by Dr Hildebrand Shayo

Repercussions of the US-Iran war will significantly affect Tanzania’s budget
As an economic analyst, it’s a valuable opportunity to assess how the ongoing conflict in Iran and its environs affects Tanzania’s economy, especially as parliament deliberates and proposes revisions to various ministry budgets in Dodoma for FY 2026/2027.

This is important because the conflict may influence our economy in
numerous ways that many of us might not realise.

Due to the ongoing US-Iran conflict and fluctuations in global energy markets, I plan to lower Tanzania’s 2026 real GDP growth forecast to 5.7% from 6.1%, slightly below the 5.9% projection for 2025.

My main assumption is that the US and Iran will reach a preliminary agreement within the next few weeks. However, if disruptions persist into June or even July 2026, I expect to revise down Tanzania’s 2026 growth outlook by an additional 0.1-0.2 percentage points due to rising inflation and increasing risks of tighter financial conditions.

If negotiations fail and direct military conflict resumes, my assessment with a 45% probability: further downward revisions of 0.3-1.2 percentage points are likely for our 2026 Tanzania growth forecast, along with possible adjustments to my 2027 forecast based on whether the scenario escalates further.

On April 27, Tanzania’s National Bureau of Statistics announced that real GDP grew by 5.7% year-over-year in Q4 2025, a slowdown from 6.4% in Q3. The growth was mainly supported by increased activity in the financial and insurance sectors, which rose by 19.5% year-over-year in Q4, up from 14.2% in Q3, as well as in mining and quarrying, which increased from 7.1% to 7.5%.

However, slower growth in the tourism sector (6.7% to 1.5%; surely impacted by increased cost and complication of air travel), manufacturing (4.5% to 4.2%), and agriculture (5.1% to 4.4%) led to an overall slowdown in headline growth in the final quarter of the year. Given ongoing disruptions in global energy markets, Tanzania’s growth outlook, based on data, will shift from 5.9% to 5.7% due to stronger inflationary pressures, a weaker currency, and tighter monetary policy, which dampen domestic consumption.

Thus, investors willing to do business in Tanzania need to be aware that Tanzania’s growth remains solidly underpinned by large-scale infrastructure projects and mining investments. Infrastructure spending is unlikely to face significant disruption because projects are built into multi-year plans with high sunk costs. They are usually supported by pre-arranged, ring-fenced financing that keeps disbursing funds based on milestones, even amid temporary cost shocks. Furthermore, high metal prices will continue to motivate investment in mining and production.

Should the Strait of Hormuz remain closed beyond the end of May 2026, I would likely revise down my growth forecast by another 0.1­0.2 percentage points (pp), reflecting higher inflationary pressures, greater risks of monetary tightening, and supply chain disruptions to Tanzania’s H2 exports.

Prolonged sluggish negotiations into late May and possibly beyond could significantly increase my earlier forecast that front-month Brent futures will average USD 78/bbl in 2026. If the current situation persists well into June, I believe my 2026 annual paper price forecast would rise from USD 78/bbl to USD 81/bbl, and my physical price forecast would increase from USD 82/bbl to USD 86/bbl.

More importantly, a rising import bill could weaken the Tanzanian shilling and push domestic inflation higher. This may lead to tighter monetary policy and further depreciation of the currency.

Previously, I observed that the effect on annual exports would be minor because most of Tanzania’s cash crop exports, like cashew nuts and coffee, tend to peak in the second half of the year. Shipping, under the base case, is expected to resume before long.

If the conflict does not come to an end imminently, it could significantly reduce Q3 export revenues and potentially disrupt Q4 as well. Additionally, tourism, which also thrives in the second half of the year, might suffer greatly due to high jet fuel prices.

My primary assumption still is that ongoing diplomacy will result in a fragile agreement between the US and Iran. However, there remains a significant risk of talks breaking down and military escalation, which I estimate has a 45% chance of leading to the ‘Extend to Escalate’ conflict scenario.
Under escalation scenarios at levels 1, 2, and 3, which extend for an additional one to three months, I have modelled the annual average prices for front-month Brent futures at USD 84/bbl, USD 92/bbl, and USD 106/bbl for 2026. The pump prices most Tanzanians encountered after the last price announcement are not far from my estimates.

Under this scenario, and based on the numbers and data, I would anticipate downward growth revisions of 0.3-1.2 pp to my 2026 Tanzania growth forecast, as well as revisions to my 2027 forecast, depending on whether we enter scenarios 1, 2, or 3.

This reflects not only tighter financial conditions that dampen consumer and business sentiment and spending, but also weaker economic activity stemming from supply chain disruptions and potential fuel shortages.

Additionally, the net export outlook, in my view, will deteriorate significantly due to rising global recession risks and the negative effects of a weaker external environment on the Tanzanian shilling.