Gulf Economies Face Sharper Downturns Amid Hormuz Shipping Disruptions

A Reuters survey of economists conducted July 7-16 shows that repeated disruptions around the Strait of Hormuz—exacerbated by the United States’ latest blockade of Iranian shipping—have pushed oil prices up roughly 20% to about $85 a barrel, yet have simultaneously curtailed export volumes, raised freight costs and dampened investor confidence. The combined effect has led to markedly weaker growth outlooks for Gulf Cooperation Council (GCC) members. Median forecasts now predict an 8.1% contraction for both Kuwait and Qatar, a 5.1% shrinkage for Bahrain, and a 0.5% decline for the United Arab Emirates. Saudi Arabia’s growth estimate was cut to 1.4% (from 2.6%) and Oman’s was raised to 3.1% (from 2.2%). Saudi and Omani economies remain the only GCC members still projected to expand, thanks to Saudi’s East-West pipeline to the Red Sea and Oman's export terminal outside the Hormuz corridor.

Reuters

Higher crude prices are insufficient to offset the loss of shipment capacity. The physical inability to move hydrocarbons, goods and people through one of the world’s most vital maritime chokepoints is the primary drag on growth. Diversification strategies pursued by Riyadh, Abu Dhabi and Doha—targeting tourism, logistics, finance, technology and real-estate—are also vulnerable to the same air-space restrictions, weaker travel demand and delayed shipments that accompany the geopolitical tension.

Reuters

Despite elevated freight and insurance charges, median inflation expectations remain modest: Saudi Arabia 2.1%, United Arab Emirates 2.9%, Kuwait 2.7%, Qatar 3.2%, Oman 2.5% and Bahrain 1.9%. Dollar pegs, subsidies, price controls and sizable fiscal buffers have limited the pass-through of higher costs to consumers, with many firms absorbing the expense rather than fully raising prices.

Reuters

Economists stress that the depth of the downturn hinges on the duration of the Hormuz disruption. Short-lived interruptions could produce a sharp near-term hit followed by a rebound, while a prolonged blockage would embed more persistent damage. Growth forecasts assume that tensions with Iran ease and shipping normalises within the next six to twelve months, a scenario that would trigger a significant rebound across both oil and non-oil sectors of GCC economies.

Reuters