Iran Conflict Hits Foundations of Gulf Economies

Iranian attacks on Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Bahrain, and Oman have targeted energy, financial, and technology services infrastructure. Rebuilding damaged infrastructure takes money, likely drawing from sovereign wealth fund (SWF) investments and lines of credit, but rebuilding the region’s reputation as a safe and modern destination may prove even more difficult.

The war that began with U.S. and Israeli attacks on Iran led to closure of the Strait of Hormuz, through which around 25% of the world’s seaborne trade of crude oil reaches global markets. Saudi Arabia and the UAE have very limited alternatives to the Strait, while Qatar, Kuwait, and Bahrain have none. Around 20% of the world’s liquified natural gas (LNG), mainly from Qatar, also passes through the Strait. The closure significantly reduces the flexibility of global energy markets, as Saudi Arabia has also been a leading source of crude oil spare production capacity to respond to supply shocks in other regions.

In April, the International Monetary Fund revisedits 2026 economic growth projections for the MENA region, estimating economic contractions for Qatar at -14.7%, Kuwait at -4.2%, Bahrain at -3.8%, the UAE at -1.9%, Saudi Arabia at -1.4%, and Oman at -0.05%. The International Energy Agency and Rystad Energy estimate that damage to over 80 energy facilities in Arab Gulf states may cost $58 billion to repair. The IMF estimates a 7% cumulative output loss over five years in the Gulf after the conflict, with negative effects persisting even after 10 years. If the conflict continues and the Strait of Hormuz remains closed, economic losses of Gulf Cooperation Council countries will accumulate through reduced energy production as well as uncertainty that reduces consumption and investment.

Macroeconomic and Fiscal Impact

In March, Saudi Arabia, the UAE, Qatar, and Kuwait deployed financial instruments to support local businesses, enhanced consumer protections, and made currency available to facilitate trade and payments. The UAE also extended a $5.4 billion currency swap facility to stabilize Bahrain’s economy. Early signs of economic stress are starting to show. Prices in the UAE showed the fastest growth in the last 15 years, likely due to supply chain disruptions. In Saudi Arabia, economic diversification spending and the closure of the Strait of Hormuz resulted in the biggest budget shortfall since 2018.

S&P Global projects a 5% contraction of Qatar’s real GDP, as losses from halted LNG exports spill over into manufacturing, tourism, trade, and transportation. For Bahrain, the closure of the Strait of Hormuz throttled oil and aluminum exports which make up around two-thirds of government revenue and about a quarter of GDP. Kuwait’s crude oil output dropped more than a third, from 1.27 million barrels per day (bpd) to 800,000 bpd and lost access to Qatari LNG, which raises the risk of rolling blackouts in the summer months.

The UAE exiting OPEC , requesting currency swaps with the U.S. Federal Reserve, and contemplating the creation of a defense-focused investment fund are only the first signs of re-prioritized national interests. To stabilize its economy, the UAE’s central bank injected an estimated $8.2 billion into the country’s financial system and reopened a 2034 bond, raising another $500 million, and a 2029 bond issuance, raising another $2 billion. Dubai also released a $272 million economic support package to help businesses. The UAE’s energy, banking, logistics, and tech hubs have been disproportionately targeted by Iran’s missiles and drones, and this damage threatens the country’s position as a destination for investment and investors.

Saudi Arabia, fresh from conducting a review of its Vision 2030 goals, plans to turn to internal investments, shedding stakes in LIV Golf and the Metropolitan Opera in New York. The Kingdom also announced a shift away from ambitious giga projects and renewed focus on attracting foreign investment, AI innovation, green technologies, financial services, and tourism. A shifting investment climate in the Kingdom likely contributed to a significant increase in bankruptcy filings in Q1 of 2026, two-thirds by retail and construction companies, seeking relief to manage short-term pressures. Further effects of this conflict will not show up in economic data until later this year.

Qatar, economically exposed due to its dependence on the Strait of Hormuz for LNG exports, also rolled out a package of economic support measures to ensure continuity of business operations amidst uncertainty. Qatar provided regulatory flexibility, advisory services, and debt relief for businesses operating in the country. Specifically targeting investment and business centers, tenants at the Qatar Financial Centre and Qatar Free Zones Authority received rent waivers, payment deferrals, and lease extensions.

GCC countries’ sovereign wealth funds — filled with oil and gas export revenues and long deployed to diversify economies from dependence on changes in global energy markets — can serve as partial financial buffers to manage economic headwinds. In general, these funds manage around $5 trillion in assets and invest in sectors that align with the countries’ diversification goals, such as AI in the United States or joint ventures to build electric vehicles.  

Damaged infrastructure

When the United States announced a ceasefire on April 7, GCC countries already faced around $58 billion in repairs to fix refineries, oil fields, gas plants, LNG facilities, and other energy infrastructure.

