interim ceasefire pact, but the crisis that broke out in late February has already had a huge fallout on businesses and the labor market, threatening livelihoods across the Middle East and beyond.

The International Labour Organization, or ILO, warned in a report in May that the war is undermining wages and working conditions, with output and employment expected to fall this year and in 2027.

Under a scenario in which oil prices climb by about 50 percent above their January to February average, estimates suggest that hours worked could fall by 0.5 percent in 2026 and 1.1 percent in 2027, equivalent to 14 million and 38 million full-time jobs globally, the report said.

Real labor income could decline by 1.1 percent in 2026 and 3.0 percent in 2027, equivalent to losses of around $1.1 trillion and $3.0 trillion, and the unemployment rate could rise by 0.1 percentage points in 2026 and by 0.5 points in 2027, equivalent to approximately an additional 5 million unemployed people in 2026 and 20 million in 2027.

The ILO noted that though the effects of the Middle East crisis are global, the most immediate impact is on the Arab States and the Asia-Pacific region.

“The Arab States are the most directly affected, through conflict-related disruption, damage to economic activity, forced displacement, energy and trade shocks, and pressures on migrant workers,” the report said.

Further, the Asia-Pacific region is also highly exposed, as spillover effects are already visible through energy import dependence, transport and logistics disruptions, tourism, labor migration and remittance links with Gulf economies.

The ILO, meanwhile, noted that the labor market impacts in Iran are not explicitly assessed due to the lack of relevant data.

According to the 2025 fact sheet of the Gulf Labour Markets and Migration, an international independent, nonprofit program hosted and supported by the Gulf Research Center, the Gulf countries — United Arab Emirates, Saudi Arabia, Qatar, Kuwait, Bahrain and Oman — host some 31 million foreign nationals in the region in 2022.

Tarik Saleh, an Egyptian freelance commercial photographer based in Dubai, has seen his livelihood severely disrupted by widespread event postponements amid the regional conflict.

“I live alone in Dubai, while my wife and two children stay in Cairo. Before the tensions escalated, I shared an apartment here and sent half of my monthly income home to support my family and ensure they lived comfortably in Egypt,” he said.

“Now nearly all exhibitions and commercial events — my main source of income — have been rescheduled to at least August or September, leaving me with almost no work for months. To cut living costs, I ended my tenancy and stayed temporarily with friends. I finally flew back to Cairo. Although flight tickets are expensive, the overall cost of living in Egypt is much lower than in the UAE. I am now staying with my family and waiting for those events to resume in Dubai.”

Under the labor law of the UAE, flexible employment formats including remote work and part-time contracts are legally recognized. Many firms have shifted eligible staff to remote work arrangements to sustain productivity amid travel disruptions and growing safety concerns among employees.

Wang Hao, manager of a showroom for a Chinese automotive brand in Dubai, talked about the acute cash flow pressure facing local auto businesses amid the regional headwinds.

“Traditionally, our March sales volume stands at 130 percent of February’s figure. But this year, March sales only exceeded half of the usual level. Our car rental business also saw a sharp decline; by late March, its business volume had only rebounded to around 40 percent of normal standards,” Wang said in an April interview.

“Our business relies heavily on stable cash flow. Currently, our revenue has dropped sharply, while fixed expenditures including shop rent and staff salaries stay the same. Besides, expenses on vehicle insurance, warehousing and cross-border logistics have risen substantially.”

His company has rolled out a string of measures to ease financial pressures. “We have suspended all pending job offers and halted new recruitment. Three middle-level managers resigned voluntarily. We have conducted one-on-one communication with remaining staff to stabilize team morale. Salaries for current employees remain unchanged for now, but further prolonged regional uncertainties will force us to introduce temporary salary cuts sooner or later,” he said.

The ILO report noted that in regard to migration and remittances, migrant workers are likely to absorb a disproportionate share of the adjustments from the impact of the crisis. In the Gulf Cooperation Council region, it is estimated that for every 1 percent decline in employment among nationals in times of crisis, employment among non-nationals falls by 4 percent.

