Kuwait and Qatar Face Deepest Economic Hit from War, Hormuz Blockade

The story in brief

Kuwait and Qatar are projected to experience the most significant economic fallout among Gulf states due to the Iran war, with their economies expected to contract this year. This contraction is attributed to disruptions in the Strait of Hormuz, which severely impacts energy exports. In contrast, the Arab Monetary Fund (AMF) anticipates continued, albeit slower, growth for other GCC economies like Saudi Arabia, the UAE, Bahrain, and Oman. This divergence highlights the protective role of greater economic diversification and alternative export routes in cushioning the economic impact elsewhere in the region.

Detailed summary

Kuwait and Qatar are expected to suffer the deepest economic fallout among Gulf states from the Iran war, with both economies forecast to contract this year as disruption to the Strait of Hormuz hits energy exports. The Arab Monetary Fund (AMF) projects that the remaining GCC economies of Saudi Arabia, the UAE, Bahrain, and Oman will continue to grow, though at a slower pace. This resilience in other GCC countries is attributed to their greater economic diversification and the availability of alternative export routes, which have helped cushion the impact of the conflict.

Saudi Arabia and the UAE have partially mitigated the repercussions of the conflict between Iran and the US and the accompanying blockade of the Strait of Hormuz. This is largely due to their relatively large non-oil sectors and the presence of two oil pipelines that allow them to bypass the waterway. Oman emerged as the least impacted GCC member, benefiting from the location of its main export terminals outside Hormuz. Bahrain, with its limited crude resources, is not heavily dependent on oil sales.

In an 80-page report on Arab economies, the Abu Dhabi-based AMF forecast a general slowdown in growth across the GCC. Specifically, Saudi Arabia is predicted to expand by 3.2 percent, Oman by 2.9 percent, the UAE by 1.7 percent, and Bahrain by 1.4 percent. In stark contrast, Kuwait and Qatar are forecast to contract by 2.9 percent and 5.9 percent, respectively. Jamal Banoun, manager of the Saudi SMS economic consultancy centre, stated that "Qatar and Kuwait are affected by the crisis more than the other GCC countries because their non-oil economies are not very big and they are almost completely dependent on Hormuz for their hydrocarbon exports."

According to their governments, oil and gas export earnings constitute more than two-thirds of Kuwait and Qatar’s revenues. Qatar, which controls the world’s third-largest proven gas deposits, has been unable to export most of its LNG output due to the Hormuz closure and Iranian missile and drone attacks on its energy facilities. Kuwait, also subjected to repeated Iranian strikes, has increased borrowing from local and foreign markets, signaling a worsening cash crisis. The AMF report, however, forecasts a sharp rebound for GCC economies in 2027, with projected growth of 4.2 percent in Saudi Arabia, 9.8 percent in the UAE, 5.5 percent in Qatar, 6 percent in Kuwait, 3.1 percent in Oman, and 2.9 percent in Bahrain.

Background & context

This story sits within Saudi Arabia's broader reform agenda and efforts to grow the economy as a pillar of non-oil GDP. The region benefits from supportive energy prices, expansionary government budgets, and rising interest from sovereign wealth funds and foreign investors.

Key numbers & facts

No specific figures were provided in the available source. See the original publisher for detailed numbers.

Key points

Kuwait and Qatar are projected to experience the most significant economic fallout among Gulf states due to the Iran war, with their economies expected to contract this year.
This contraction is attributed to disruptions in the Strait of Hormuz, which severely impacts energy exports.
In contrast, the Arab Monetary Fund (AMF) anticipates continued, albeit slower, growth for other GCC economies like Saudi Arabia, the UAE, Bahrain, and Oman.
This divergence highlights the protective role of greater economic diversification and alternative export routes in cushioning the economic impact elsewhere in the region.

Why this matters

This matters because activity in GCC markets shapes capital flows, hiring and investor sentiment across Saudi Arabia.

Economic & market impact

Potential ripple effects across GCC equities, banking activity and investor confidence. Watch listed regional names exposed to the story.

GCC angle

For the rest of the GCC, this is a signal on the pace of activity in the sector. Capital flows and regulatory decisions in one Gulf state typically travel across borders given the similar economic structures and the coordination inside the GCC framework.

Risks & uncertainty

There is uncertainty around the read-through: projections can be moved by swings in oil prices, by US monetary policy tightening that most GCC central banks track via dollar pegs, and by regional geopolitical events. Headline numbers may also be revised when subsequent official data is published.

What happens next?

Watch for upcoming disclosures from listed names in the sector, official macro releases for Saudi Arabia, and any commentary from regulators or sovereign wealth funds. Tharwa will refresh this briefing as new public information becomes available.

This is an original Tharwa briefing based on the available source material. Read the full article from the publisher.