The Gulf Cooperation Council (GCC) countries did not enter 2026 from a completely comfortable financial position. When the new budgets were approved late last year, governments already understood that the coming period would bring mounting pressures, as deficit projections returned to most budgets after several years of surpluses driven by high energy prices.
But this financial equation is now facing a far harsher test. The conflict with Iran has already extended into the Gulf itself, where countries have been subjected to missile strikes, coinciding with the closure of the Strait of Hormuz—one of the world’s most vital energy arteries—and the resulting disruption to shipping and markets.
Budgets Return to Deficit
The figures in Gulf budgets clearly reflect this shift. Saudi Arabia approved its 2026 budget with an expected deficit of about 165 billion riyals ($44 billion), with public debt projected to rise to 32.7 percent of GDP.
In Oman, the budget deficit for the same year is estimated at 530 million Omani rials ($1.38 billion), equivalent to about 1.3 percent of GDP. Qatar projected a deficit of 21.8 billion riyals (around $6 billion), amid rising current spending and increased allocations for vital sectors, with revenues calculated based on an oil price of about $55 per barrel.
In Kuwait, the draft budget for fiscal year 2026–2027 shows an expected deficit of 9.8 billion dinars (about $32.1 billion) against total revenues of 16.3 billion dinars. The figures highlight the continued heavy reliance on oil, which accounts for about 79 percent of government revenues.
Bahrain expects a deficit of 1.077 billion Bahraini dinars in 2026 (about $2.85 billion), while the United Arab Emirates appeared to be the relative exception after announcing a balanced federal budget with no deficit.
According to economic estimates, total Gulf government spending in 2025 and 2026 reached about $542 billion, with an expected deficit of roughly $54 billion before the regional crisis erupted. However, this financial balance now faces a more difficult test as military tensions in the region escalate.
A Financial “Safety Belt”
Despite these pressures, economists believe Gulf countries still possess strong financial tools compared with many Middle Eastern economies.
Saudi economic writer Ibrahim Al-Malik says that Gulf countries possess a “strong financial safety belt.” However, he stresses that it is not complete immunity; rather, it gives governments “time and room to make decisions and absorb the first shock through spending, support measures, or calming markets.”
For his part, Ahmed bin Saeed Kashoub, head of the Indicator Center for Economic and Financial Consulting, says the structural difference between Gulf economies and most other economies in the region lies in the nature of their government financial positions.
Many Middle Eastern economies enter crises weighed down by debt or limited foreign reserves, he says, “whereas Gulf states enter them as countries that own vast financial assets—not as economies seeking external financing.”
These assets, along with oil revenues, give governments greater room to maintain spending and investment levels even during periods of economic volatility.
For example, rising oil prices could quickly change the equation. Kashoub notes that an increase of about $40 per barrel—from $80 to $120—could add roughly $640 million per day to Gulf oil revenues, equivalent to nearly $230 billion annually.
Yet such an increase also carries risks. High energy prices may slow global economic growth, which could later reduce demand for oil.
In a recent report, the Financial Times cited informed sources saying that mounting pressure on Gulf budgets could prompt some governments to reassess their foreign investments and financial commitments amid the repercussions of war.
Estimates by Fitch Ratings suggest that Gulf countries and their banks generally have sufficient financial buffers to withstand a short-term regional conflict, but the agency warns that continued escalation could put pressure on creditworthiness and liquidity across the region.
The Strength of Sovereign Wealth Funds
One of the most significant strengths of Gulf economies lies in their sovereign wealth funds, whose assets are estimated at around $5 trillion. Estimates by institutions such as Deloitte and Global SWF indicate that Gulf funds account for about 38 to 40 percent of total sovereign assets worldwide.
Kashoub believes these funds are a key tool for managing economic crises, as they provide governments with flexibility to support domestic liquidity and continue financing strategic projects and infrastructure even during periods of volatility.
Global market turbulence may also create new investment opportunities for long-term funds, which often move during downturns to acquire assets at lower prices.
However, Al-Malik warns against overestimating the role of these funds as a quick solution to every crisis.
He says sovereign wealth funds are not the “first line of defense.” Economic stability depends primarily on fiscal policy, monetary policy, and banking liquidity, while sovereign funds serve as a “strategic line of defense” preventing temporary crises from turning into long-term structural imbalances.
Oil and War: Two Economic Scenarios
The economic trajectory of the current crisis depends largely on the duration of military escalation and its impact on energy flows.
If the confrontation remains limited, higher oil prices could boost government revenues for Gulf states and provide them with additional financial room to manage volatility.
However, if the conflict expands to include disruptions to energy supplies or maritime shipping, prices could surge to levels approaching $150 per barrel, raising transportation and production costs worldwide.
Economic estimates suggest that disruptions to energy supplies could cost the global economy between $3 billion and $5 billion per day due to higher prices and disrupted international trade.
But the greatest challenge may not come from oil prices alone.
Gulf economies depend heavily on food imports, making them vulnerable to disruptions in supply chains. According to estimates cited by Reuters, Gulf countries import between 80 and 90 percent of their food, while more than 70 percent of these imports pass through the Strait of Hormuz.
Al-Malik warns that continued war could lead to higher commodity prices or shortages of certain goods, even though some countries maintain food reserves sufficient for several months.
Resilient Economy, But Not Immune
Ultimately, Gulf financial strength may enable governments to ease some of these pressures through subsidies, absorbing part of the costs of food and shipping, and maintaining liquidity in markets.
However, as Al-Malik notes, these tools cannot eliminate the effects of a prolonged crisis or the disruption of vital trade routes.
For this reason, Gulf economies today appear stronger than many regional economies in absorbing the initial shock. Yet the decisive factor in testing their resilience will not be the size of reserves or sovereign assets alone, but the duration of the crisis itself—and whether it remains a short confrontation or evolves into a longer conflict that reshapes the equation of economic stability in the region.
The article is a translation of the original Arabic.
Sakina Abdallah
A Saudi writer, researcher, and TV presenter
