The Middle East crisis, sparked by the closure of the Strait of Hormuz, is having a profound impact on Morocco's economy, reshaping its economic outlook and forcing a reevaluation of forecasts. This crisis, a result of geopolitical tensions and military actions, has far-reaching consequences, affecting everything from energy costs to global trade and domestic subsidies. The High Commission for Planning (HCP) has published an exploratory economic budget for 2027, highlighting the challenges and adjustments Morocco must make to navigate this turbulent period. Personally, I find it fascinating how a conflict thousands of kilometers away can have such immediate and tangible effects on a country's economy. What makes this particularly intriguing is the intricate web of connections between energy prices, global trade, and domestic subsidies, all of which are being significantly impacted. The closure of the Strait of Hormuz has led to a 32% jump in Brent crude prices, pushing them to nearly $89.2 per barrel in 2026, before they retreat to around $78.7 in 2027 as supply conditions normalize. This is not just a commodity story; it directly affects Morocco's trade bill, industrial input costs, and state budget subsidies, particularly for butane gas, which has surged past $500 per ton, exceeding initial budget estimates. To manage this shock, the government approved a MAD 20 billion ($2 billion) supplementary budget for 2026, aimed at stabilizing basic goods prices and covering unbudgeted spending. This is a significant increase from the previous year, driven mainly by butane subsidies and support for transport professionals and the national electricity and water utility. The phosphate sector, a critical part of Morocco's economy, is also feeling the heat. The country's chemical and mining industries rely on imported sulfur, urea, and ammonia, much of which historically traveled through Gulf shipping routes. The Hormuz-related disruptions have pushed up the costs of these goods, prompting OCP, one of Morocco's most important exporters, to shift its production towards triple superphosphate. However, the extractive sector's value added is estimated to decline in 2026 before recovering in 2027, due to weaker demand for phosphate rock tied to the broader Middle East conflict. The disruption to global shipping and the tightening of financing conditions are expected to slow growth among Morocco's main trading partners, particularly in the eurozone, which remains the primary destination for Moroccan exports. HCP's measure of external demand addressed to Morocco is projected to fall from 4.9% growth in 2025 to just 2.6% in 2026, before recovering modestly to 2.9% in 2027. This deceleration is directly reflected in the trade accounts, with the trade deficit widening from 20.5% of GDP in 2025 to 21.9% in 2026, and the current account deficit nearly doubling from 2.4% to 3.9% of GDP. Morocco is facing a squeeze from both directions: costlier imports due to the energy and input-price shock, and weaker export demand as its main customers absorb the same shock. The report expects a recovery in 2027 through a decrease in both the trade and current account deficits, assuming global commodity prices decline and European demand strengthens again once the acute phase of the crisis passes. Despite these challenges, national GDP is still projected to expand to 4.8% in 2026, a figure that appears resilient. However, this resilience is directly linked to a sharp rebound in agricultural output this year, following favorable rainfall, which adds roughly 19% to agricultural value added and lifts the overall growth figure. Non-agricultural GDP growth, a more relevant assessment of the broader economy's absorption of the external shock, is projected at a more modest 3.3% in 2026. Domestic demand, supported by household consumption and public investment tied to the 2030 World Cup infrastructure, is keeping the non-agriculture economy moving even as other sectors deteriorate. Inflation is another critical aspect of this scenario. The report identifies 2026 as a year in which the external-stress component of Morocco's economy rises sharply while the agricultural-stress component eases, reflecting favorable rainfall offsetting an unfavorable geopolitical environment. Global inflation is projected to rise from 4.1% to 4.7% in 2026, largely due to increases in energy and fertilizer prices, before easing slightly in 2027. Domestically, HCP expects the GDP deflator to rise 1.9% in 2026, a relatively contained figure that assumes the government's subsidy response and the agricultural rebound will absorb most of the imported price pressure. However, even a full de-escalation does not reset the picture. Signs of easing tension between the United States and Iran emerged in late June, but their effects remain limited. The financial residue of the crisis is likely to outlast the acute disruption. In conclusion, the Middle East crisis is reshaping Morocco's economy in profound ways, affecting energy costs, global trade, and domestic subsidies. The HCP's exploratory economic budget for 2027 serves as a critical reference point, highlighting the challenges and adjustments the country must make to navigate this turbulent period. From my perspective, this crisis underscores the interconnectedness of global economies and the fragility of international trade. It also raises important questions about the resilience of domestic policies in the face of external shocks. As Morocco adjusts to these new realities, it will be crucial to monitor how these changes impact the broader economy and the well-being of its citizens. The future of Morocco's economy remains uncertain, but the lessons learned from this crisis will undoubtedly shape its path forward.
