The economies of Saudi Arabia and the United Arab Emirates are heading towards recession, while in recent years, these countries had managed to experience significant growth. Today, the impacts of the war between America and Israel with Iran are clearly visible in the oil markets of these countries.
Factors of Economic Recession in the Gulf
The economies of the member countries of the Gulf Cooperation Council have experienced three periods of widespread recession in the past fifty years. The first wave of recession occurred in the first half of the 1980s following the oil crisis, which led to the contraction of the economies of Saudi Arabia, the UAE, Qatar, and Kuwait. The second wave of recession also occurred in 2020 due to the COVID-19 pandemic and a decrease in demand for oil.
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Now, the countries of the Gulf Cooperation Council are facing a third wave. The International Monetary Fund has predicted that five out of the six member countries of this council will enter recession this year due to the consequences of the war between America and Israel with Iran, with only Oman remaining on a growth path. According to this prediction, the economy of Saudi Arabia will shrink by 3.3%, the UAE by 3.9%, Qatar by 15.6%, Kuwait by 16.7%, and Bahrain by 11.3%.
Challenges of Oil Exports and Their Effects
Azad Zanganeh, head of the macroeconomic analysis department for the Gulf Cooperation Council countries at Oxford Economics, believes that the biggest factor in this economic contraction is the decrease in oil and gas exports. This decrease is due to disruptions in shipping caused by the war, which has exacerbated the economic recession.
Zanganeh also points out that attacks on Gulf countries have reduced the willingness to travel and tourism, both of which have gained increasing importance over the past two decades. Saudi Arabia is recognized as the most resilient economy against this war due to policies related to Vision 2030 and the diversification of energy and logistics infrastructure.
Tim Callan, a guest researcher at the Gulf Arab States Institute, attributes another reason for this resilience to the existence of the East-West pipeline, which transports Saudi oil to the Red Sea coast and reduces the country's need to pass through the Strait of Hormuz. Meanwhile, the UAE and other neighbors are heavily dependent on this strait.
Despite this, Saudi Arabia has experienced fewer attacks in the initial phase of the war compared to other countries like the UAE and Kuwait. In July, the Houthis announced that vessels associated with Saudi Arabia were under "naval blockade," jeopardizing oil exports.
Ultimately, given the current conditions, it seems that the expansion of non-oil sectors in some economies may reduce the severity of the shock caused by the war, but the decline in these sectors is still less than the decrease in oil sectors. The war has also impacted other sectors such as aviation and tourism, further exacerbating economic activities.
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