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The escalating conflict between Israel and Iran could disrupt global energy supply chains, with Cyprus likely to feel the effects.
According to Panayiotis Rougalas' article published in Kathimerini Cyprus in Greek, concerns are mounting over potential issues in Iranian oil production and possible restrictions on oil shipments, which could drive energy prices even higher.
A recent Fiscal Risks Report accompanying the 2025 budget highlights external risks stemming from ongoing geopolitical tensions. The report warns that renewed inflationary pressures may arise from the conflict in Ukraine, Russia, and ongoing hostilities in the Middle East. Additionally, adverse developments in other economies that impact key sectors of Cyprus could lead to slower growth, worsening fiscal indicators, and increased unemployment.
Finance Minister Makis Keravnos emphasized the government’s vigilance regarding these developments, stating, "We need to maintain surplus budgets." He also pointed to the potential for increased migration and rising costs of imported oil. Keravnos acknowledged that if the conflict persists, Cyprus's reputation as a tourist destination could suffer. He noted that any shifts in geopolitical dynamics could heighten uncertainty, although Cyprus is viewed as a pillar of stability, which may alleviate some concerns.
Investment activity is also at risk, according to Tasos Giasemidis, managing director of KPMG Cyprus. He explained that geopolitical tensions, particularly military confrontations, heighten market volatility and adversely affect business and investment. Giasemidis warned that a regional conflict involving major oil producers could steer the global economy onto challenging paths, driving up energy prices, inflation, and transportation costs. He stressed that decisions made by OPEC will be crucial in this context.
Giasemidis further pointed out that rising tensions could complicate maritime transport, leading to increased transport and insurance costs, as well as delays in product deliveries. Despite these challenges, he noted that tourism in Cyprus could remain manageable as long as the conflict does not coincide with the peak tourist season.
Recent events have underscored the need for structural support within production sectors to foster a competitive, self-sufficient economy. The Fiscal Risks Report emphasizes the importance of maintaining a prudent economic policy to combat inflation while pursuing targeted reforms and investments. These efforts aim to enhance the resilience and adaptability of the Cypriot economy and create high-value job opportunities to effectively address domestic and international challenges.
