Somalia: How the Iran War Could Derail Somalia’s Fragile Recovery

Somalia faces more than spillover effects – these shocks are pushing the country’s long-term recovery further out of reach.

The United States-Israel conflict with Iran has focused global attention on disrupted shipping routes, rising oil prices and a widening regional crisis. In Somalia, those pressures not only land close to home but also hit fragile ground. The country is economically unstable, politically uncertain and under threat from al-Shabaab.

Israel’s December 2025 recognition of Somaliland – a secessionist northern part of Somalia – sharpened regional tensions, underlining how easily Somalia’s territorial fractures can be drawn into wider rivalries. Somalia’s ties to the United Arab Emirates are already strained by disputes over sovereignty and external involvement in Somaliland.

Limited political cohesion within Somalia has hindered preparations for the transition when the current government’s mandate expires on 15 May. In this volatile environment, there is little room for diplomatic missteps.

Somalia’s location on the Gulf of Aden and along a major maritime corridor leaves it directly exposed to escalation across the Red Sea and beyond. Its export markets are highly concentrated, with Saudi Arabia accounting for nearly 70% of total exports, reinforcing Somalia’s reliance on Gulf markets.

At the same time, Somalia remains heavily dependent on essential goods imports, limiting its ability to absorb disruptions. The United Nations says rising costs are pushing up the country’s food and water prices, doubling aid transport costs and delaying critical shipments of nutrition supplies, medicines and sanitation materials.

These disruptions make poverty reduction difficult. In 2023, around 73% of Somalis (13.4 million people) were living in extreme poverty (on less than US$3 a day). Recent research by the Institute for Security Studies’ African Futures and Innovation (AFI) programme shows this level falling to 41% by 2043. But rapid population growth means the total number of people living in poverty will rise, reaching around 13.7 million.

Worse still, the structural conditions shaping poverty remain unstable. Recurrent droughts and floods erode assets and undermine pastoral and agricultural livelihoods. And conflict disrupts trade and investments, strains already destabilised institutions and exacerbates informality, leaving most households with little income security.

Somalia also has one of the world’s largest displacement crises. By the end of 2024, conflict and violence had uprooted around 3.1 million people, while drought and flooding forced many more from their homes. Cities like Mogadishu, Bosaso, Baidoa and Hargeisa are absorbing a disproportionate share of the displaced population, largely in informal settlements.

Limited social protection systems leave many households vulnerable. Another external shock could push more households deeper into crisis.

Somalia’s GDP per capita tells a story of repeated disruption and only gradual recovery. In 2023, it stood at US$1 466 – the fourth-lowest in Africa. By 2043, it is projected to rise to US$2 644, lifting Somalia to 46th out of 54 African countries. Even then, income levels would remain far below the projected average for low-income African countries.

In other words, despite some progress, Somalia will likely remain significantly poorer than many of its peers for at least the next two decades.

The country’s heavy reliance on aid makes it more vulnerable to external shocks. Foreign assistance has been essential for years. However, too much support still goes into responding to repeated humanitarian emergencies rather than development projects – leaving the country exposed to both the initial shock and the fragility of the aid system around it.

The current crisis is a direct threat to Somalia’s road to recovery and sustainable development. To make the country less vulnerable when the next shock comes, three policy choices are crucial: Somalia needs sustainable economic buffers, a stronger governance framework and a development model that is less exposed from the outset.

First, Somalia needs to reduce its dependence on imported essentials and diversify its narrow export markets. Integration across the East African Community and through the African Continental Free Trade Area could support this shift, but only if backed by stronger domestic productive capacity, trade logistics and competitiveness.

This requires greater investment in agriculture and key commodity chains, particularly livestock, which remains central to exports, as well as agro-processing, energy and trade infrastructure.

Somalia’s blue economy is another major untapped opportunity. With the longest coastline in mainland Africa, the country has significant potential to expand its fisheries and broader maritime economy. Yet the fisheries sector still contributes only around 2% of GDP.

Second, Somalia needs stronger state capacity and political coordination. This remains difficult while the federal government lacks full territorial control, al-Shabaab continues to limit the state’s reach, and the transition to a unified national security system remains unfinished.

Political tensions have also intensified around the electoral process and constitutional changes, raising the risk of a delayed or disputed change of government. A country cannot handle repeated shocks if public authority is fragmented, implementation is weak and political disputes divert attention from stabilisation and service delivery.

Third, Somalia must move beyond managing emergencies and strengthen the foundations of sustainability. Humanitarian aid will remain essential, but the bigger task is to effectively mobilise domestic resources, create conducive conditions for investment in productive sectors and promote infrastructure development. Skills development is also critical to maximise productivity.

Most importantly, Somalia won’t become less vulnerable through piecemeal reform. The biggest gains come when action is taken across sectors. In AFI’s Combined scenario, coordinated interventions in agriculture, health and demographics, education, manufacturing, trade, infrastructure and governance deliver larger development gains than the Current Path. It lifts around six million people out of extreme poverty by 2043.

Somalia’s development trajectory remains strongly shaped by external dynamics. The Middle East conflict matters not only because of proximity, but because it exposes how deeply Somalia’s economy, security and development prospects remain tied to shocks it does not control.

By  ISS.