Gulf Economies Face Worst Shock Since 1990s

The Gulf economies face their worst economic shock since the 1990s as the Iran war enters its third week with no sign of a ceasefire and the Strait of Hormuz effectively closed to commercial shipping. Goldman Sachs projects that Qatar and Kuwait could each suffer 14% GDP contractions this year if the blockade persists through April, a severity not seen since Iraq’s invasion of Kuwait triggered the first Gulf War. The Rio Times, the Latin American financial news outlet, analyzes how this crisis is reshaping global energy markets and what it means for oil-dependent economies from Riyadh to Brasília.

Gulf Economies Hit by Double Shock

The damage is splitting along two axes: stranded energy exports and paralyzed non-oil sectors. Goldman Sachs economist Farouk Soussa told Bloomberg that the war’s near-term impact could exceed that of the Covid-19 pandemic for many Gulf states. Qatar halted LNG production at its Ras Laffan complex after an Iranian drone strike on March 2, removing roughly 20% of global liquefied natural gas supply from the market. Saudi Aramco preemptively shut its 550,000-barrel-per-day Ras Tanura refinery, and Bahrain began cutting output at one of the world’s largest aluminum smelters.

Saudi Arabia and the UAE would fare better thanks to their ability to reroute crude through pipelines bypassing Hormuz, but Goldman still projects GDP declines of roughly 3% and 5% respectively — their steepest since the pandemic. Beyond hydrocarbons, everything from real estate to tourism to cross-border investment has seized up. Dubai International Airport suspended flights after a drone incident, Abu Dhabi and Dubai stock exchanges closed for two days, and the Qatar Exchange plunged 4.3% on March 2, its sharpest daily fall since the pandemic crash.

Oil Markets in Uncharted Territory

Brent crude opened Monday near $105 per barrel after briefly touching $106 on Sunday, up more than 50% from pre-war levels around $68. Bank of America raised its 2026 Brent forecast to $77.50 from $61, while Goldman Sachs warned a prolonged closure could push prices toward $130 before any normalization. The oil price surge has rippled through global gas markets, with European TTF benchmark prices jumping 53% and Asian LNG spot prices climbing 40% as Qatar’s export shutdown removed a critical supply source.

At least 150 tankers are anchored in open water outside the strait, while major Japanese firms have suspended all Hormuz transits. The United States struck Iranian military installations on Kharg Island, Iran’s main crude export terminal, over the weekend and warned it would target energy infrastructure if Tehran continues disrupting traffic. President Trump said Washington is negotiating with seven countries to form a naval escort coalition, though none has publicly committed forces.

Saudi Arabia May Emerge Stronger

The outlook diverges sharply among Gulf states. Six economists interviewed by Bloomberg agreed Saudi Arabia is best positioned to weather a prolonged conflict. The kingdom has successfully intercepted most Iranian attacks, keeping its airspace and commercial operations largely functional. Analysts at Abu Dhabi Commercial Bank and Oxford Economics warn that the biggest short-term risk is a deeper fiscal deficit in the first quarter from reduced revenues, but most project that if oil prices and exports stay elevated, Saudi Arabia could actually post a smaller annual deficit than the 3.3% forecast before the war.

The UAE is still expected to run a budget surplus this year, while Qatar’s deficit could widen significantly given its near-total export shutdown. Chatham House notes that the Gulf economies account for only 2–3% of global GDP, limiting the direct global transmission, but warns that chokepoint risks in commodities like helium — Qatar produces 40% of the world’s supply, critical for semiconductor manufacturing — could create cascading disruptions. Bond investors have not yet repriced Gulf sovereign risk, according to Arqaam Capital, but that calm depends entirely on the conflict’s duration. A senior Trump adviser told reporters the Pentagon estimates the war could last four to six weeks — a timeline the markets are currently pricing in, but one that grows less certain with each passing day.