Why the Gulf’s economy has defied early war predictions
When the US war with Iran began in late February, the prevailing economic assumption was that oil prices would surge, financial markets would become volatile, and Gulf economies would suffer a temporary shock before quickly recovering. Five months on, those assumptions have proven far too shortsighted. The initial concern was primarily about there just being an oil price shock, and a short-lived…
The Gulf economies have defied early predictions of a temporary shock following the US war with Iran, with the World Bank cutting its growth forecast for 2026 from 4.4 per cent to just 1.3 per cent. Economists now expect contractions of up to 8.1 per cent in Kuwait and Qatar, 5.1 per cent in Bahrain, and 0.5 per cent in the UAE.
The primary concern is the disruption to the Gulf's ability to export energy, import goods, and operate through the Strait of Hormuz, rather than the initial surge in oil prices. This has led to a reassessment of the economic impact, with markets now pricing in duration and uncertainty, rather than simply the probability of a short war.
The differing levels of exposure to the Strait of Hormuz have resulted in varying degrees of economic impact across the Gulf, with Qatar and Kuwait being particularly vulnerable due to their greater dependence on energy exports through the strait.
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