Saudia Faces Heat in Iran War
States like Saudi Arabia and the United
Arab Emirates that have worked to rebalance from a dependence on energy have
seen growth plunge in a year of strife.
1.
Disruption to Business and Aviation
·
The ongoing Iran war, now entering its ninth month,
and the conflict in Yemen are severely disrupting normal business activities
across the Gulf.
·
Riyadh Air, Saudi Arabia's aspiring luxury
airline, is transporting international passengers to and from an alternate
airport located 4.5 hours from its main hub, which was damaged in strikes.
·
Saudi Arabia's marquee investment conference has
been postponed until next year.
·
Saudi Aramco's headquarters and a critical oil
pipeline were reportedly struck.
·
Shipping through the strategically important Strait
of Hormuz remains vulnerable to Iranian missile and drone attacks.
·
Dubai International Airport traffic remains below
last year's levels as several international airlines continue suspending
regional operations.
2. ADIPEC
Energy Conference Faces Security Concerns
·
The ADIPEC energy conference commenced in Abu Dhabi
on Monday, with global energy executives and government ministers attending.
·
Darren Woods, CEO of ExxonMobil, skipped
the conference due to regional security concerns.
·
Organisers maintained that high-level participation
remained strong.
3. Sharp
Economic Contraction Across the Gulf
·
According to the International Monetary Fund
(IMF), economic growth across the Gulf Cooperation Council (GCC) is
expected to decline by 5% in 2026.
·
Kuwait, Bahrain and Qatar are projected to
experience double-digit economic contractions because of their heavy dependence
on the Strait of Hormuz for energy exports.
·
Saudi Arabia's economy contracted 3.8%
year-on-year in Q3 2026.
·
Saudi oil activity plunged 20.4%, accounting
for the bulk of the economic decline.
4. Oil
Supply Partly Protected
·
Saudi Arabia and the UAE have managed to maintain
some oil exports through pipelines that bypass the Strait of Hormuz.
·
US military operations to protect vessels
transiting the Strait have also helped maintain energy supplies.
·
However, prolonged hostilities threaten the
region's ability to maintain its reputation as a stable destination for
international investment.
5.
Tourism, Aviation and Real Estate Under Pressure
·
Tourism, aviation, hospitality and real estate are
suffering from declining investor and consumer confidence.
·
Moody's Ratings warned that prolonged uncertainty
and elevated security risks could undermine Gulf countries' non-oil economic
diversification models.
·
These economies have traditionally relied on
perceptions of security, safety and macroeconomic stability to attract
international businesses and tourists.
6. Oman
Emerges as a Relative Beneficiary
·
Oman is expected to be the only Gulf economy to
expand this year.
·
IMF growth forecast:
o
2026: Over 4%
o
2025: 2.4%
·
Oman's relatively long Arabian Sea coastline
reduces its dependence on the Strait of Hormuz.
·
Higher oil prices and relatively uninterrupted
export routes are supporting its economy.
7. UAE
Plans to Eliminate Dependence on Hormuz
·
The UAE, with nearly $3 trillion in sovereign
assets, has pledged to reduce its dependence on the Strait of Hormuz to zero.
·
It is increasing investments in alternative ports
and pipelines.
·
Gulf governments are expected to prioritise:
o
Alternative energy export routes.
o
Infrastructure resilience.
o
Military and defence expenditure.
o
Protection of critical economic infrastructure.
8. War
Threatens Gulf AI Investment Ambitions
·
Qatar, Saudi Arabia and the UAE announced
AI-related investment plans worth approximately $120 billion last year.
·
Gulf countries have been attracting major Silicon
Valley technology companies to establish data centres in the region.
·
Iranian drone attacks earlier in the war struck
data centres in the UAE and Bahrain.
·
Governments and investors are now considering:
o
Distributing planned data centres across multiple
locations.
o
Constructing some facilities underground to protect
them against missile and drone attacks.
·
At ADIPEC, Sam Altman, CEO of OpenAI, signed
four agreements with Abu Dhabi-based companies, including deployment of
OpenAI's latest business-focused AI system at Abu Dhabi National Oil Company
(ADNOC).
9.
International Investors Continue to Bet on the Region
Despite
the conflict, major investment commitments continue:
·
Apollo Global Management
announced a 10% stake in Mubadala Capital, the alternative asset management arm
of Abu Dhabi's $385 billion sovereign fund.
·
Investcorp, a Bahrain-based asset manager,
joined Saudi investors in acquiring a local fire safety and equipment company.
·
US-based private equity firm Advent joined
other financial institutions in establishing operations in Abu Dhabi.
10. IMF
Forecasts Strong Economic Recovery in 2027
The IMF expects Gulf economies to recover
substantially in 2027, assuming hostilities ease and energy-sector operations
return towards pre-war conditions.
|
Country |
2027
GDP Growth Forecast |
|
Saudi
Arabia |
7.9% |
|
Qatar |
18.8% |
·
The IMF cautioned that the economic consequences
remain highly uncertain because the war has damaged investor confidence and
altered regional political balances.
·
The key question is whether the disruption will
remain short-term or permanently affect the Gulf's investment and economic
diversification models.
Overall
Significance
·
The Iran war is exposing the vulnerability of Gulf
economies to disruptions in the Strait of Hormuz.
·
Energy exports, aviation, tourism, real estate and
AI infrastructure investments are facing heightened risks.
·
Gulf governments are likely to accelerate
investments in alternative ports, pipelines, defence and infrastructure
resilience.
