International Perspective | Gulf Energy Artery Congestion Intensifies Regional Economic Transformation Pressure

How AI and Gulf Energy Blockades Impact Economic Diversification?

Xinhua News Agency, Riyadh, March 23 — Title: Gulf Energy Arteries Blocked, Regional Economic Transformation Faces Steep Challenges

Xinhua reporters Wang Haizhou, Luo Chen, Wang Qiang

Since the outbreak of conflicts involving the U.S., Israel, and Iran, 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. Observers believe that with the Strait of Hormuz being obstructed, oil and gas facilities attacked, and logistics insurance costs soaring, the security and financing costs for Gulf countries are both rising sharply, posing severe challenges to their paths toward economic diversification.

Growth Outlook Damped

Market analysts suggest that for Gulf countries, high oil prices may temporarily boost fiscal revenues, but if exports are blocked, 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 erased.

International credit rating agencies S&P and Fitch recently warned that the impact of Middle East conflicts has begun to affect credit channels. If the Strait of Hormuz remains blocked for an extended period, investments, fiscal stability, financing, and corporate cash flows in Gulf countries will come under pressure, especially for economies with weaker fiscal buffers.

Karen Yang, senior researcher at 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 Middle East conflicts is no longer 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 deploying financial stability tools. The Central Bank of the UAE recently launched a “Resilience Support Program,” including raising bank reserve requirements and temporarily releasing some funds to maintain credit supply and market confidence.

Challenges to Economic Transformation

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 nations 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 crude oil exports are blocked for a long time, these countries’ sovereign wealth funds’ funding capacity will be affected. Reuters reports that at least three Gulf countries are reassessing their sovereign wealth fund allocations. Experts worry that funds originally allocated for tourism, manufacturing, finance, digital economy, and renewable energy transitions may be squeezed out by rising security expenditures and emergency measures.

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 indicates that the competitiveness of Gulf countries is largely influenced by factors such as transportation reserves, shipping insurance, maritime security, and supply chain resilience.

Saad Al-Kaabi, Qatar’s Minister of State for Energy Affairs and CEO of QatarEnergy, said that the US-Israel-Iran 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 underscores 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.

Focus on Economic Resilience

The Middle East conflict has prompted Gulf nations to reevaluate 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 reliably and cost-effectively deliver products to global markets under high-risk geopolitical conditions.”

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 Gulf of Oman, including Fujairah. Oman is actively promoting its ports in Sohar, Duqm, and Salalah as alternative entry points into the Gulf region. However, some interviewees note 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 issues.

Fattah Birol, Director-General of the International Energy Agency, warned that this oil supply crisis could last for months and may accelerate the development of alternative pathways such as renewable energy, nuclear power, and electric vehicles, while also potentially boosting short-term coal demand.

Energy expert Ibrahin Hamuda pointed out that the current 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 investments, and build more resilient energy systems.