Qatar has cut the budgets of several government departments by as much as 30%, a sign that the economic fallout from the war is spreading beyond energy facilities and shipping lanes to government spending.
The disruptions to shipping through the Strait of Hormuz and declining oil and gas exports have increased the strain on regional countries, as governments are spending more to protect critical facilities and secure food and energy supplies.
Most Gulf countries have large reserves and sovereign wealth funds, but their ability to weather the crisis varies on their dependence on the strait and the flexibility of their budgets.
Doha has also reduced funding for foreign aid by about 85%.
Qatar suffered a major economic blow after its giant gas facilities at Ras Laffan were damaged, disrupting a large share of liquefied natural gas exports–the country’s main source of revenue.
Qatar’s Finance Ministry reported a deficit of 10.3 billion riyals, or about $2.8 billion, in the first quarter of 2026, compared with 500 million riyals during the same period in 2025–more than 20-fold in a single year.
The widening deficit coincided with a 23.5% decline in revenue to 37.8 billion riyals, compared with the first quarter of last year.
The International Monetary Fund expects Qatar’s gross domestic product to contract by 8.6% in 2026, the largest decline among the Gulf Cooperation Council countries.
Qatar remains an isolated case that should not be generalized, economist Awad Al-Nasafi said, because Doha suffered an operational shock that hit its primary source of revenue.
But the trend toward tighter spending also appears to be under consideration elsewhere in the Gulf, although the reasons and scale vary.
In Saudi Arabia, the Finance Ministry reported a deficit of 125.7 billion riyals, or about $33.5 billion, in the first quarter of 2026, the largest quarterly deficit since 2018.
At the same time, military spending rose 26% to 64.7 billion riyals in the first quarter, from 51.4 billion riyals during the same period in 2025, indicating that a larger share of resources is being directed toward protecting the kingdom and its vital facilities.
In neighboring Kuwait, the 2026-27 fiscalyear budget projects a deficit of 9.8 billion dinars, or about $31.9 billion, against revenue of 16.3 billion dinars and estimated expenditures of about 26.1 billion dinars.
Omani economist Ali Al-Hamadi told MBN that spending reviews are beginning to appear in Gulf budgets, as deficits widen and revenues decline. He expects other governments to reassess expenditures and reschedule some projects if the war continues.
Kuwaiti economist Mohammed Al-Qattan, meanwhile, said fiscal restraint in Kuwait is no longer an option that can be postponed because a halt in oil exports would disrupt the daily flow of cash into the treasury.
If Kuwait decides to cut spending, it could begin with new and nonessential government projects and expenditures that can be deferred, without directly affecting salaries and essential services.
Spending cuts may not take the form of officially canceling projects. Instead, they could involve delaying tenders, reducing the scope of contracts, extending timelines, and postponing new projects until the course of the war becomes clearer.
Al-Qattan warned that the private sector could be affected before the government sector because construction companies, suppliers, consulting firms, technology companies and others depend to varying degrees on government contracts.
A decline in private-sector activity would weaken its ability to hire citizens and increase demand for government jobs, putting pressure on the budget through public-sector hiring.
Kuwait, however, has large financial reserves. The assets of the Kuwait Investment Authority have surpassed $1 trillion, giving the state the capacity to absorb temporary shocks, although those assets cannot serve as a permanent substitute for oil revenues.
The Gulf countries’ ability to withstand shocks varies. While some face pressures stemming from debt or disruptions to energy exports, others have alternative outlets and reserves that allow them to postpone broad spending cuts.
Bahrain is in a particularly vulnerable position because of its high public debt burden. S&P Global Ratings expects net general government debt to reach about 150% of GDP by 2029, compared with about 127% in 2025.
Al-Nasafi said the high debt burden leaves Bahrain with less fiscal room to maneuver the crisis than other Gulf countries.
The United Arab Emirates has not announced broad spending cuts. It approved a balanced federal budget for 2026, with revenues and expenditures each set at 92.4 billion dirhams and no projected deficit.
That balance is linked to the diversification of revenue sources, including taxes, service fees, and investment returns.
But other figures point to negative effects.
Dubai Airports, which operates Dubai International Airport, said Wednesday that passenger traffic through the airport fell 31.3% in the first half of the year amid major disruptions caused by the Iran war.
This month, Abu Dhabi National Oil Co. (ADNOC), one of the world’s largest energy producers, said it was being significantly affected by the attacks as it sought to continue meeting customer requirements under what it described as extremely difficult circumstances.
The UAE was among the countries hardest hit by Iranian attacks during the early stages of the war. It took the surprise decision days ago to suspend all financial and economic transactions with Iran until further notice.
Al-Hamadi said the UAE and Oman have been less affected by disruptions in the Strait of Hormuz because of ports located outside the strait and overland pipeline networks that allow the UAE to export some of its oil through Fujairah.
Gulf sovereign wealth funds serve as a safety belt capable of absorbing the initial shock and preventing the need for harsh austerity. But if the war continues, those funds may have to redirect some of their investments domestically to support budgets and affected sectors.
Nonessential infrastructure projects and costly mega projects are typically among the first areas to face delays, followed by the construction and tourism sectors. This could slow growth in the non-oil economy and reduce job opportunities.
Al-Nasafi distinguishes between projects that can be postponed and diversification projects linked to national transformation plans. Governments, he said, may protect projects that reduce their economies’ dependence on oil and gas because they represent long-term investments.
On the other hand, the war may not necessarily lead to lower overall spending in every country as much as it may change where spending is directed. Governments face growing needs to fund defense and protect facilities, establish alternative routes for energy exports, strengthen food stocks, and protect water and electricity networks.
The International Monetary Fund has recommended that governments in the region provide temporary, targeted support to the most vulnerable households, financed by reprioritizing spending rather than expanding deficits. It also called for diversifying trade routes and strengthening critical infrastructure.
According to the fund, Bahrain, Kuwait, Qatar and the UAE rely on imports to meet more than 80% of their food consumption, making food security and supply chains priorities on which spending is difficult to cut.
Al-Nasafi said Gulf sovereign wealth funds cannot be treated as cash accounts readily available to finance annual expenditures because they are long-term investment vehicles designed to diversify wealth and protect future generations.
He said those assets give Gulf countries the ability to postpone severe austerity, but they do not eliminate the need to reprioritize spending if the war drags on.
Adapted and translated from the original Arabic.