·
Oman's relative geographical advantage and the
UAE's diversification of export routes highlight the growing importance of
reducing dependence on the Strait of Hormuz.
Riyadh
Air, Saudi Arabia’s aspiring luxury carrier, is busing international passengers
to and from an alternate airport four and a half hours from its hub, which was
damaged in strikes.
The
marquee Saudi investment conference has been postponed to next year.
The
headquarters of the state-owned oil giant Saudi Aramco was struck, as was a
critical pipeline. Ships running the gantlet in the vital Strait of Hormuz are
still in Iran’s cross-hairs and catching fire from missile and drone attacks.
It is a particularly tense time right now, with a heightened risk of escalation
of the war.
Throughout
the Gulf, the war in Iran, now at the start of its ninth month, and the
conflict that has erupted in Yemen are taxing the region’s ability to conduct
business as normal.
This
week could bring a fresh test. The energy conference ADIPEC, featuring
executives and government ministers from around the world, began in Abu Dhabi
on Monday. At least one prominent industry leader, Darren Woods, the chief
executive of Exxon Mobil, decided not to attend because of security concerns in
the region, according to a person familiar with his thinking who was not
authorized to speak to the media.
The
event’s organizers said in a statement that “high-level participation is very
strong” but did not comment on the reasons for Mr. Woods’s withdrawal.
Economic
growth across the Gulf Cooperation Council, a regional bloc of Arab states,
will tumble by 5 percent this year, according to the International Monetary
Fund. Kuwait, Bahrain and Qatar are expected to suffer double-digit
contractions, linked to their near-total dependence on the besieged Strait of
Hormuz to sell their energy products to the world.
On
Sunday, the Saudi government said the kingdom’s economy shrank 3.8 percent from
a year earlier in the three months that ended in September. The strongest force
behind the decline by far was a 20.4 percent plunge in oil activity.
It
could be worse. Pipelines that allow Saudi Arabia, as well as the United Arab
Emirates, to bypass the Strait of Hormuz have helped keep oil flowing, as has
an extensive operation run by the U.S. military to shield vessels in the
strait.
But
the fighting, the longer it goes on, is imperiling
the two states’ ability to recast themselves as oases of stability in a
volatile region and build up economic sectors like tourism and technology.
Government
budgets going forward are expected to put higher priorities on resilience
projects. That means spending more money on rerouting pipelines or boosting
military spending.
Traffic
at Dubai International Airport, the world’s busiest hub, remains below last
year’s levels, as some international carriers continue to suspend operations to
the region.
“Beyond
hydrocarbons, tourism, including aviation and hospitality, and real estate have
been hit by the confidence shock and remain exposed to prolonged uncertainty
about the possibility of re-escalation,” Aurelian Mali, vice president for
Moody’s Ratings in Dubai, said in an email.
“Protracted
uncertainty and permanently elevated risk perceptions could damage some
countries’ non-oil economic models, built on security, safety and macroeconomic
stability,” he said.
The
one economy expected to expand this year is Oman, the Gulf monarchy with the
longest Arabian Sea coastline and thus less dependent on the Strait of Hormuz.
Growth is forecast to jump to over 4 percent this year, compared with 2.4
percent in 2025, according to the I.M.F., with Oman benefiting from higher oil
prices and its ability to ship products without major disruptions.
But
officials elsewhere are racing to build up their buffers to prepare for new
rounds of conflict — and keep exports and investments flowing.
In
the Emirates, the government, which has almost $3 trillion in sovereign assets,
has vowed to bring the country’s dependence on the Strait of Hormuz to “zero,”
scaling up investments in alternative ports and pipelines.
The
war has even imperiled some of the region’s huge
artificial intelligence ambitions, a key plank of the Gulf states’ plans to
diversify away from oil. Last year, Qatar, Saudi Arabia and the Emirates
announced A.I.-related investment plans of $120 billion. The states have courted
some of Silicon Valley’s biggest tech companies to set up data centers in their deserts.
The
Emirates used the energy conference on Monday to showcase its A.I. ambitions.
Sam Altman, the chief executive of OpenAI, signed four agreements with Abu
Dhabi-based companies, including one to deploy the company’s latest
business-focused A.I. system at the Abu Dhabi National Oil Company.
But
now there are also discussions to spread out the locations of planned data centers and even to build some facilities underground, safe
from missiles and drones. Data centers in the
Emirates and Bahrain were struck by Iranian drone swarms early in the war.
So
far, major investors are still placing bets on the region’s long-term
potential.
Last
week, Apollo Global Management announced that it was taking a 10 percent stake
in Mubadala Capital, the alternative asset management arm of a $385 billion
sovereign fund in Abu Dhabi. And Investcorp, a Bahrain-based asset manager,
joined a consortium of Saudi investors to buy a local fire safety and equipment
company.
The
Boston-based private equity company Advent last month joined other financial
entities to set up shop in Abu Dhabi.
Many
analysts expect the region’s economy to snap back next year. The I.M.F.’s
latest forecasts, issued last month, call for almost across-the-board growth in
2027, including 7.9 percent in Saudi Arabia and 18.8 percent in Qatar. Those
predictions assume that hostilities will taper off enough to allow a return to
prewar conditions in the energy sector next year. Still, the fund said the
economic fallout was “highly uncertain” because of the myriad ways the war has
eroded trust in the region and caused political balances to shift.
“I
think the short- versus long-term question is the crux of the issue,” said Tim
Callen, a former International Monetary Fund official in Saudi Arabia who is
now a visiting fellow at the Arab Gulf States Institute in Washington.