Gulf economies are facing a severe test as geopolitical tensions escalate, disrupting energy markets and trade routes, and impacting national budgets and investment decisions, according to reports.

The recent attacks on critical oil and gas infrastructure, coupled with disruptions to shipping through the Strait of Hormuz, have sent shockwaves through the region's financial stability, experts say.

On March 2, 2026, Qatar Energy announced the shutdown of its liquefied natural gas (LNG) production at Ras Laffan following an Iranian drone attack. In a similar precautionary move, Saudi Aramco closed the Ras Tanura refinery, which produces 550,000 barrels per day. Production declines were also reported in the Kurdistan region of Iraq, and Israeli authorities suspended operations at the Leviathan gas field, according to multiple reports.

These events have triggered a surge in energy prices, with oil jumping by approximately 13% to nearly $82 a barrel and European gas prices soaring by around 46%, according to Reuters.

The confluence of these factors is transforming an energy shock into a comprehensive financial and investment crisis, placing immense pressure on government revenues, forcing budget reallocations, delaying major projects, and prompting a reassessment of risk across the entire region, analysts say.

The market typically responds to heightened risk by raising prices, but revenue declines when volumes are disrupted. The current situation combines both, driving prices up due to the risk premium while simultaneously reducing actual returns due to production halts and shipping disruptions, according to economists.

The shutdown of Ras Laffan in Qatar, the closure of Ras Tanura in Saudi Arabia, and the suspension of operations in Iraqi Kurdistan and Israel's Leviathan field are collectively reducing export volumes at a time when prices are already elevated, Reuters reported.

The sensitivity of this situation is further amplified by disruptions to maritime routes. The Strait of Hormuz is a critical chokepoint, facilitating the transit of approximately one-fifth of the world's oil consumption and about 20% of global LNG trade, primarily from Qatar, which exported 9.3 billion cubic feet per day in 2024, according to the U.S. Energy Information Administration.

Any disruption in the Strait of Hormuz not only increases prices but also adds extra costs to each shipment through insurance, rerouting, and waiting times. This widens the gap between the stated price and the actual return, making actual revenues dependent not only on the price but also on the volumes flowing and the ability of the waterways to operate without interruption, analysts say.

According to economic expert Amer al-Shobaki, the world stands on the brink of a global energy crisis unseen in decades if supply disruptions through the Strait of Hormuz persist.

Al-Shobaki explained that the issue is not solely about production volume but also the proportion of global exports passing through the strait, which accounts for about a quarter of global gas exports and nearly a third of oil exports. Additionally, it handles between 20% and 21% of actual global production, amounting to approximately 21 million barrels per day of oil and derivatives.

These figures reveal that the current shock is striking at the heart of Gulf budgets rather than just the margins. Qatar's budget for 2026, for example, anticipated revenues of around 199 billion Qatari riyals (approximately $55 billion) against expenditures of 220.8 billion riyals (about $60 billion), with a planned deficit of nearly 21.8 billion riyals (about $6 billion).

These estimates implicitly rely on the normal and stable operation of LNG production. When production is disrupted or shipments are delayed, a 5% to 10% decrease in revenues could reduce actual income to approximately $49 to $52 billion, expanding the deficit to between $8 billion and $10 billion, nearly doubling the pre-crisis projected deficit.

Saudi Arabia based its budget on revenues of approximately 1.14 trillion Saudi riyals (about $304 billion) against expenditures of about 1.31 trillion riyals (about $350 billion), with a projected deficit of 165 billion riyals (about $44 billion).

Given that oil accounts for about 75% of government revenues, a decline in actual oil revenues of approximately 5% due to shipping disruptions or increased insurance costs could reduce revenues by about $15 billion, raising the deficit to $60 billion or more, an increase exceeding 35% of the original estimate, analysts say.

The remaining GCC countries face a similar trend, albeit on a different scale. The combined Gulf government spending in 2025–2026 was approximately $542 billion, with a projected pre-crisis deficit of about $54 billion.

When combined oil revenues decline by 5% to 10% due to volume disruptions or increased shipping costs, the gap could widen by tens of billions more, experts say.

Al-Shobaki warns that Gulf economies, despite diversification efforts, will be severely affected if they are prevented from exporting their oil for an extended period. This would lead to a widening of the fiscal deficit, especially in countries like Saudi Arabia and Kuwait, and could directly impact investments and infrastructure projects.

Iraq would be among the most affected countries due to its reliance on oil for about 95% of its revenues and its lack of sufficient export alternatives outside the maritime route, al-Shobaki added.

These calculations indicate that the shock not only raises prices but also redefines the boundaries of deficits, pressures the pace of major project implementation, and forces governments to carefully balance financial stability with the continuation of economic transformation plans, according to analysts.

