The Iran war has yet to trigger an exodus of entrepreneurs from the Persian Gulf, but falling investment, rising costs and slower funding are beginning to test the region’s heavily financed startup strategy, Bloomberg reported on Tuesday.
Abu Dhabi, Dubai, Riyadh and Doha have spent years trying to build globally competitive technology sectors through sovereign wealth, tax incentives, accelerator programs and direct investment.
Despite attacks in the region and renewed fighting between the United States and Iran, founders have largely remained in the region and government-backed programs continue to attract applicants.
None of the 27 companies selected for the February intake of Hub71, Abu Dhabi’s startup program, withdrew after the conflict began, according to Bloomberg. The program’s latest cohort also received a similar number of applications and was the first made up entirely of companies from outside the United Arab Emirates.
The financial effects, however, may not yet be fully visible. Middle East and North African startups raised $1.35 billion in the first half of 2026, down more than 20% from a year earlier, according to data platform Magnitt. The number of deals fell even more sharply to 214, while second-quarter activity dropped to its lowest level in at least two years.
“I don’t believe that the impact of the war has come into the numbers yet, that will come in Q3 and Q4,” Magnitt chief executive Philip Bahoshy told Bloomberg TV, adding that investors were already shifting their attention from early-stage companies toward more established businesses.
Some startups are also facing higher fuel, shipping and insurance costs, worsening cash flow and longer delays in receiving payments. Bloomberg cited one investor as saying that a sovereign investor withdrew a $1 million commitment from a funding round when the war began.
Regional governments are continuing to spend heavily. Hub71 offers successful applicants $140,000 in investment and incentives, while Qatar expanded its Fund of Funds program from $1 billion to $3 billion before the conflict. Startup Qatar has awarded more than $51 million to 45 companies, including 11 since the fighting began.
The Persian Gulf’s startup markets remain smaller than established centers in the United States, Europe and Asia, with limited late-stage financing, technology listings and specialist talent. But founders and investors told Bloomberg that access to capital, lower costs and government support continued to outweigh the risks for many companies.
On paper, Iran does not have a jobs problem. A 7.5 percent unemployment rate is the sort of figure many governments would happily defend. But fewer than four in ten working-age Iranians are actually employed.
According to the International Labour Organization, the global employment rate is about 58 percent. Roughly six out of every ten working-age adults worldwide have a job. In Iran, it is fewer than four.
The explanation lies in how unemployment is calculated.
Of Iran's 87 million people, about 66 million are of working age. Around 24 million have jobs and two million are officially unemployed, meaning they are actively looking for work. The remaining 40 million are classified as economically inactive and excluded from the unemployment rate altogether.
That apparent contradiction rests on two statistical rules.
Anyone who worked for just one hour during the survey week counts as employed. A motorbike courier who completed two deliveries is counted alongside a salaried engineer with full benefits.
Only people actively searching for work are considered unemployed. Someone who searched for years before giving up disappears from the calculation entirely.
The more people lose hope, the healthier the official unemployment rate appears.
Not everyone outside the labour force should be counted as unemployed. Many are students, retirees or people who choose not to work.
Iran's own statistics provide some insight, although they have not published a detailed breakdown of the inactive population since 2017.
That census identified roughly 12 million students and 3.7 million retirees or people living on pensions or other non-employment income.
Retirement explains only part of the picture. Iran remains a relatively young country, with an average age of about 32 and only around seven percent of the population over 65.
University enrolment has also fallen sharply—from just under five million students a decade ago to just over three million today—meaning fewer young people are remaining in education while waiting for jobs.
The largest category was around 20 million "homemakers." In Iran, women have outnumbered men at university for years, yet only around 12 percent of working-age women participate in the labour market, compared with roughly 50 percent globally. That reflects not only personal choice but also decades of bureaucratic and social barriers limiting women's employment.
Another 3.7 million people could not be clearly classified at all: they were neither employed, studying, retired nor looking for work.
Even before the latest conflict, Iran's labour market was deteriorating.
In the Persian year ending in March 2025, economic growth of about three percent produced 298,000 net jobs. The following year, the figure collapsed to just 34,000, while around 800,000 people left the labour force altogether.
The official unemployment rate nevertheless fell to 7.5 percent.
The forty-day war with Israel and the United States then dealt another severe blow. Deputy Labour Minister Gholamhossein Mohammadi says more than one million jobs were destroyed and around two million people became unemployed. Labour economist Hamid Haj-Esmaili estimates the true losses could reach between three and four-and-a-half million within months.
The International Monetary Fund expects Iran's economy to contract by 6.1 percent this year. Taken together, those figures raise a broader question: how can unemployment remain at just 7.5 percent?
Start with the government's own baseline: two million unemployed in a labour force of 26 million equals about 7.5 percent.
Now add only what the deputy labour minister himself acknowledges—two million newly unemployed because of the war. The unemployment rate immediately doubles to roughly 15 percent.
Use labour economists' higher estimates of wartime job losses and it rises to around one in four.
The picture darkens further when considering the large number of people who have simply stopped looking for work.
Around 60 percent of Iranian workers are employed informally, without contracts or unemployment insurance. Of the millions believed to have lost their livelihoods during the war, only about 290,000 were eligible to claim unemployment benefits.
Even without counting every economically inactive Iranian as unemployed, it becomes increasingly difficult to reconcile an official jobless rate of 7.5 percent with the broader condition of the labour market.
Independent analysts estimate that, once discouraged workers and wartime job losses are taken into account, effective unemployment may now approach one in three people participating—or seeking to participate—in Iran's labour market.
Whether that estimate proves correct or not, the broader trend is unmistakable.
The government's headline unemployment rate increasingly reflects who is counted rather than who actually has work.
Historically, recessions push unemployment sharply higher. An economy expected to contract by more than six percent would normally produce a noticeable rise in joblessness. Yet many newly unemployed Iranians are likely to follow the same path as the 800,000 who left the labour force last year: stop searching for work and disappear from the statistics.
By March 2027, Tehran may still be reporting single-digit unemployment.
The more revealing figure may remain the one at the beginning of the story: barely 37 percent of working-age Iranians have a job.
