Gulf Energy Artery Blockage, Regional Economic Transformation Pressure Surges Sharply

Source: Xinhua News Agency

Xinhua News Agency, Riyadh, March 23 — Title: Gulf Energy Arteries Blocked, Regional Economic Transformation Under Increased Pressure

Xinhua reporters Wang Haizhou, Luo Chen, Wang Qiang

Since the outbreak of the Israel-U.S. conflict, the Gulf region has not only experienced intense geopolitical security shocks but also faces challenges in ensuring energy exports, maintaining industrial supply chains, and promoting economic transformation. Analysts believe that with the Strait of Hormuz being blocked, attacks on oil and gas facilities, and soaring logistics insurance costs, the security and financing costs for Gulf countries are both rising, posing severe challenges to economic diversification.

Growth Prospects Are Dragged Down

Market participants believe that high oil prices may temporarily improve fiscal revenues for Gulf countries, but if exports are hindered, projects delayed, and financing costs increase, the negative effects will become more apparent. Malon Hattir, a finance and economics professor from Beirut, Lebanon, told Saudi Arabia’s Eastern Television that if the conflict prolongs, the benefits oil-producing countries gain from rising oil prices could be offset or even canceled out.

Recent warnings from international credit rating agencies S&P and Fitch indicate that the impact of the Middle East conflict has begun to transmit to credit channels. If the blockade of shipping through the Strait of Hormuz persists, investments, fiscal stability, financing, and corporate cash flows in Gulf countries will come under pressure, especially for economies with weaker fiscal buffers.

Senior researcher Karen Yang from the Middle East Institute said that even if some oil exports resume before May, the conflict could still lead to income declines and economic contraction in Kuwait, Bahrain, and Qatar. Among them, Kuwait and Qatar’s GDP could shrink by as much as 14%.

Some industry insiders believe that the impact of the Middle East conflict is not just short-term market volatility but could also drag down growth for the entire year and lead markets to reassess the risks and resilience of Gulf economies. Reuters cited a S&P report warning that if the conflict continues, the banking systems in the Gulf could face capital outflows of up to $307 billion.

In response, some countries have begun to activate financial stability tools. The Central Bank of the United Arab Emirates recently launched a “Resilience Support Program,” including raising reserve requirements and temporarily releasing some funds to maintain credit supply and market confidence.

Economic Transformation Faces Challenges

For Gulf countries, the deeper challenge of this conflict lies in whether their national visions and transformation agendas will be interrupted by security shocks. Some experts believe that the current risks faced by Gulf countries are not merely “resource price fluctuations,” but challenges across multiple dimensions such as finance, investment, and business confidence.

Currently, growth outside the oil sector in Gulf countries still heavily depends on oil revenue redistribution. If oil exports are blocked for a long period, these countries’ sovereign wealth fund funding capacity will be affected. Reuters reported that at least three Gulf countries are reassessing their sovereign wealth fund allocations. Experts worry that funds originally intended for tourism, manufacturing, finance, digital economy, and renewable energy transitions may be squeezed by rising security expenditures and emergency needs.

The World Bank and IMF have previously stated that the growth prospects of the Gulf Cooperation Council (GCC) countries depend on expansion, investment, and reforms in non-oil sectors. However, the current situation shows that the competitiveness of Gulf countries is largely influenced by transportation reserves, shipping insurance, maritime security, and supply chain resilience.

Qatar’s Minister of State for Energy Affairs and CEO of QatarEnergy, Saad Sherida al-Kaabi, said that the Israel-U.S. conflict “set the entire Middle East back by 10 to 20 years,” affecting tourism, aviation, trade, and ports.

Yara Aziz, senior economist at an independent think tank and financial institutions forum, stated that the Middle East conflict further highlights the necessity of economic diversification. For policymakers in Gulf countries, responding to the ongoing regional conflict means balancing short-term fiscal gains with long-term structural risks.

Concerns Over Economic Resilience

The Middle East conflict has prompted Gulf countries to reassess their security and development paths. Some analysts suggest that future energy security in the Gulf will no longer be just about “can we produce,” but about “can we deliver products to global markets stably and at low cost in a high-risk geopolitical environment.”

Many Gulf countries are trying to address transportation blockages caused by the conflict. Saudi Arabia is transporting crude oil via pipelines to the Red Sea port of Yanbu. In the UAE, goods are rerouted to ports along the Omani Gulf coast, including Fujairah Port. Oman is actively promoting its ports in Sohar, Duqm, and Salalah as alternative entry points for goods into the Gulf region. However, some interviewees noted that while offshore ports have certain advantages, their vulnerability due to reliance on single export modes and constraints in insurance and port throughput remain significant.

Fattah Biroul, director of the International Energy Agency, warned that the current oil supply crisis could last for months and may accelerate the development of alternative paths such as renewable energy, nuclear power, and electric vehicles, while also possibly boosting short-term coal demand.

Energy expert Ibrahin Hamuda pointed out that the crisis is shifting the focus of Gulf energy security from “protecting production facilities” to “ensuring energy reaches global markets amid turbulence.” This conflict may prompt countries to accelerate energy efficiency improvements, expand renewable energy investments, and build more resilient energy systems.