Iran War Could Push Qatar-Kuwait Into Worst Economic Recession: The ongoing conflict with Iran in the Middle East threatens to inflict significant economic damage on many Gulf economies. Countries that are heavily dependent on energy exports are said to face the greatest risk.
According to a report by Bloomberg, based on the opinion of Goldman Sachs economist Farouk Sousa, if the dispute continues until April and shipping traffic through the Strait of Hormuz is disrupted for two months, Qatar and Kuwait could see their gross domestic product (GDP) fall by up to 14% this year. Such a slowdown would be the worst economic downturn for the countries compared to the recessions experienced in the 1990s, when Iraq’s invasion of Kuwait triggered the Gulf War and caused instability in the global oil market.
Saudi Arabia and the United Arab Emirates are expected to fare better because they have the ability to reroute some oil exports by bypassing the Strait of Hormuz. However, these economies could also face a recession. Economists estimate that Saudi Arabia’s GDP could shrink by about 3%, while the UAE’s could shrink by about 5%. For many Gulf economies, the war could have a similar impact to COVID-19.
The conflict has created a challenging environment for Gulf economies, with both oil and non-oil sectors likely to be affected simultaneously. The disruption to energy exports threatens to put government revenues at risk. Sectors such as tourism, real estate and investment could also be hurt by increased geopolitical uncertainty.
Economists say Qatar, Kuwait and Bahrain could be the worst hit if the disruption to their reliance on energy exports through the Strait of Hormuz continues. If the conflict continues, Saudi Arabia could emerge as the most resilient economy, many economists say, because Saudi Arabia has managed to repel most of the alleged Iranian attacks and has maintained largely normal economic activity, with flights and businesses operating. Global gas markets have also been affected, with Qatar’s liquefied natural gas (LNG) exports falling sharply due to the shutdown of shipping.
The disruption to supply through the Strait of Hormuz has also prompted the world’s largest aluminum smelter to start cutting production. In contrast, Saudi Arabia and the UAE could benefit in part from higher oil prices and the ability to export crude through alternative pipelines and routes, economists including Mohammed Abu Basha of EFG Hormuz and Justin Alexander of Khaleej Economics told Bloomberg.
The war could widen the country’s fiscal deficit in the short term due to revenue volatility. Analysts at Abu Dhabi Commercial Bank and Oxford Economics expect Saudi Arabia to run a deep fiscal deficit in the first quarter of the year. However, some economists believe that if oil prices rise, the kingdom’s finances could improve throughout the year. Tim Callan, a visiting fellow at the Arab Gulf States Institute in Washington, told Bloomberg that if oil production averages about 7.5 million barrels per day and Brent crude stays around $90 a barrel, Saudi Arabia’s budget deficit could shrink by about 1%. Saudi Arabia had previously projected a fiscal deficit of 3.3% of GDP for 2026. Elsewhere in the region, the UAE is expected to record a budget surplus this year, according to EFG Hermes. Qatar’s fiscal deficit could widen if the disruption continues.
