The Middle East conflict has swiftly exposed economic vulnerability in the region
- Written by Emilie Rutledge, Senior Lecturer in Economics, The Open University
At the end of 2025, the Gulf states received high praise for their economic resilience. According to reports by the World Bank and the World Economic Forum, the region was stable, modern and reliable.
Now the six countries of the Gulf Cooperation Council (GCC) – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates – are watching on nervously. The economic damage done by what has become a regional conflict, bringing an abrupt loss of stability, could be huge.
Aside from Saddam Hussein’s foray into Kuwait in 1991[1], these six countries have successfully steered clear of conflict on their home turf over a long perriod. They avoided the revolutionary upheavals[2] which affected Egypt (1952), Iraq, Syria and Iran (1979). They steered clear of any spillover from the long-running Israel-Palestine conflict[3].
The group was mostly unaffected by the war between Iran and Iraq[4]. And aside from a short-lived uprising[5] in Bahrain in 2011, the GCC emerged largely unscathed from the regional turmoil of the Arab Spring[6] in 2010 which spread from Tunisia and and Egypt and led to violent instability which continues to this day in Libya, Yemen and Syria.
The GCC’s comparative stability underpins its attractiveness as a global hub for money and modernity. Success in luxury tourism[7] has filled places such as Dubai and Abu Dhabi with five (and even a seven) star hotels. Only France has more Michelin-starred restaurants[8] than the United Arab Emirates (UAE). There is cutting-edge technology[9] in Qatar’s energy sector, and a vast AI campus[10] in the UAE.
It is these kinds of projects which led the World Bank[11] and the World Economic Forum[12] to publish glowing reports on the region recently. Both organisations agreed in late 2025 that oil wealth was being wisely invested for the future.
The general view was that the GCC was a place of economic stability and diversity. A director of the World Bank, Safaa El Kogali, said[13] that the region’s embrace of a digital future had been nothing short of “remarkable”.
But US military bases in all GCC countries have come under attack[14]. Drones have hit oil tankers. The Strait of Hormuz[15], vital for the transit of much of the world’s energy[16] is effectively closed.
Missiles from Iran directly hit three Amazon web service[17] facilities, one in Bahrain and two in the UAE, leading the company to recommend that GCC businesses back up their data and migrate it to data centres in the US.
Stock markets across the world have fallen sharply[18]. Energy bills and petrol prices have soared[19] as oil and gas refineries have been shut in Kuwait[20], Saudi Arabia[21], Qatar[22] and the UAE[23].
Despite efforts to diversify economies away from oil, for now the region is still clearly dependent on oil exports and food imports, hence the worries over Hormuz. There are fears for its numerous desalination plants[24], which provide drinking water (as well as filling infinity pools and keeping golf courses green).
And its status as a safe and sunny sanctuary for conference conveners, influencers[25], holiday makers and owners of second homes[26] is now being questioned.
Even if the conflict were to end soon, reputational damage has been done. People are fleeing the area, as images of smoke filled skies fill screens.
This will inevitably dampen foreign direct investment in the immediate future. The course and duration of the conflict will determine the degree to which the region can bounce back and continue to attract holidaymakers and young professionals and those seeking a life with more sun and less tax.
From a geopolitical perspective, the region’s recent success – aside from its vast and easily extracted natural resources – has rested largely on the assumed political stability that was underwritten by hosting US military bases and buying US military hardware. Both of these could now prove to be an economic liability.
References
- ^ foray into Kuwait in 1991 (www.newyorker.com)
- ^ revolutionary upheavals (doi.org)
- ^ Israel-Palestine conflict (www.un.org)
- ^ war between Iran and Iraq (www.jstor.org)
- ^ short-lived uprising (www.ebsco.com)
- ^ Arab Spring (theconversation.com)
- ^ luxury tourism (reference-global.com)
- ^ more Michelin-starred restaurants (worldpopulationreview.com)
- ^ cutting-edge technology (doi.org)
- ^ AI campus (www.theguardian.com)
- ^ World Bank (documents.worldbank.org)
- ^ World Economic Forum (www.weforum.org)
- ^ said (documents.worldbank.org)
- ^ come under attack (theconversation.com)
- ^ Strait of Hormuz (www.aljazeera.com)
- ^ much of the world’s energy (theconversation.com)
- ^ three Amazon web service (www.bbc.co.uk)
- ^ have fallen sharply (www.aljazeera.com)
- ^ have soared (www.theguardian.com)
- ^ Kuwait (www.nytimes.com)
- ^ Saudi Arabia (www.bloomberg.com)
- ^ Qatar (www.politico.eu)
- ^ the UAE (www.bloomberg.com)
- ^ desalination plants (theconversation.com)
- ^ influencers (www.nytimes.com)
- ^ owners of second homes (www.icij.org)
- ^ frank_peters/Shutterstock (www.shutterstock.com)
