As the economic fallout from the United States and Israel’s conflict with Iran reverberates globally, Gulf economies are bearing some of the most severe impacts. Since the onset of the conflict on February 28, Iran has launched continuous attacks on Gulf states, claiming to target military bases used by the US. However, Gulf nations have rejected Tehran’s assertions, insisting the attacks are unjustified.
The Iranian strikes have severely disrupted energy production and tourism, placing the region at risk of significant economic harm, reminiscent of the 1990-1991 Gulf War. Khaled Almezaini, an associate professor of politics and international relations at Zayed University in Dubai, highlighted the economic toll: “Disruptions to aviation, tourism, shipping routes, and energy exports, combined with higher insurance premiums and freight costs, mean the region is likely losing hundreds of millions of dollars per day in economic activity.”
Energy Sector Under Siege
After more than two weeks of conflict, the economic impact on the region has been substantial. Middle Eastern oil producers have seen daily output plummet from 21 million barrels to 14 million barrels, primarily due to the closure of the Strait of Hormuz, according to Rystad Energy. If commercial shipping continues to avoid the strait due to Tehran’s threats, output could drop to as low as 6 million barrels per day in a worst-case scenario.
While US President Donald Trump has indicated that “numerous” countries are prepared to help secure the waterway with their navies, no government has confirmed involvement, and several have ruled out deploying warships for the effort.
Gulf Cooperation Council’s Vulnerability
Despite significant economic diversification in recent decades, the Gulf Cooperation Council (GCC) members—Qatar, Kuwait, Bahrain, Saudi Arabia, the UAE, and Oman—still rely heavily on oil production, which constitutes nearly a quarter of their GDPs. Yesar Al-Maleki, a Gulf analyst at the Middle East Economic Survey, noted that Qatar, Kuwait, and Bahrain are particularly vulnerable due to their limited access to export routes that bypass the strait.
In contrast, Saudi Arabia and the UAE have invested in infrastructure that allows them to partially bypass the strait, such as Saudi Arabia’s East-West Pipeline and the UAE’s pipeline to Fujairah, which can transport 5 million and 1.8 million barrels per day, respectively.
Goldman Sachs estimated that Qatar and Kuwait could see their GDPs plunge 14 percent if the war lasts until the end of April, with the UAE and Saudi Arabia facing contractions of 5 percent and 3 percent, respectively.
Tourism and Travel in Turmoil
The conflict has also severely impacted the tourism and travel sector, which accounts for about 11 percent of the GCC’s GDP. Airspace closures and restrictions led to 37,000 flight cancellations from February 28 to March 8, according to aviation analytics firm Cirium. On Tuesday, UAE authorities briefly instituted a total closure of the country’s airspace due to “rapidly evolving regional security developments.”
This announcement followed the suspension of flights at Dubai International Airport, the world’s busiest international gateway, after a drone attack on a nearby fuel depot. Qatar Airways has started special flights, gradually increasing their frequency, although none of the Gulf carriers have reached pre-war levels of aviation traffic.
The World Travel & Tourism Council estimated the conflict is costing the region $600 million in daily spending by international visitors.
Comparative Economic Impact
Emilie Rutledge, an economics lecturer at The Open University in the UK, emphasized the broader economic consequences: “The fact that most tourist bookings, conferences, and sporting events have been canceled will represent massive costs to the region’s travel and hospitality sectors.”
Yesar Al-Maleki warned that the economic fallout could be comparable to historic regional crises if the war continues. “In the near term, the scale of disruption may resemble the economic shock experienced during the pandemic, while a sustained closure could approach the magnitude of the economic fallout seen during the 1991 Gulf War,” he said.
Outlook and Resilience
Despite the grim outlook, Khaled Almezaini at Zayed University believes a Gulf-wide recession is unlikely, citing the extensive fiscal reserves many countries can use to withstand short-term shocks. While the risk of a downturn will rise if the conflict persists, “the more likely base case is weaker growth and a delayed recovery rather than a broad, deep contraction, especially for larger economies such as the UAE and Saudi Arabia,” Almezaini explained.
He added, “If tensions de-escalate relatively quickly, the region is well placed for activity to normalize faster than many expect.”
