Gulf Economies to Experience Lasting Impact from Iran Conflict
The ongoing conflict involving Iran is expected to cause Gulf economies to experience lasting impact, with damage to energy infrastructure and economic disruptions likely to take years or even decades to repair. The situation has significantly affected key sectors, particularly energy exports, and has introduced long-term challenges for the region’s economic stability and growth.
Damage to Energy Infrastructure and Economic Consequences
One of the most significant blows came when an Iranian ballistic missile struck Qatar’s Ras Laffan gas complex, a critical facility responsible for about 17% of global liquefied natural gas (LNG) supply. This attack has caused an estimated $20 billion in lost annual revenues for QatarEnergy, the state-owned energy company, and disrupted LNG supplies to major markets, including China. Repairs to the facility are expected to take between three to five years.
Qatar’s LNG industry had been a major success story since the early 1990s, transforming the country into one of the richest globally by developing vast offshore gas reserves and establishing Ras Laffan as the world’s largest LNG export center. The missile strike has been described by QatarEnergy’s chief executive as setting the region back by 10 to 20 years.
The Iranian strike followed Israeli attacks on Iran’s South Pars gas field, which borders Qatar’s North Dome field. Together, these fields form the world’s largest natural gas reserve. The broader conflict has caused damage estimated at up to $58 billion across the Gulf, affecting more than 80 facilities, with over a third severely damaged. Countries reporting damage include Bahrain, Kuwait, Saudi Arabia, and the United Arab Emirates.
Economic Shock and Regional Growth Outlook
The conflict has pushed the Gulf region into a major economic shock. The World Bank has lowered its growth forecast for the Middle East to 1.8% for the year, down from a previous estimate of 4% for 2026. Qatar and Kuwait are expected to experience the largest economic contractions. Saudi Arabia and the UAE have shown more resilience, partly due to oil exports that do not transit through the Strait of Hormuz, which Iran has closed.
The closure of the Strait of Hormuz, a vital maritime passage that handles about 20% of global oil and LNG flows, has sharply reduced exports. Gulf producers rely heavily on this route for their economic lifeline. Saudi Arabia has redirected oil exports through its East-West pipeline to the Red Sea port of Yanbu, while the UAE uses its Fujairah pipeline to bypass the strait. However, these alternatives can carry less than half the volume normally transported through Hormuz.
The head of the International Energy Agency has described the situation as the “biggest energy crisis in history.” The full economic fallout is still unfolding, with Qatar’s finance minister warning that the worst effects are yet to be felt.
Broader Economic Impacts and Future Challenges
The conflict’s impact extends beyond energy infrastructure. The travel and tourism sector, a key diversification pillar for several Gulf economies, has suffered significant losses. The World Travel & Tourism Council estimated that the Middle East has been losing around $600 million daily in tourism revenues since the conflict began. The UAE, a major global tourism hub, has seen sharp declines in bookings, cancellations, and reduced visitor numbers, leading to job losses and unpaid leave in the travel and hospitality industries.
Financial system pressures are also emerging. The US has considered extending currency swap lines to Gulf allies, including the UAE, to ease dollar liquidity pressures, although UAE officials have downplayed the need for external financial support. The UAE has announced its intention to leave the oil producer group OPEC, aiming to increase export flexibility. It was previously the fourth-largest producer within the organization, which controls about 37% of global oil supply.
Gulf states have historically provided financial support to neighboring countries such as Gaza, Lebanon, and Syria for reconstruction efforts. However, the ongoing conflict may force Gulf governments to prioritize rebuilding their own economies, potentially reducing aid and investment available to these countries.
The conflict may also affect Gulf nations’ economic diversification programs, which involve significant investments in sectors like artificial intelligence, sports, and entertainment to reduce dependence on oil revenues. Saudi Arabia and the UAE have invested billions to position themselves as regional technology hubs, attracting high-skilled talent. Some analysts suggest these countries may reconsider or reduce their investments abroad, including in the US.
Experts warn that without a permanent resolution to the conflict and guarantees that the Strait of Hormuz remains open, the Gulf states must prepare for an extended period of instability. This unresolved or low-intensity conflict could continue to strain the region’s economies and delay recovery efforts.