Hormuz Disruption Set to Cause Sharp Contraction in Most Gulf Economies This Year
Taylor Wilson
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)
Content is for reference only, not financial advice.