On The Brink Of War: How US-Iran Tensions Could Impact Gulf Economies – OpEd

The Persian Gulf is currently a landscape of high-stakes brinkmanship. As of February 2026, the rhetoric between Washington and Tehran has reached a fever pitch. President Donald Trump has signaled a "locked and loaded" posture, citing concerns over Iranian domestic unrest and regional influence. In response, Tehran has revived its most potent economic threat: the closure of the Strait of Hormuz.

For the member states of the Gulf Cooperation Council (GCC)—Saudi Arabia, the UAE, Qatar, Kuwait, Oman, and Bahrain—this is not just a political crisis. It is a fundamental threat to their economic survival and their ambitious plans for a post-oil future.

The Chokepoint Challenge

The Strait of Hormuz is the world's most vital energy artery. Approximately 20% of global seaborne oil passes through this narrow waterway. For Gulf nations, it is the primary exit for their wealth.

If Iran follows through on threats to mine or block the Strait, the economic impact would be immediate. Analysts suggest oil prices could surge past $120 per barrel. While high prices usually benefit exporters, a total blockade would leave Gulf producers with "stranded" oil. They would have plenty of supply but no way to get it to market.

• Saudi Arabia: The Kingdom's East-West pipeline can move about 5 million barrels per day to the Red Sea, bypassing the Strait. However, this is only half of its total capacity.
  UAE: The Habshan-Fujairah pipeline offers an outlet on the Gulf of Oman, but it can only handle about 1.5 million barrels per day.

The remaining millions of barrels would be trapped. This would lead to massive revenue shortfalls and ballooning budget deficits. The World Bank already projects a 5.6% fiscal deficit for Saudi Arabia in 2026; a conflict would likely double that figure.

The Shadow of War Risk

Even without a single shot being fired, the "war of words" carries a heavy price tag. The maritime industry is already feeling the squeeze through "war risk premiums."

Insurance costs for tankers entering the Gulf have jumped from 0.3% to 0.5% of the vessel's value in early 2026. For a Very Large Crude Carrier (VLCC), this adds tens of thousands of dollars to every voyage. These costs are eventually passed down to consumers, but in the short term, they reduce the competitiveness of Gulf exports and disrupt global supply chains.

Diversification Under Fire

The most significant long-term damage may occur in the non-oil sector. Countries like Saudi Arabia and the UAE are currently in the middle of massive economic transformations. Programs like Saudi Vision 2030 rely on Foreign Direct Investment (FDI) and a booming tourism industry.

Investors value stability above all else. A recent EY study indicates that nearly 40% of international investors now view Middle East geopolitical tension as a top-three risk. If the region appears to be a potential war zone, the capital needed for "Giga-projects" like NEOM or the UAE's tech hubs will dry up.

Furthermore, the Gulf's currencies are pegged to the U.S. dollar. If US-Iran tensions cause a dip in the American financial markets, the sovereign wealth funds of the Gulf—which hold trillions in US assets—could see their valuations plummet. This would limit the "cushion" these nations use to fund their diversification efforts.

A Diplomatic Balancing Act

Despite the military drills and harsh statements, there are signs of a "diplomatic escape hatch." Regional mediators including Turkey, Qatar, and Oman are working to bring US and Iranian officials to the table in Istanbul.

The Gulf states are in a difficult position. They are close allies of the United States and host major US military bases. However, they are also neighbors with Iran. An attack launched from Gulf soil would almost certainly trigger Iranian retaliation against local desalination plants, power grids, and oil refineries. This makes "de-escalation" the primary economic strategy for Riyadh and Abu Dhabi. For the Gulf, a war with Iran is not a distant conflict. It is a domestic disaster. Their entire economic model—built on being a global hub for trade and tourism—cannot survive in a combat zone.

The Bottom Line

The Gulf economies are more resilient than they were decades ago, but they remain tethered to the security of their waters. While high oil prices might provide a brief windfall for those who can still export, the long-term cost of a war would be the destruction of the "Gulf Dream."

As we move through February 2026, the region sits on a razor's edge. The coming weeks of negotiations in Turkey will determine whether the Gulf continues its path toward economic modernization or is forced back into a cycle of regional conflict.