The International Monetary Fund divided Gulf Cooperation Council members into three categories according to their exposure to Strait of Hormuz disruptions and available fiscal capacity with Saudi Arabia and the UAE positioned to absorb the impact through diversified export options and substantial reserves. Jihad Azour the director of the IMF’s Middle East and Central Asia department outlined the assessment during a media briefing in Bangkok noting that these advantages allowed the two economies to limit damage from the conflict. Kuwait and Qatar along with Iraq and Iran experienced greater effects due to limited bypass routes and more constrained fiscal positions while Oman largely avoided the direct impact by lying outside the strait.
Azour identified six main buffers that supported Gulf economies through the turmoil including diversified export pathways broader economic activity strong financial reserves and liquidity swift interventions by governments and central banks intra-Gulf cooperation and institutional experience drawn from prior shocks. The IMF official cautioned that the buffers while effective in the initial phase remain finite as inventories decline and spare capacity tightens potentially amplifying future price volatility if disruptions continue. Pre-war surpluses combined with non-Gulf production alternative transport and demand adjustments helped mitigate early effects according to the IMF analysis.
Collective GCC economies are projected to contract by 4.8 percent this year before a recovery reaching as high as 9.1 percent in 2027 the IMF forecast showed. The conflict is expected to leave scarring impacts on various sectors hindering a return to pre-war growth paths through the end of the decade Azour warned. Nations possessing higher buffers robust institutional frameworks and diversified bases stand to achieve faster rebounds the fund assessment found.
S&P Global Ratings determined that Gulf banks could encounter up to 307 billion dollars in domestic deposit outflows under a severe stress scenario yet maintain cash holdings and liquid assets sufficient to absorb them without systemic strain. The agency observed that regional banks began the period with an average Tier 1 capital ratio of 17.1 percent alongside nonperforming loan ratios of 2.5 percent and coverage of 158.7 percent providing a firm starting base. Central banks in the UAE Kuwait and Qatar moved to introduce liquidity and capital support measures early in the crisis ensuring stability across the sector.
Sovereign wealth funds and foreign exchange reserves across the Gulf total between 4 trillion and 7 trillion dollars according to regional economic analyses serving as critical backstops during periods of revenue volatility. The UAE maintains combined sovereign wealth assets near 1.95 trillion dollars or more than 300 percent of its GDP while Kuwait’s investment authority represents around 578 percent of GDP a Middle East Council on Global Affairs review indicated. These resources have enabled governments to sustain spending and stabilize markets without immediate large-scale liquidations the analyses showed.
An Oliver Wyman assessment concluded that although immediate market stress was contained through central bank actions and strong initial positions underlying funding vulnerabilities could intensify with prolonged geopolitical uncertainty. Banks across the region reported liquidity coverage ratios well exceeding the 100 percent regulatory minimum and average common equity tier 1 ratios near 13.2 percent ahead of the escalation the consultancy’s data showed. Bahrain and Qatar exhibit notable dependence on external and foreign-currency funding which could face tests if confidence erodes further the report highlighted.