Labor migration is a major transmission channel in Asia-Pacific. Early evidence shows exceptionally sharp declines in migrant worker outflows to GCC countries and rising repatriations, while remittances are beginning to show signs of downward pressure, the ILO report said.

Deniz Istikbal, an assistant professor and economics researcher at Istanbul Medipol University in Turkiye, said that while the end of the conflict “is a positive development”, the possibility of the war breaking out again still remains.

“This means that inflationary pressures will continue for both the regional and global economy,” Istikbal said.

“The closure of trade routes due to the war has created a major risk for those who send remittances to their home countries. These countries, which have already been negatively affected through energy prices, have also faced serious foreign currency shortages. The decline in their currencies is a clear indication of this pressure,” he added.

In addition to the short-term impacts, Istikbal said, the region’s security architecture has also changed for the long term.

He said Iran’s growing influence in the region and along commercial routes may create a vicious cycle that will affect the Gulf countries as well as the millions of foreign workers living and working in the region.

On June 25, the Day of the Seafarer, the International Maritime Organization, or IMO, had to immediately backpedal on a decision to evacuate 11,000 stranded seafarers in the Strait of Hormuz, just two days after announcing the plan as the critical waterway tensions persist between the US and Iran.

“Following the launch of the IMO’s evacuation plan, through which several vessels have already been successfully evacuated, I have decided to temporarily pause its implementation in order to reconfirm that the necessary safety guarantees continue to be in place for the ships on our evacuation list and all those in the region,” IMO Secretary-General Arsenio Dominguez said in a statement.

Dominguez made the decision after a vessel passing through the Strait of Hormuz was attacked. The United Nations’ maritime agency said on June 26 that it had successfully evacuated about 115 ships carrying 2,500 stranded seafarers, before suspending the operation later.

Challenges ahead

The US and Iran exchanged fresh strikes in the past few days, blaming each other for the resumption of hostilities, raising questions over the durability of their June 17 interim truce deal that called for further talks to reach a final agreement within 60 days.

However, the two sides have now agreed to stop attacking each other, according to the latest reports.

“The ongoing tensions in the Middle East are having a direct impact on business confidence, which remains the cornerstone of employment growth and economic stability,” said Abdulrahim Naqi, former secretary-general of the Federation of GCC Chambers.

“From an employer’s perspective, the greatest challenge is not only the conflict itself but the uncertainty it creates. When geopolitical risks escalate and ceasefires remain fragile, companies tend to postpone expansion plans, slow recruitment, and reassess investment decisions until there is greater clarity,” he added.

For employees, he said, this uncertainty translates into growing concerns about job security, slower hiring, and reduced labor mobility, particularly in sectors such as logistics, aviation, tourism, manufacturing, and international trade.

“In such circumstances, businesses naturally prioritize operational resilience and risk management over rapid expansion. At the same time, the GCC economies have consistently demonstrated remarkable resilience, supported by strong fiscal positions, ambitious economic diversification strategies, and sustained investment in strategic infrastructure,” said Naqi.

Naqi believes that though the current crisis may temporarily slow hiring and investment, it is unlikely to undermine the region’s long-term economic fundamentals or growth prospects.

“It is important to recognize that several GCC governments have taken proactive measures during times of economic and geopolitical uncertainty to preserve employment and support private sector businesses. Bahrain provides a notable example,” he said.

During the COVID-19 pandemic, the Bahrain government covered the salaries of Bahraini employees in the private sector for three months, helping companies retain their workforce and preventing large-scale job losses, Naqi noted.

At the same time, he said, GCC countries have continued to implement national workforce localization policies while creating new employment opportunities for their citizens, contributing to greater labor market stability and resilience.

“In my view, restoring confidence must remain the highest priority. Businesses can manage risks, but they cannot make long-term investment or hiring decisions in an environment of prolonged uncertainty,” said Naqi.

“Sustainable peace, political stability, predictable economic policies, and secure trade routes are essential to encouraging investment, protecting jobs, and supporting inclusive and sustainable economic growth across the region and beyond,” the former secretary-general of the Federation of GCC Chambers said.

Contact the writers at jan@chinadailyapac.com