War Shock Slows Gulf Growth

In a single moment, the “Ras Laffan” facility in Qatar— the largest artery for exporting liquefied natural gas in the world — was transformed from an energy hub into the epicenter of a global crisis, after a missile attack forced its shutdown, disrupting about 17% of Qatar’s annual export capacity for a period that could extend up to five years.

Thus, according to the International Monetary Fund, the repercussions of the war between the United States and Israel on one side and Iran on the other have not remained confined to disruptions in energy supplies but have extended to exert pressure on the entire economic system in the region.

Oil- and gas-exporting Gulf states are facing a sharp slowdown, while energy-importing countries such as Egypt and Jordan find themselves directly confronted with rising costs of basic goods and the potential decline in remittances from workers in the Gulf.

As the figures show, expected growth for the Middle East and North Africa region has fallen to 1.1% this year, down by 2.8 percentage points from pre-war estimates, with any meaningful recovery postponed until 2027. The World Bank described the situation as carrying a “significant human and economic cost,” amid disruptions to energy routes and rising financial volatility, clearly weakening the outlook for 2026.

Within the Gulf, growth in Gulf Cooperation Council countries is expected to decline to just 2% this year, compared to 4.3% previously. Oman stands out as the fastest-growing economy at 3.5% despite a slight downgrade, while Saudi Arabia maintains a degree of resilience thanks to its diversified economy and its ability to redirect exports away from the Strait of Hormuz, with projected growth of 3.1% in 2026.

However, this resilience is not universal. Kuwait is heading toward a contraction of 0.6% after sharp revisions, as is Bahrain with a contraction of 0.5%. The United Arab Emirates has borne a direct cost from Iranian attacks targeting energy facilities and ports, leading to a reduction in its 2026 growth forecast to 3.1%, down by 1.9 percentage points.

The hardest blow, however, has fallen on Qatar. The IMF cut its economic forecast by about 14.7 percentage points compared to January estimates, with a likely contraction of up to 8.6% this year— a decline reflecting the scale of dependence on the gas sector and the vulnerability of energy infrastructure during conflict.

In this context, Emirati economist Hussein Al-Qamzi sees the IMF’s downgrade of growth forecasts as reflecting a shift in the nature of pressures on Gulf economies, which are no longer tied solely to oil prices, but are increasingly affected by disruptions in supply chains, investor confidence, and the continuity of commercial activity.

Al-Qamzi links the slowdown to the war’s repercussions, from partial disruptions to trade and maritime and air transport to rising insurance and shipping costs. However, he says the region is not facing a comprehensive recession, but rather a “sharp and uneven slowdown,” with some economies continuing to grow while others approach contraction.

Developments related to the closure of the Strait of Hormuz add another layer of risk, as they put pressure on global trade and raise the prices of basic goods, directly affecting growth forecasts for 2026 and 2027, with varying impacts depending on countries’ reliance on imported energy and food. These pressures go beyond mere slowdown, as the United Nations Development Programme warned that the cost of the war to Arab economies could reach $200 billion, with a projected contraction in GDP ranging between 3.7% and 6%.

For his part, Saudi economist Jamal Banoun says that lowering growth expectations and rising inflation place Gulf economies under greater pressure, raising the question of whether the slowdown is temporary or a prelude to recession.

Banoun believes the trajectory depends on the duration of the war: if it ends quickly, growth may regain momentum; but if it continues—especially with disruptions to the Strait of Hormuz—it could push the global economy into recession and deepen contraction indicators in some Gulf countries.

He warns that higher oil prices in such a scenario may not translate into net gains, as they could coincide with declining exports and global demand, as well as losses in tourism, logistics services, and foreign investment.

Al-Qamzi, meanwhile, warns that a prolonged conflict could transform the crisis from a temporary shock into a structural change, with a potential decline in the region’s attractiveness to investment, rising financing costs, and a diminishing role for the Gulf as a global logistics hub, imposing a slower growth trajectory for years.

Credit Ratings of Gulf States

Amid these pressures, Fitch Ratings said Gulf economies have shown a degree of resilience since the outbreak of the war but warned that this resilience could face a real test if military operations escalate again or if economic disruption persists, which could increase pressure on credit ratings in the coming period compared to what has been seen so far.

In this context, Dr. Ahmed bin Saeed Kashoub, head of Al-Moasher Economic Consulting Office, says that rating agencies do not look only at deficits and borrowing, but also at sovereign assets, reserves, public debt, quality of financial management, economic and institutional flexibility, and stability.

He believes Gulf states still possess strong buffers, particularly through sovereign wealth funds, reserves, and fiscal reforms. However, a prolonged war could increase risk and borrowing costs and heighten investor sensitivity, even if it does not directly lead to downgrades.

He adds that Fitch’s assessments suggest Gulf ratings can withstand a short and limited conflict escalation, while prolonged confrontations or damage to energy infrastructure could turn into real credit risks.

Al-Qamzi also believes Gulf countries remain relatively comfortable from a credit perspective, benefiting from surpluses, reserves, and sovereign wealth funds, especially in Saudi Arabia and the UAE. However, he points out that the primary risk is no longer just debt or deficits, but the ability of these economies to sustain revenue flows, as disruptions to exports or declining confidence could pressure even the strongest budgets.

Gulf Economies Between Slowdown and Inflation

While discussions about rating downgrades remain conditional on the duration and expansion of the war, its impact on economic activity appears clearer. Dr. Ahmed bin Saeed Kashoub believes it is still premature to speak of a comprehensive Gulf recession, but the slowdown carries high risks. Gulf economies have become stronger than in previous cycles, but they are also more exposed to the global economy through tourism, aviation, logistics, real estate, financial markets, and foreign investment.

Kashoub warns that the continuation of the war or its extension to maritime corridors could directly pressure shipping, aviation, tourism, retail, real estate, and private investment, through rising costs of shipping, insurance, and energy, potentially leading to a broader shock if energy infrastructure or trade routes are damaged.

Regarding the possibility of inflation coinciding with slowdown, Kashoub says this scenario is possible in the Gulf, but inflation would be driven primarily by imported costs rather than domestic demand, due to rising costs of shipping, insurance, goods, energy, and financing, alongside declining confidence, delayed investment, and tighter banking conditions.

Jamal Banoun believes this scenario is no longer theoretical, as government revenues may improve with rising oil prices while domestic activity weakens due to trade disruptions, declining purchasing power, and rising costs— a situation resembling stagflation.

Al-Qamzi, meanwhile, sees higher energy prices as providing financial support to the Gulf, but potentially coinciding with declining export volumes and rising operating costs, producing a mix of weaker growth and moderate price pressures, until high prices lose their ability to offset slowing activity.

The article is a translation of the original Arabic.