The Gulf Energy Artery is Blocked: Regional Economic Transformation Pressure Intensifies Sharply

Since the outbreak of the Israel-Hamas conflict, the Gulf region has not only experienced intense geopolitical security shocks but also faces challenges in ensuring energy exports, maintaining supply chain stability, and promoting economic transformation. Observers believe that with the blockage of the Strait of Hormuz, attacks on oil and gas facilities, and soaring logistics insurance costs, the security and financing costs for Gulf countries are both rising, posing severe challenges to their economic diversification paths.

Market analysts suggest that, in the short term, high oil prices may somewhat improve fiscal revenues for Gulf nations. However, if exports are hindered, projects delayed, and financing costs increase, the negative effects will become more apparent. Malon Hattir, a finance and economics professor from Beirut, Lebanon, told Saudi Arabia’s Eastern Television that if the conflict prolongs, the benefits oil-producing countries gain from rising oil prices could be offset or even canceled out.

Recent warnings from credit rating agencies S&P and Fitch indicate that the impact of the Middle East conflict has begun to transmit through credit channels. If the blockade of the Strait of Hormuz persists, investments, fiscal stability, financing, and corporate cash flows in Gulf countries will come under pressure, especially for economies with weaker fiscal buffers, which will be more vulnerable to shocks.

Karen Yang, senior researcher at the Middle East Institute, said that even if some oil exports resume before May, the conflict could still lead to income declines and economic contraction in Kuwait, Bahrain, and Qatar. Among them, Kuwait and Qatar’s GDP could shrink by as much as 14%.

Some industry insiders believe that the impact of the Middle East conflict is no longer just short-term market volatility but could also drag down growth for the entire year and lead markets to reassess the risks and resilience of Gulf economies. Reuters cited a S&P report warning that if the conflict continues, the banking systems in the Gulf could face capital outflows of up to $307 billion.

In response, some countries have begun deploying financial stability tools. The Central Bank of the United Arab Emirates recently launched a “Resilience Support Program,” which includes raising bank reserve requirements and temporarily releasing some funds to maintain credit supply and market confidence.

For Gulf countries, the deeper challenge of this conflict lies in whether their national visions and transformation agendas will be disrupted by security shocks. Some experts believe that the current risks faced by Gulf nations are not merely resource price fluctuations but include challenges across multiple dimensions such as finance, investment, and business confidence.

Currently, growth outside the oil sector in Gulf countries still heavily depends on the redistribution of oil revenues. If their crude exports are blocked for an extended period, their sovereign wealth funds’ capacity to inject capital will be impaired. Reuters reports that at least three Gulf countries are reevaluating their sovereign wealth fund allocations. Experts worry that funds originally intended for tourism, manufacturing, finance, digital economy, and renewable energy transitions may be squeezed out by increasing security expenditures and emergency measures.

The World Bank and IMF have previously stated that the growth prospects of the Gulf Cooperation Council (GCC) countries depend on expanding non-oil sectors, investments, and reforms. However, the current situation indicates that the competitiveness of Gulf nations is largely influenced by factors such as transportation reserves, shipping insurance, maritime security, and supply chain resilience.

Qatar’s Minister of State for Energy Affairs and CEO of QatarEnergy, Saad Sherida al-Kaabi, said that the Israel-U.S.-Iran conflict “set the entire Middle East back by 10 to 20 years,” with tourism, aviation, trade, and ports all suffering ripple effects.

Yara Aziz, senior economist at an independent think tank and financial institutions forum, emphasized that the Middle East conflict further highlights the necessity of economic diversification.

The conflict has forced Gulf countries to reassess their security and development strategies. Many Gulf nations are also trying to cope with transportation blockages caused by the war. However, some interviewees noted that while offshore ports have certain advantages, the vulnerability of a single export model is greater, and they face constraints in insurance and port throughput capacity.

Fattah Biroul, director of the International Energy Agency, recently warned that this oil supply crisis could last for months and may accelerate the development of alternative energy sources such as renewables, nuclear power, and electric vehicles, while also potentially boosting short-term coal demand.

Energy expert Ibrahim Hamuda pointed out that the current crisis is shifting the focus of Gulf energy security from “protecting production facilities” to “ensuring energy reaches global markets amid turbulence.” This conflict may prompt countries to accelerate energy efficiency improvements and expand renewable energy investments while also focusing on building more resilient energy systems.