"Century meltdown" approaching the Gulf? Goldman Sachs warns: if conflicts don't stop, some economies may face the most serious impact since the 1990s.

If the Iran conflict cannot be resolved quickly, major Gulf economies such as Saudi Arabia, the United Arab Emirates, and Qatar will suffer severe damage. Goldman Sachs economist Farouk Soussa pointed out that if the conflict continues until April and the Strait of Hormuz is blocked for two months, Qatar and Kuwait's GDP could shrink by 14% each this year. This would be the most severe economic downturn for the two countries since the early 1990s, when Iraq's invasion of Kuwait triggered the Gulf War and global oil markets plunged into turmoil. Saudi Arabia and the UAE may fare slightly better because they have the ability to reroute their oil shipments from the critical Strait of Hormuz. However, their GDP is still expected to decline by around 3% and 5%, respectively, which would be the most severe economic impact since the COVID-19 pandemic in 2020. Soussa, the economist for Goldman Sachs in the Middle East and North Africa, stated: "For most Gulf economies, the short-term impact of this conflict is even greater than that of the COVID-19 pandemic. While they may recover and rebuild after the dust settles, the trauma left by the conflict on market confidence remains to be seen." This assessment highlights that the Middle East conflict has put Gulf Arab countries in a double bind: pressure on both the oil and non-oil sectors. As the conflict enters its third week with no signs of easing, Iran continues to strike neighboring countries in retaliation for US airstrikes. Last weekend, the US military attacked military facilities on Iran's Khark Island oil export hub and warned that if Iran continues to disrupt the Hormuz Strait, it will target its energy facilities. Around one-fifth of the world's oil exports are transported through the Hormuz Strait. Due to the strait's blockade and production interruptions in Saudi Arabia and the UAE, Brent crude has surpassed $104 per barrel. Qatar's liquefied natural gas exports have significantly decreased, impacting the global natural gas market; Bahrain has also begun to cut production at the world's largest aluminum smelter due to the blockade of the Hormuz Strait. Soussa believes that if the supply chain disruptions continue, oil-dependent economies like Qatar, Kuwait, and Bahrain will be hit the hardest. Economists including Mohamed Abu Basha from EFG Hermes and Justin Alexander from Khalij Economics indicated that the situation in Saudi Arabia and the UAE is more complicated: the two countries can export oil through alternate routes, and rising oil prices may provide some support. In the non-oil sectors, Gulf countries may face wider impacts as industries such as real estate, tourism, and investments are all affected. Interviewed economists all believe that if the conflict persists in the long term, Saudi Arabia's performance may be the most resilient. The country has successfully repelled most of Iran's attacks and has kept its airspace and commercial activities largely open, with only limited disruptions. Monica Malik from the Abu Dhabi Commercial Bank and Azad Zangana from the Oxford Economics Institute pointed out that the biggest short-term risk for Saudi Arabia would be declining revenues leading to an expanded fiscal deficit in the first quarter. However, most economists believe that if oil prices and exports remain high, Saudi Arabia's fiscal deficit in 2026 may actually be smaller than initially expected, performing better than expected. Tim Callen, visiting scholar at the Washington Institute for Near East Policy, calculated that if Saudi Arabia's daily oil production remains stable at around 7.5 million barrels and Brent crude stays in the range of $90, the annual fiscal deficit could narrow by 1 percentage point. The Saudi government had previously forecasted a fiscal deficit of 3.3% in 2026. In other countries, Abu Basha from EFG Hermes predicts that the UAE is still expected to achieve a fiscal surplus this year, while Qatar's deficit may widen. Gulf countries may continue to alleviate fiscal pressures by issuing bonds. Fady Gendy, portfolio manager at Arqaam Capital, stated that bond market investors have not yet expressed concerns about the impact of the conflict on the region's finances. "Market concerns will only arise if the conflict is prolonged, which is not the mainstream expectation in the current market."