Drone attacks on the British bases in Akrotiri, along with the wider conflict in the Middle East, have put the government’s economic team on alert, as the fallout now appears likely to exceed initial expectations.
Officials first believed the impact would hit tourism alone. That assessment has shifted. The country’s exposure to the conflict has raised broader concerns, with estimates suggesting the war in the Middle East could trigger chain reactions across the economy, including higher fuel prices, rising electricity costs and increases across a wide range of supply chain goods.
Meetings followed one another yesterday at the Finance Ministry as technocrats carried out an initial assessment of the situation. A competent source told Phileleftheros newspaper that any impact would not surface immediately but would unfold over time.
Finance Minister Makis Keravnos met department heads and instructed them to monitor developments closely and prepare a range of scenarios outlining the economic risks facing the country. Officials will also examine measures to contain potential threats and mitigate any problems that may arise.
A source told Phileleftheros that it is too early to assess the full impact on the economy. However, inflation could rise again due to an expected increase in oil prices. The scenarios under review factor in the effect on investment, price increases and travel cancellations by tour operators, depending on how long the war lasts. The longer the conflict continues, the greater the likely consequences.
In the coming days, Finance Ministry technocrats are expected to submit a report with various scenarios to the minister, who will then brief the Council of Ministers.
Beyond the Finance Ministry, the Ministries of Energy, Transport and Labour, the Deputy Ministry of Tourism and the Central Bank are all operating at heightened readiness.
Number One Fiscal Risk
The Fiscal Risk Report accompanying the 2026 state budget had already identified the possibility of escalating unrest in the Middle East as an external threat. It cited renewed inflationary pressures stemming from the ongoing Russia–Ukraine conflict and hostilities in the Middle East, as well as the risk of their asymmetric expansion.
The report also warned that worsening geopolitical developments could weigh on economic activity and potentially increase migration flows.
According to the report, geopolitical tensions underline the need for structural support for productive sectors to build a competitive and self-sufficient economy.
“Taking into account the above risks, there remains a need to maintain a prudent and responsible fiscal policy to address inflationary pressures, while at the same time promoting targeted reform and investment actions, including through the absorption of funds from the Recovery and Resilience Plan, with emphasis on the green transition and digital transformation,” the report adds.
It concludes that these targeted actions would strengthen the resilience and flexibility of the Cypriot economy and create new high-value-added jobs.
Despite the risks facing the economy, growth remains positive. According to the Statistical Service, GDP in 2025 rose by 3.8 per cent in real terms and by 4.5 per cent at current prices.