Gulf economies to shrink despite higher oil prices as Iran war takes toll, World Bank says
The Iran war has hit two mainstays of Gulf business: energy exports and aviation. The disruption extends to Europe, where buyers have had to replace missing gas supplies.
The World Bank projects that the six Gulf Cooperation Council economies will experience a collective contraction of 4.3% this year, as the repercussions of the Iran conflict continue to disrupt trade and business operations. Despite higher oil prices, reduced export volumes have led to a decline in output and government revenues, as reported by the bank in its latest regional update on Tuesday.
In September, Middle Eastern crude exports surpassed pre-war levels on 14 occasions, according to data from Reuters obtained on Wednesday, including shipments through the Strait of Hormuz and alternative paths.
The bank's forecast encompasses the full year and extends beyond the oil sector. Some gas shipments are also making their way through, with four vessels carrying Qatar liquefied natural gas (LNG) reappearing outside Hormuz between October 2 and 3. Italian energy firm Edison informed Reuters on September 28 that QatarEnergy had extended its force majeure notice until early December, citing an inability to deliver further scheduled cargoes.
This resulted in 35 gas shipments between April and early December being delayed, equivalent to approximately 4.6 billion cubic meters of gas destined for Italy's Adriatic LNG terminal. Edison subsequently secured alternative supplies and is still meeting its contractual obligations to customers.
Air travel within the region is facing weaker demand, with passenger traffic on Middle Eastern airlines declining by 14.6% in August compared to the previous year, according to International Air Transport Association figures published on September 30. This metric considers both the number of paying passengers and the distance traveled, resulting in a 9.3% decrease in available capacity as traffic dropped more rapidly.
However, regional airlines are accommodating some passengers whose flights have been cancelled by European and other carriers. Aviation consultant Omar Hashmi noted that Emirates, Qatar Airways, and Etihad serve passengers connecting through their hubs as well as visitors to the Gulf. He explained that longer routes incur additional fuel costs and that flight timings may change when airspace is closed, causing further disruptions.
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