Economic Impacts of Geopolitical Crises in Somalia: Transmission Channels, Structural Vulnerabilities, and Macro-Fiscal Outcomes

Abstract

Purpose: This study investigates the transmission channels, structural vulnerabilities, and macroeconomic outcomes of global and regional geopolitical crises on the domestic economy of the Federal Republic of Somalia. Recognizing that fragile, post-conflict states internalize external shocks differently than closed or diversified economies, this paper evaluates how international energy disruptions, maritime security vulnerabilities in the Bab-el-Mandeb strait, and declining Official Development Assistance (ODA) intersect with a highly dollarized domestic market.

Methodology: Aligning strictly with a unified analytical design, a mixed-methods research architecture was executed. The quantitative component develops a Structural Vector Autoregression (SVAR) modelling framework utilizing quarterly macroeconomic data spanning 2015–2025 to isolate the impulse response functions of domestic consumer price indices, real GDP growth trajectories, and fiscal balances against exogenous energy and supply-chain innovations. The qualitative component leverages structured data from a purposively sampled panel of 225 key organizational informants across federal ministries, international financial institutions, trade cartels, and cross-border customs clearing nodes in Mogadishu, Kismayo, and Berbera, yielding a 77.3% response rate (174 returned questionnaires).

Findings: Empirical results from the SVAR framework demonstrate that global geopolitical spikes—specifically localized escalations in global energy channels—exert immediate, statistically significant upward pressure on domestic consumer pricing through maritime logistics links. Real GDP growth contracted from historical averages of approximately 4.0% to an estimated 3.0% in 2025 due to a combination of international supply shocks, domestic agricultural disruptions, and falling ODA grants. The structural dollarization of the Somali economy impairs traditional monetary defence strategies, shifting the entire stabilization burden onto domestic revenue mobilization channels.

Unique Contribution to Theory, Practice and Policy: The study builds on Neorealist and Complex Interdependence theories by showing how highly dollarized, post-conflict states internalize external systemic shocks. Practically, it outlines targeted policy directions for expanding the domestic tax base, diversifying regional import pathways, and harmonizing national tariff structures with East African Community protocols.