America and Israel’s warfare on Iran has forged an extended shadow over the Gulf. It has positioned lots of the economies that make up the Gulf Cooperation Council (GCC) regional grouping – Bahrain, Kuwait, Oman, Qatar, the United Arab Emirates (UAE) and Saudi Arabia – below considerable pressure.
For the reason that warfare started in February, the Global Financial institution has downgraded its 2026 GDP expansion forecast for the area from 4.4% to only 1.3%. Some thinktanks, together with Oxford Economics, even expect that some GCC economies will input recession in the second one part of the 12 months.
Then again, the results of the warfare have differed around the area. Whilst the Gulf states are regularly seen as a unified financial bloc sure by way of a shared dependence on hydrocarbons, the warfare has printed vital variations of their financial vulnerability and resilience.
Nations like Qatar and Kuwait have noticed their oil and gasoline exports severely disrupted by way of the efficient closure of the Strait of Hormuz. However Saudi Arabia and the UAE, that have get entry to to circumvent infrastructure, were partially in a position to bypass this limitation.
Saudi Arabia has diverted 7 million barrels of crude according to day thru its east-west pipeline, permitting it to export oil from Yanbu at the Purple Sea. The UAE, in the meantime, has utilised a pipeline from Habshan to Fujairah to export as much as 1.8 million barrels of oil on a daily basis from the Gulf of Oman.
This infrastructure has enabled each nations to capitalise on hovering world oil costs. Saudi Aramco, Saudi Arabia’s state oil corporate, reported a 26% soar in earnings within the first quarter of 2026.
Iranian assaults have led to vital injury to Qatar’s Ras Laffan commercial advanced.
Hannibal Hanschke / EPA
Disruption to power exports is one a part of the tale. The warfare has additionally led to considerable bodily injury to power infrastructure around the area. Round 80 power amenities, starting from manufacturing crops to refineries and pipelines, were centered by way of Iranian missile and drone assaults to this point.
It’ll take months – and in some circumstances years – to fix the wear and tear (which stands at an estimated US$58 billion) as soon as the warfare ends. Qatar’s liquified herbal gasoline trade, specifically, has suffered severe injury. QatarEnergy, the state-owned power corporate, says it’ll take as much as 5 years to fix its Ras Laffan commercial hub on my own.
Gulf diversification
The GCC states have followed methods to diversify their economies clear of a dependency on hydrocarbons. Tourism and aviation are two central pillars of this, with GCC nations making an investment closely in those sectors. The Gulf is now house to one of the vital busiest global airport hubs on the earth.
However those industries, too, were broken by way of the warfare. Monetary research company, Moody’s, steered just lately that resort occupancy in Dubai is ready to plummet to ten% in the second one quarter of 2026 from 80% ahead of the warfare. Some Iranian assaults have centered civilian spaces, together with motels and home structures, prompting vacationers to stick away.
The Iran warfare has additionally positioned Gulf airways comparable to Emirates, Etihad and Qatar Airlines below expanding monetary power. Greater than 30,000 flights to the Center East had been cancelled within the first month of the warfare and jet gas costs – the most important variable price to airways – are up 90% on the yearly reasonable.
The logistics sector is some other space of Gulf diversification. It has grown swiftly for the reason that early 2000s because of the area’s strategic place between east-west industry routes. The UAE’s Jebel Ali Port, for example, is now probably the most international’s biggest container ports and the bottom of Dubai’s multinational logistics company, DP Global.
Then again, Jebel Ali has noticed a 40% drop in vessels because of the warfare, with container carriers rerouting to choices comparable to Salalah in Oman and Colombo in Sri Lanka. And whilst DP Global has opened emergency land corridors to ports outdoor the Gulf to stay shipment shifting, those routes are expensive and feature restricted capability.
The UAE and Qatar additionally each function main air freight hubs, performing as bridges for shipment travelling between Asia and Europe. However this has been suffering from the warfare too. Freight charges have larger following assaults on each Dubai and Doha that resulted in grounded flights and air house closures.
Vacationers sporting their baggage thru Dubai in April 2025.
Ali Haider / EPA
Within the long-term, the industrial have an effect on of the warfare at the Gulf economies will hinge on its length and political end result. However the dangers are firmly tilted to the disadvantage. The fiscal outlook for some GCC states is deteriorating, with a number of going through situations the place govt spending exceeds earnings. Public sector debt in some GCC states is emerging too.
Moody’s has downgraded its outlook on Bahrain, which used to be already going through longstanding monetary problems previous to the warfare, from “stable” to “negative”. This will likely make it tougher for Bahrain to get entry to much-needed capital and build up long term borrowing prices.
GCC economies make investments their surplus oil and gasoline revenues thru sovereign wealth finances, which jointly arrange between US$4 trillion and US$6 trillion in world property. Governments are most likely to attract on those finances to toughen home spending on reconstruction and bolstering their defences after the warfare.
This would undermine their long term doable to fund huge long-term diversification mega-projects comparable to Saudi Arabia’s Neom Town. Plans for Neom, which used to be first of all proposed as a linear town to house 9 million folks, have already been scaled down lately because of problems together with investment pressures.
The Gulf’s lack of “safe-haven” standing because of the warfare, and the ensuing reputational injury, can’t simply be reversed. Even after the warfare ends, upper chance premiums will persist for the ones doing industry within the Gulf. Delivery disruptions may just take months to unwind, and a chronic closure of the Strait of Hormuz can be prone to cause everlasting rerouting.
If the warfare drags on, structural shifts in world provide chains would possibly deepen, with lasting prices for the Gulf economies.
