News
Diversification · Geopolitical Risk · Gulf Economy · Non-Oil Sectors
The Iran conflict has exposed significant vulnerabilities in Gulf states' non-oil economic diversification strategies, forcing a strategic pivot towards defense, advanced manufacturing, and artificial intelligence, with Goldman Sachs forecasting substantial GDP contractions this year, including 14% for Qatar and Kuwait, 3% for Saudi Arabia, and 5% for the UAE.
Sectors like aviation, hospitality, and logistics, previously pillars of growth, faltered due to geopolitical shocks. The Strait of Hormuz experienced a near closure for a month, and strikes damaged energy facilities across the UAE, Saudi Arabia, Qatar, Kuwait, and Bahrain.
Non-energy output constituted over 73% of total GCC GDP at the end of Q1 last year, with Bahrain and the UAE generating over 80% and 70% respectively from non-oil sectors, and Saudi Arabia recently exceeding 50%, according to GCC-Stat and the World Bank. Emirati retail, technology, and media companies reduced salaries and headcounts.
Dubai hotels experienced record low occupancy, impacting the rental market. Flagship events like the Bahrain and Saudi Grands Prix and Arabian Travel Market were cancelled or postponed, depriving the region of tens of thousands of visitors.
Tourism accounted for 13% of the UAE’s GDP last year and is envisioned to encompass 10% of Saudi output by 2030. Data centers in the UAE and Bahrain suffered disruptions from Iranian strikes.
Analysts Héla Miniaoui, Rachel Ziemba, and Bader Al-Saif indicate Gulf states will recalibrate plans towards more resilient sectors such as the knowledge and digital economy, domestic tourism (Saudi Arabia), defense, advanced technology, AI infrastructure, data centers, and semiconductor ecosystems. Manufacturing, healthcare, pharmaceutical, education, and financial services, especially if regionally oriented, are also identified as future paths.
Al-Saif states the conflict will not halt diversification but will integrate new risks, and capable crisis management will enhance long-term appeal for expatriate workers and foreign capital. Localizing manufacturing will create private sector jobs.
