Fixing the oil crisis might not fix the Persian Gulf

0:01NPR.

0:11This is The Indicator from Planet Money. I'm Patti Hirsch. And I'm Waylon Wong. The war with Iran has been devastating for Iran and the Iranian people. But it's not just Iran that's been affected. The fallout from the war has hammered the global economy. and it's becoming potentially ruinous for all of Iran's neighbors in the Persian Gulf. Oil and gas revenues are the most obvious part of this story, of course. They account for more than 90 % of government income in Iraq and anywhere between 40 and 90 % of government revenues in the Gulf Cooperation Council or GCC countries. I'm going to list them by physical size now, Willen, if you don't mind.

0:48Saudi Arabia, Oman and the UAE, those are the big ones. And Kuwait, Qatar and tiny but still economically very powerful. Bahrain. I like that geography lesson. It was helpful. They have all had their energy exports choked off by the closure of the Strait of Hormuz. But the war has affected more than just oil and gas. And it's the damage to non-energy sectors, tourism, real estate, finance, that represents a real long-term threat to these economies. Yes, on today's show, we'll look at the entire picture of economic damage to the Gulf nations. That's coming up after the break.

1:30This message comes from Indeed. Hiring? Do it the right way with Indeed's sponsored jobs. Claim a$75 sponsored job credit to get matched with quality candidates at Indeed.com slash podcast. Terms and conditions apply. On the face of it, the war in Iran has been devastating for all of the countries that border the Persian Gulf. Periodic oil shocks over the years have persuaded these nations to diversify away from oil and gas since at least the 1990s. But energy remains the biggest driver of their economies. So the effective shutdown of the Strait of Hormuz is a big problem. The restriction of oil and gas exports means that the Gulf states, along with Iraq, have collectively lost more than $15 billion in revenue since the war began.

2:14Karen Young is a senior fellow at the Middle East Institute. She's also a scholar at the Center on Global Energy Policy at Columbia University. She says hydrocarbon revenue absolutely matters to all of the Gulf states, but they are not affected equally. There's a real difference right now in terms of the ability to generate that revenue. For Bahrain, Kuwait, very, very tough scenario, not ability to generate any revenues right now. We have shut-ins in Kuwait. They are not exporting oil. They do not have access to a pipeline to divert from the Strait of Hormuz. Saudi Arabia, on the other hand, it's the biggest state in the Gulf, located furthest to the west.

2:53It does have a pipeline, and it is exporting oil. It's a reduced volume, but it's a higher price. So government hydrocarbon revenues are looking pretty strong in Saudi Arabia right now. It's a similar story for the UAE and Oman. Qatar, though, is really suffering. The country is one of the world's largest liquefied natural gas exporters, and the country depends on revenues from LNG sales. But Qatar's production and facilities have been bludgeoned by Iranian missiles, and exports have dropped close to zero. The estimated cost of recovery there is about$26 billion in repairs and a reduction in annual revenue for three to five years of about$20 billion.

3:34That adds up to more than a third of Qatar's annual budget. Ouch. The numbers related to oil and gas losses then are eye-poppingly large. But they're not necessarily these countries' primary area of concern in the medium to long term. That's because when the war ends and the Strait of Hormuz reopens, the world will still need the Gulf states' energy supplies. Business in that sector will eventually resume. The problem is, ironically, that the Gulf states have been working hard to diversify their economies away from oil and gas. In the first quarter of 2025, about 75 percent of the Gulf state's GDP came from non-oil sectors.

4:12That's according to the GCC. But Karen says those revenue streams are now at considerable risk. The most vulnerable is the non-oil economy. So that means first tourism, retail, anything that's related to in-person service delivery. In fact, Karen says she's already seeing revenues falling in those non-energy sectors. We've had some releases in the last few days that do show a slowdown in retail activity and basically the way that companies are planning for the future. Red lights are flashing all over the Gulf economy dashboard, in other words. So much so that the World Bank has slashed its 2026 GDP forecast for the GCC countries to 1.3 percent, down from 4.4 percent.

4:56Every sector has been hit. In tourism, travelers have been stranded, flights have been canceled, and big-ticket sporting events like the Bahrain Formula One Grand Prix have been canceled or postponed. The GCC organization estimates that revenues from tourism could drop as much as 25 % from 2024. That would be a$32 billion shortfall. Images of explosions in cities all over the Gulf are doing more than putting visitors off. They're also worrying residents. In the UAE, Kuwait, Qatar and Bahrain, the majority of residents are not citizens. They're expats. In Saudi Arabia and Oman, expats make up 40 to 50 percent of the population.

5:35In general, these are populations that are made up and depend on the labor and the expertise and the education of people from around the world. They are oil workers, teachers, kitchen and construction workers. They used to feel that while the Gulf countries may not have all the freedoms offered by, say, the U.S. or Western Europe, that they were safe places to live and do business. That feeling has been undermined by Iran's attacks. Many wealthier expats who are much more mobile than laborers and domestic workers are thinking about getting out of Dodge if they haven't already. And would-be expats are putting their plans on hold.

6:11It's a natural reaction to the attacks by Iran. But Karen, who spent many years in the UAE, says she doesn't think that this is a long-term trend. People who come there are looking for the reliability of government provision of services and for also the dream of the lifestyle. I don't think the kind of underlying attraction is really going to change. Still, expat skittishness is putting pressure on these countries' property markets, the most active of which, Dubai, was already projected to decline 15 % before the war began. And a lot of the GCC, the economic activity that is largely government-stimulated is in construction and real estate.

6:52And so those sectors are slowing down. Another big area of concern, Karen says, the data centers and communication networks that the GCC countries have been building out in the region. These are very new facilities. We had three attacks on cloud centers or data centers in Bahrain and the UAE in the course of this war. That was disruptive to financial institutions, people using online banking. These facilities and projects like them are a big part of the Gulf nation's ambitions. They've attracted attention and investment from financial services companies. That's helped the Gulf to become something of a finance hub over the last decade.

7:31Dubai, for example, has become a precious metals trading center, accounting for roughly 15 percent of the world's trade in gold. And the war threatens all of this growth, which means tough times ahead for the people who live in the Gulf. These states will be making less money, which means they'll be spending less too. Now, they do have some ammunition to bring to this assault on their economies, their reserves and sovereign wealth funds. But again, there's a big divergence among these countries, especially when it comes to the size of their war chests, Karen says. She cites a recent report by the ratings agency Moody's.

8:04What they found was that the UAE, or Abu Dhabi in particular, could continue its spending trajectory and debt service commitments for 20 years. That's the size of the buffer that they have. Bahrain can continue for four months. The Gulf states are finding that while the war is affecting all of them, it's doing so in different ways. It depends on what kind of hydrocarbons they produce and whether or not they're dependent on the Strait of Hormuz for exports. It also depends on how they've diversified their economies away from oil and gas and what sectors they've invested in and developed over the years.

8:38Perhaps most of all, though, it depends on how much they've saved for a rainy day. Because the longer the war with Iran goes on, the more the vulnerable sectors of the Gulf economies will suffer. Oil and gas will almost certainly come back with a vengeance when this is all over. The fate of the rest of their economies is not so certain. This episode was produced by Corey Bridges with engineering by Jimmy Keely. It was fact-checked by Ciro Juarez and edited by Julia Ritchie. Kicking Cannon edits the show, and The Indicator is a production of NPR.

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