According to Muadh al-Amoudi, a researcher in political economy and policy analysis, mega-projects in the Gulf fundamentally depend on stable revenue flows, low financing costs, and the confidence of local and international partners. Therefore, these projects face a severe test whenever geopolitical risks escalate or energy flows are disrupted.

In such circumstances, governments tend to rearrange their capital priorities, giving precedence to projects related to security and operational flexibility, such as protecting ports and energy facilities and building additional storage capacity. They may postpone projects with long-term returns or high capital costs that can be delayed without directly threatening economic stability, al-Amoudi added.

Al-Amoudi notes that the conflict not only pressures the volume of spending but also changes partnership and financing models. Governments tend to shift a larger portion of the risk to the private sector through more conservative contracts or divide funding packages into smaller stages to reduce the immediate commitment on the general budget.

The increased risk premium raises the cost of capital, leading to a recalculation of the economic feasibility of some initiatives. This reduces the attractiveness of certain projects, even if the strategic vision for economic transformation remains intact, al-Amoudi affirmed.

Stock market movements and capital flows reflect the speed of repricing. The Qatar Stock Exchange, for example, fell by about 4.3% on March 2, 2026, its largest daily drop since March 2020, according to Reuters. The UAE closed the Abu Dhabi and Dubai markets for two days amid escalating tensions.

Reuters also reports that international financial institutions have advised postponing travel to the region and that cross-border deal and investment talks have been halted or delayed, reflecting a direct slowdown in M&A activity and investment banking.

The impact is not limited to stocks. Disruptions in pricing mechanisms themselves affect the cost of hedging and financing. S&P Global Platts has reportedly suspended the reception of bids and offers for several price assessments of crude oil, products, and LNG related to the Middle East due to shipping disruptions in the Strait of Hormuz, indicating a malfunction in the price discovery mechanism.

When price discovery is disrupted, uncertainty rises, spreads widen, and it becomes difficult for companies and governments to stabilize their expectations.

Gulf sovereign wealth funds (SWFs) readjust their asset mix when geopolitical risks rise and the uncertainty gap widens. They shift from a long-term return maximization approach to a liquidity management and hedging approach. This environment leads to an increase in the relative weight of liquid and semi-liquid assets and a reduction in exposure to long-term investments or those with extended capital commitments.

In the context of a shock targeting energy facilities and disrupting export flows, any decrease in sellable volumes or delay in foreign collections reduces the surpluses available for transfer to foreign portfolios.

Al-Shobaki points out that sovereign wealth funds in Saudi Arabia, Qatar, and the UAE may provide a temporary outlet by supporting budgets and financing local activity. However, this role remains limited in effectiveness if the crisis is prolonged or exports are disrupted for an extended period, placing additional pressure on the ability of those funds to maintain the pace of their foreign investments.

Arab energy importers are paying the price of the shock from the opposite direction as import bills rise, increasing pressure on currencies and reserves.

Higher energy prices drive up transportation, electricity, and production costs, widening inflationary pressures.

Al-Shobaki explains that rising energy prices exert direct inflationary pressures on the United States, Europe, and Asia, particularly China, which imports the bulk of its oil needs from the Gulf. The majority of exports passing through the Strait of Hormuz are destined for Asian markets, making any prolonged disruption a multiplier in a new global inflationary wave.

Al-Shobaki emphasizes that the decisive factor in determining the size of the economic impact is not only the level of escalation but also the duration of the crisis. Some countries have strategic reserves sufficient for only 10 to 20 days. After depleting these reserves, the world will face two options: either actual energy outages or very sharp price increases.

Muadh al-Amoudi says that the current developments outline three potential economic paths for the coming months, the direction of which will be determined by the length of production and shipping disruptions through the Strait of Hormuz and the ability of markets to absorb the shock without slipping into prolonged turmoil.

A rapid containment scenario assumes the restoration of navigation flow within weeks and a gradual decrease in insurance premiums and transportation costs, which would return oil and gas prices to a more stable range, maintain deficits close to original estimates, and keep major projects underway with limited delays. Financing conditions would also improve, and yield spreads on sovereign bonds would decrease.

An intermittent depletion scenario is based on recurring attacks or threats periodically, leading to intermittent shipping disruptions and the establishment of a high-risk premium in prices, and raising shipping and insurance costs almost permanently. This would reduce actual revenues despite higher nominal prices, widen deficits in countries with weaker margins, and lead to project postponements or redesigns, with a clear slowdown in investment flows.

In a prolonged waterway crisis scenario, al-Amoudi believes that the entrenchment or expansion of the Strait of Hormuz disruption would keep prices high for a longer period and deepen inflationary pressures on energy-importing economies. Meanwhile, Gulf countries would face a complex equation between rising prices and declining exportable volumes, which would require a deeper restructuring of budgets, increased borrowing or withdrawals from reserves, and prioritizing security and vital infrastructure over expansion and foreign investment plans.