Six small countries make up the Arab Gulf, which is a region that contains roughly one-third of all proven world oil reserves.
They are now more vulnerable today than they have ever been since the Gulf War in 1991.
Oil wealth has driven their transformation for decades. Petrodollars transformed desert outposts from global hubs of finance, tourism and logistics.
The ongoing conflict with Iran revealed how important the Strait of Hormuz is to modernisation. It’s a narrow 33-kilometer-wide channel through which a quarter of all oil in the world flows each day.
Built on Oil, but trying to get beyond it
Its economic structure is the first factor that makes Gulf vulnerable.
Saudi Arabia was responsible for over half of the region’s GDP in 2025.
Around 30% of the GDP is still derived from oil and gas, and 50% to 85% of all government revenue in Europe.
In the last decade, all Gulf governments have worked hard to divert away from dependence. Dubai has been transformed by the UAE into a financial and aviation hub for global markets.
Qatar is now the largest LNG exporter in the world. Saudi Arabia’s Vision 2030 focuses on entertainment, tourism and manufacturing.
In 2022, the non-oil sector accounted for only 32% of GDP. Today, it accounts for 70%.
The new service sectors, however, are most vulnerable to geopolitical instabilities.
Six nations, six very different positions
Qatar has the highest per capita wealth at $76,689, which is more than Switzerland.
In peacetime, its economy was a massive LNG exporting machine.
There is no alternative plan for exports.
Kuwait was already weak when it entered the crisis, with a contraction of 2.6% by 2024. This occurred before any shots were fired.
Bahrain has the highest fiscal fragility, with a public debt equal to 146% GDP and an annual budget deficit of 10%.
UAE has the largest economic diversity in the Middle East, with alternative routes for export and an economy based on services that grew at 4% per year before the conflict.
Saudi Arabia is the main anchor with its economy of $1.08 trillion and Red Sea ports which can bypass Hormuz completely by receiving goods through the Suez Canal.
Oman is a logistical asset that has been overlooked, despite its location outside of the Persian Gulf. Its ports are accessible even without crossing the Strait.
What makes the Strait of Gibraltar so dangerous?
It is more than just a route for oil. The Gulf umbilical chord in both directions.
Food and industrial inputs are flowing in, while oil and gas is going out.
Considering restocking, the region’s current food stocks could last up to four months.
For restocking to occur, the Strait of Hormuz must reopen. Ports need to be operational and insurance markets for shipping have to return to normal.
Iran is aware of this leverage.
Tehran applies maximum economic pressure by blocking the Strait, targeting simultaneously refineries, banks and regional offices of US tech companies while sending a signal to Washington about the global cost of an escalation.
Goldman Sachs analyst suggest that the Strait of Hormuz will remain closed until April. This would result in GDP contractions of 14% and 5% respectively for Qatar and Kuwait.
Covid’s largest contraction in the Gulf was 6%.
Qatar’s deepest recession since early 1990s would be a minus 14 % contraction.
Breakdowns in the world right now
Already, the industrial cascades can be seen.
QatarEnergy has shut down production of aluminium, polymers, and methanol after two large facilities were attacked in early March.
The UAE’s airlines are operating at about 45% their pre-war capacities. Qatar’s aviation industry is at only 11%. Tourism is no longer happening.
Both the oil and aluminum revenues in Bahrain that together finance two thirds of its budget are at a standstill.
Qatar has already ordered the closing of several importers who have raised prices dramatically.
One partial offset exists. Brent crude hit $103 per barrel in mid-March.
Saudi Arabia is one of the countries who can benefit from higher oil prices. If exports remain stable, its fiscal deficit could be smaller than 3.3%, which was predicted before World War II.
There are buffers that may hold and others that will not
Its sovereign wealth is the Gulf’s biggest structural advantage.
Qatar and Kuwait have huge external assets in relation to their GDP. The Abu Dhabi Investment Authority of the UAE and the Public Investment Funds of Saudi Arabia are also among the biggest.
The government can continue to spend for many years if the war doesn’t drag on.
Bahrain’s weakest link is its sovereign wealth cushion. Bahrain has no sovereign wealth buffer, a debt of 146% GDP and two major revenue streams are down simultaneously.
Bahrain will face a real fiscal crisis within months if it does not receive direct financial assistance from Saudi Arabia. This country has already stepped up before.
Analysts have stated that a prolonged war will cause the bond markets to change.
Next?
Mojtaba Khmenei has said that the Hormuz port will be closed as long as there is conflict, eliminating the chance of an immediate resolution.
Already, three outcomes have taken shape.
Infrastructure investments are paying off in a big way for Saudi Arabia, which is now consolidating its position as a logistics hub of the Gulf.
Oman has become a key distribution hub for goods entering the region.
Every government has accelerated its agenda on food security, and local production is now treated more as a priority than merely an afterthought.
Investors are facing a difficult near-term scenario. The aftermath of the crisis will result in a huge wave of investment on rail and land networks, as well as food production and energy resilience.
A $250 billion Gulf Railway Project connecting six countries by 2030 is no longer an ambitious project, but a necessity.
Gulf rebuilt itself before 1991, 2014, Covid, and after. Each crisis changes the priorities of this region.
The lesson learned this time is that modernisation of the economy will not protect you if the water in your vicinity can be used as a weapon.
The post How the Hormuz Blockade and Iran Strikes are Reshaping Middle East Economical may be updated as new developments unfold.
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