Middle East Situation | Goldman Sachs: Gulf Economies May Face Worst Recession Since the 1990s

Goldman Sachs believes that if the Iran war drags on without a resolution, the Gulf region’s largest economies, including Saudi Arabia, the United Arab Emirates, and Qatar, could suffer severe setbacks.

The Middle East conflict poses a double blow to Gulf countries, potentially impacting both the oil sector and non-oil sectors simultaneously.

Goldman estimates that if the conflict continues until April and results in a two-month disruption of shipping through the Strait of Hormuz, Qatar and Kuwait’s GDP could shrink by 14% this year. This would be the most severe economic downturn for these countries since the early 1990s. Although Saudi Arabia and the UAE are relatively better off, with the ability to bypass the Strait of Hormuz via alternative routes to export oil, their GDP could still decrease by approximately 3% and 5%, respectively. This would be the most significant economic impact since the COVID-19 pandemic in 2020.

Goldman points out that for many Gulf economies, this war could have a bigger short-term impact than the COVID-19 pandemic. Once the dust settles, they will rebuild and recover, but how deep the scars on confidence will be remains to be seen.

After entering its third week, the conflict shows no signs of easing. With the Strait of Hormuz shipping route halted and some countries like Saudi Arabia and the UAE experiencing limited oil supplies, Brent crude oil prices continued to rise on Monday, surpassing $104 per barrel. Over the past two weeks, oil futures have increased by more than 40%. Additionally, the impact on Gulf countries could be broader, affecting everything from real estate and tourism to investment activities.