Less than two weeks ago, the USA and Israel carried out a combined military attack against Iran, executing airstrikes on Iranian military and important infrastructure. Iranian Supreme Leader Ali Khamenei was assassinated, and the nation retaliated with extreme measures, attacking US allied countries in the Gulf with missiles, along with the closing of the Strait of Hormuz. The picture of the burning Burj Al Arab hotel, after being hit by Iranian drones, – despite the fact that only its facade was burned down – bears great symbolic weight. Iran’s retaliation has cast a shadow of uncertainty over the whole Middle East region, stretching from Oman to Cyprus.
The economic effects of the war are detailed below by specialists at SQN Trust Vagyonkezelő Zrt., Majed Abdel-Fattah and Dr. Balázs Horváth.
Hungary may not import crude oil or natural gas from the region, but global shortages could affect the prices in Europe, which would also affect prices of fuels, heating oil, and electricity in Hungary. The development of events is having its effect in global financial markets – natural gas prices have gone up 25 percent, while Goldman Sachs has forecasted an eventual rise in liquefied natural gas prices of up to 130 percent in Europe, provided that the Strait of Hormuz continues to remain closed for a month.
The cost of transportation per day by Very Large Crude Carriers shipping crude oil from the Middle East to China has reached its highest mark ever at $423,736 at the open of trade on Monday. According to the London Stock Exchange Group, the cost of transport went up by more than 94 percent within one day.
What Do Rising Oil Prices, Inflation, and Diminished Investment Confidence Mean for Hungarians?
In the case of a protracted conflict, the Chief Economist at the European Central Bank anticipates that eurozone countries will experience rising inflation and reduced economic growth, as well as a potential rise in Hungarian inflation rates because of currency depreciation. The forint has recently experienced its lowest level against the euro since 2026, falling by over 18 units within one week and remaining over 398. Such depreciation can be attributed to increased prices of natural gas around the world.
During previous crises, the tendency is the strengthening of the U.S. dollar because it provides investors with a safe haven for their assets. However, while the conflict causes appreciation of the U.S. dollar, increasing Europe’s dependency on energy adds strain to the euro.
Additionally, the war-related price hike of energy sources influences the production cost of petrochemical goods. The representatives of several Hungarian companies manufacturing and distributing construction materials informed that the quotations for polypropylene have stopped coming from the suppliers, who stated about a 50 percent price rise in the near future due to the increased expenses on energy. Polypropylene was previously produced inexpensively in the Middle East and was used for the manufacture of construction materials, automotive plastics, and packaging goods.
“The UAE and Qatar have developed into global tourist centers in the last ten years; hence, the consequences of the war in the sphere of tourism became apparent immediately. The travel agencies that I know, both Hungarian and Middle Eastern, experience huge cancellations and changes of reservations. Regrettably, there is no clarity with the passenger flow right now, and positive forecasts cannot be made in the near future,” commented on the matter Majed Abdel-Fattah, an analyst specializing in the region.
A Popular Destination for Rich Hungarians Loses its Appeal – New Challenges Ahead?
Dubai, which is one of the most important economic centers of the UAE, has attracted many rich people from Eastern as well as Western parts of the world. For many of them, buying property in Dubai has become more than just a way to spend holidays in the luxurious city. Even though COVID, Dubai has experienced steady development – transaction amounts have been growing annually, while index rates show a clearly positive trend. Of all residential property deals, almost 27% are related to the sales of off-plan properties, which have not even been constructed yet. Thus far, everything seemed to indicate a highly dynamic market with optimistic prospects.
However, the risks faced by the area raise legitimate fears among international investors. While the full extent of the consequences for the local real estate market remain unclear so far, it is possible to predict postponed purchasing plans. Consequently, the excess of products will inevitably cause double-digit price drops. If the situation does not change soon, prices will stabilize; nevertheless, a quick international decision may lead to an uptrend.
Investments in Dubai real estate are not just attractive for Hungarian investors because of the palm trees, sunshine, or high yields. According to the relevant double taxation agreement, income received from real estate assets located in the UAE can be taxed in the UAE, but Hungary does not impose tax on it. As currently no personal income tax exists in the UAE, private investors are not subject to taxation in both countries regarding income received from their investments in real estate in Dubai.
“Although capital gains from sales of real estate in Hungary will eventually not have to pay taxes after five years, this is not achieved without time. However, this is not an issue in Dubai since capital gains from selling real estate properties are generally exempt from personal income tax. This is an advantageous position in a rapidly growing market where high yields can be obtained within 1-2 years. The profits will not suffer losses because of the taxes, hence the gain belongs entirely to the investor,” Dr. Balázs Horváth noted.
Disclaimer: this article is a translation of our original article written in Hungarian, which you can find here
