Hormuz Disruption Set to Cause Sharp Contraction in Most Gulf Economies This Year
nashnova research
A Reuters poll shows the prolonged Strait of Hormuz disruption has roughly doubled the projected contraction for four of six Gulf states compared with three months ago; the 2027 rebound forecast hinges entirely on whether tensions ease and shipping resumes on schedule.
Who is hit hardest?
Kuwait and Qatar take the heaviest blow — both now forecast to shrink 8.1% this year, nearly double the -4.4% and -6.0% projected in the April poll.
Bahrain's expected contraction deepened to 5.1% from 2.9%; the UAE shifted from flat growth to a 0.5% decline.
This means → in just three months, economists have made a rare collective downgrade of Gulf growth — the failure of a quick de-escalation is the trigger.
Why can Saudi Arabia and Oman stay in positive territory?
Saudi Arabia has an east-west pipeline that routes crude to the Red Sea, bypassing the strait; Oman's export terminals sit outside Hormuz altogether — both have limited direct exposure to the shipping disruption.
Saudi growth was still cut from 2.6% to 1.4%, below the IMF's latest 1.7% estimate; Oman bucked the trend, rising from 2.2% to 3.1%.
In plain terms = pipelines and port geography decide who can keep selling oil when the strait is blocked — Saudi Arabia and Oman happen to hold that card.
What assumption underpins the 2027 rebound?
Fitch Solutions analyst Abdalla Saleh noted the strong 2027 forecasts rest on one premise: Iran tensions ease and Hormuz shipping normalizes within the next 6–12 months.
The latest projections: Kuwait +10.1%, Qatar +7.8%, Saudi Arabia +6.0%, UAE +5.8%, Bahrain +4.5%, Oman +2.8% in 2027.
This means → the bigger the promised rebound, the deeper the dependence on the de-escalation assumption — if the assumption fails, the rebound does not arrive.
Why hasn't inflation surged alongside the contraction?
Dollar-pegged currencies, government subsidies, price controls, and ample fiscal buffers have dampened the pass-through of higher freight and insurance costs to consumers.
Median inflation forecasts remain moderate: Saudi Arabia 2.1%, UAE 2.9%, Qatar 3.2%, Oman 2.5%, Kuwait 2.7%, Bahrain 1.9%.
In plain terms = GDP is shrinking, but consumers are not yet feeling a price shock — the fiscal cushion is still holding.
What is the biggest long-term risk?
Oxford Economics chief economist Akanksha Samdani argued the top risk may not be another military escalation but businesses permanently pricing a higher geopolitical risk premium into their operations.
Tourism, logistics, finance, tech, and real estate — the diversification pillars Gulf states have built for years — are equally exposed to airspace restrictions, falling travel demand, and cargo delays.
This reflects a deeper paradox: the more successfully these economies pivot from oil to services, the more they depend on the free flow of shipping and people — a Hormuz blockage discounts the diversification payoff too.
The issue is not just the level of oil prices or interest rates — it is whether you can actually move oil, goods, and people through the world's most critical chokepoint.
Marwan Barakat
Group Chief Economist, Bank Audi
(Reuters poll interview)
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