Iranian drones damaged Ras Tanura, Saudi Arabia’s largest refinery Samref, the offshore Manifa oil production facility, the onshore Khurais complex, and a pumping station used by the Yanbu (East-West) pipeline. According to JP Morgan, war damage to energy infrastructure reduced Saudi crude output by 10%. Saudi Arabia redirected most of its seaborne oil exports, through its Yanbu pipeline, to tankers in the Red Sea, sustaining 5 million barrels per day in crude exports (down from 7 mbpd pre-war).

In the UAE, the Ruwais refinery complex, Habshan gas complex, and port, power generation, desalination, and oil refining facilities at Fujairah potentially need rehabilitation. Repairing the Ras Laffan complex, responsible for producing around of 5% of the world’s natural gas and 20% of LNG, could take up to five years, as only three companies make large-frame turbines needed for repairs. Qatar stands to lose up to $20 billion per year in export revenue. Iran also damaged the Pearl Gas-to-Liquid (GTL) plant in Qatar, which produces naphtha, kerosene, paraffins, and other petrochemicals, as well as Kuwait’s Mina Al-Ahmadi, Mina Abdullah, and Saudi Aramco Total Refining and Petrochemical (SATORP) refinery, increasing the cost of jet fuel by 95%.

Iran also targeted the region’s aluminum smelting facilities with Emirates Global Aluminum (EGA) and Aluminum Bahrain (Alba) sustaining damage, and Qatar’s Qatalum deciding to halt operations as a precaution. The three facilities produce around 9% of the global supply of primary aluminum. Repairs to the partially open EGA, which supplied 4% of the world’s aluminum before the conflict, will take at least 12 months.

Damage to Data Centers

Iranian attacks also damaged data centers in the UAE and Bahrain, briefly disrupting financial services, enterprise, other consumer services, like food delivery and online shopping. Amazon has suspended billing clients and estimates that repairing the damage and restoring cloud operations hosted in the Middle East will take several months. Amazon Web Services (AWS) listed 31 services disrupted by the damage in the UAE and Bahrain and recommended customers migrate services to other regions. Abandoning existing infrastructure by tech companies is unlikely; however, this conflict may influence future tech company investments.

Hospitality

The conflict also deflated tourist arrivals due to security concerns and air travel disruptions. In 2025, tourism contributed around $178 billion to Saudi Arabia, $70 billion to the UAE, $16 billion to Qatar, and $3.06 billion to Oman’s GDP. Projections estimate a regional tourist decline of between 23-38 million visitors, resulting in $34-$56 billion in lost revenue. Since February 28, the number of flights in the region has decreased by 50%. The number of arrivals in Saudi Arabia declined by 35%, in the UAE by 30%, in Kuwait and Qatar by 25%, and in Oman by 20% compared to the same period in 2025.

Qatar, Kuwait, and Bahrain all restricted commercial flights at the conflict’s outset. The conflict also raised insurance premiums for airlines from around $20,000-$35,000 to up to $75,000 and forced carriers to reroute flights, increasing the travel cost and time, as well as causing revenue losses for airports.

The conflict reduced hotel occupancy and restaurant revenue, as well as causing supply chain issues. Restaurants in Dubai are struggling, forcing managers to cut menus, reduce wages, or furlough staff. Anecdotal evidence suggests that restaurants in other popular destinations in the GCC also face rising costs and supply chain challenges. Facing a decline from 81.1% to 22.8% hotel occupancy rates in mid-March, Dubai released around $272 million in financial support for tourism businesses.

In Bahrain, hotel occupancy declined by 70%, with the government allowing deferral of fees paid by tourism businesses. Conflict-related financial losses forced hotel operators in Doha to adjust their operations. Oman’s tourism sector also suffered due to cancellations by cruise ships, which brought over 137,000 tourists in 2025.

Security-related postponements and cancellations of conferences, concerts, and sports events cut revenue for organizers, media, hospitality, logistics, and advertising sectors. Organizers postponed events including the Middle East Energy Expo, which brings around 50,000 delegates to Dubai, as well as the World Economic Forum’s (WEF) Global Collaboration and Growth Meeting. Saudi Arabia and Bahrain also postponed Formula 1 races, which alone generated around $200 million in revenue.

Qatar postponed the Qatar Economic Forum, World Endurance Championship, Qatar Grand Prix, and canceled the Finallisima match. While the ceasefire largely held in its first 30 days, the tourism sector is very sensitive to perceptions of safety, so any meaningful recovery depends on a durable end to hostilities.

On the plus side, trucking companies in Saudi Arabia, Oman, and the UAE found new opportunities to deliver food, crude oil, and supplies. The UAE and Saudi Arabia temporarily eased restrictions on moving freight, cold-chain transport, and extended truck permits. Oman, whose ports are outside the Strait of Hormuz, also released a package of incentives to facilitate movement of commercial goods to its neighbors.

In conclusion, GCC countries will likely turn inward as they face national priorities to rebuild damaged infrastructure. Businesses will continue to struggle with lost export revenues, market volatility, supply chain and logistics challenges, and elevated prices. GCC countries can redirect a share of sovereign wealth to meet the estimated overall $200 billion cost of the conflict. However, it will be harder to repair damage to a carefully built reputation for stability that is vital to the successful execution of members’ economic development plans.