Iran, the UAE, and Ethiopia are more connected than they appear — through oil, the Red Sea, and billions in investment
Why this matters now: The Red Sea is already under attack by Iran's most active proxy. If conflict escalates, Ethiopia's fuel costs, trade routes, and Gulf investment flows are all in the line of fire — simultaneously.
Ethiopia is not directly involved in Iran — but it is economically exposed to everything around it. The Red Sea, the UAE, and global oil prices form a triangle of vulnerability that no Ethiopian government can afford to ignore.
Ethiopia and Iran share no border, no formal alliance, and no obvious direct relationship. Yet a war involving Iran — whether with Israel, the United States, or a broader coalition — would send shockwaves through Ethiopia's economy, supply chains, and diplomatic positioning in ways that are neither small nor distant.
The connection runs through three channels: oil prices, the United Arab Emirates (Ethiopia's largest Gulf economic partner), and the Red Sea — the waterway that carries nearly all of Ethiopia's trade and is already under attack by Iran's most active regional proxy, the Houthis in Yemen.
Iran projects power across the Middle East and the Red Sea through a network of allied militias and state proxies — what Tehran calls its "Axis of Resistance." The group most directly relevant to the Horn of Africa is the Houthi movement in Yemen.
Since late 2023, the Houthis have launched hundreds of attacks on commercial shipping in the Red Sea, citing solidarity with Palestinians in Gaza. The attacks have disrupted one of the world's busiest trade corridors — forcing major shipping companies to reroute around the Cape of Good Hope, adding thousands of miles and weeks to journeys that previously took days.
For Ethiopia, which routes nearly all its trade through Djibouti and the Red Sea — a dependency explained in depth in our Red Sea access explainer — this is not a distant geopolitical event. It is an active economic threat.
The United Arab Emirates is one of Ethiopia's most important economic partners — a relationship that has deepened significantly since 2018 under Prime Minister Abiy Ahmed. Understanding what a war involving Iran would do to the UAE helps explain the downstream effect on Ethiopia.
Ethiopia imports virtually all of its petroleum. Fuel costs are already a significant driver of inflation and transport costs across the country. A conflict involving Iran — the world's seventh-largest oil producer — would push global crude prices sharply higher. For Ethiopia, which already spends a large share of its scarce foreign exchange on fuel imports, this is an immediate and severe pressure point.
Higher fuel prices cascade through the economy: transport costs rise, food prices increase, electricity generation becomes more expensive, and industrial production slows. Ethiopia experienced severe fuel shortages as recently as 2023 — a conflict-driven price spike would risk repeating and intensifying that crisis.
This risk is not hypothetical — it is already partially materialising. Since the Houthi attacks began in late 2023, major shipping lines including Maersk, MSC, and CMA CGM have rerouted vessels around the Cape of Good Hope, avoiding the Red Sea entirely. This adds 10–14 days and significant cost to every journey.
For Ethiopia, which sends and receives goods through Djibouti, the effect is twofold: higher shipping costs for all imported goods, and port congestion at Djibouti as capacity tightens. A full-scale Iran conflict would almost certainly cause Houthi attacks to escalate further — and could prompt additional actors to target Red Sea infrastructure, closing it entirely to commercial traffic for a period.
The UAE's economy, while diversified, remains deeply tied to regional stability and oil revenues. A conflict involving Iran would hit UAE financial markets, reduce investor confidence, and potentially freeze or delay major cross-border investment decisions. Projects in Ethiopia that depend on UAE capital could stall. Bilateral aid and concessional finance from Abu Dhabi — which has been important to Ethiopia's debt restructuring — could be deprioritised as the UAE deals with its own crisis management.
Hundreds of thousands of Ethiopians work in the UAE and other Gulf states. A regional war scenario would create pressure on these workers — evacuation risks, reduced employment as Gulf economies contract, and falling remittances. Ethiopia has conducted large-scale emergency evacuations of workers from conflict zones before (notably from Saudi Arabia and Libya). A Gulf crisis would require similar contingency planning, straining consular services and cutting a significant source of household income for families back home.
Ethiopia has carefully maintained a policy of non-alignment on most global conflicts, including the Russia-Ukraine war. An Iran conflict would create new pressure to take sides — particularly from the US, which is Ethiopia's largest bilateral aid donor, and the UAE, its largest Gulf partner. Both Washington and Abu Dhabi would likely expect Ethiopian support, or at minimum, public neutrality that leans in their direction. This would complicate Ethiopia's relations with other partners, including China and Russia, which have different positions on Iran.
The single most consequential scenario for global markets — and by extension for Ethiopia — is a closure or serious disruption of the Strait of Hormuz. The strait is the world's most important oil chokepoint, through which approximately 20% of global oil and 25% of global liquefied natural gas passes daily. Iran has repeatedly threatened to close it in the event of military conflict.
A closure — even a temporary or partial one — would cause an immediate and dramatic spike in global oil prices. This compounds existing pressures on Ethiopia from the ongoing Sudan war, which has already disrupted regional trade and displaced millions. Analysts have estimated that a full closure could push oil prices above $150–$200 per barrel within days. For oil-importing countries like Ethiopia, which have limited foreign exchange reserves and no strategic petroleum stockpile, this would be a financial emergency of the first order.