Iran War Puts Gulf States’ Nearly $4 Trillion US Investment Pledges at Risk

The economic impact of the Iran war is not confined to higher oil prices. For Gulf states, disrupted export routes and rising security costs are colliding with large domestic development plans—and with nearly $4 trillion in commitments to invest in, or buy from, the United States under President Donald Trump’s “America First” agenda. The result is a growing gap between headline pledges and the financial and political capacity to execute them. 94

Why the US pledges are under pressure

Saudi Arabia, Qatar and the United Arab Emirates account for almost $4 trillion of the nearly $6 trillion in foreign-government commitments associated with the America First investment initiative, according to the Peterson Institute for International Economics (PIIE). But the total is not a pool of cash waiting to be transferred: the commitments combine investments and economic exchange, often span years, and have varying levels of detail and defined timelines. 74

That distinction matters more during a war. PIIE argues that the conflict raises questions not only about the Gulf states’ ability to deliver on the commitments, but also their willingness to do so as resources are redirected to pressing needs at home. 9

The immediate pressures include:

• higher defence and infrastructure-protection spending;
• repair and resilience spending for energy, transport and trade systems;
• weaker foreign direct investment and higher borrowing costs; and
• the need to preserve funding for domestic diversification and employment programs. 1

For Saudi Arabia, that trade-off is especially consequential. Its economic strategy relies on sustained investment in domestic transformation projects. In a more constrained environment, allocating capital to projects and jobs at home can become a higher priority than discretionary overseas deployment. That does not necessarily signal a break with Washington; it reflects the practical economics of managing war risk and domestic commitments.

The IMF’s growth downgrades show the scale of the shock

The International Monetary Fund’s forecasts changed sharply as conflict disrupted energy infrastructure and shipping.

In its April regional update, the IMF projected 2026 growth of 1.4% for the Middle East, North Africa, Afghanistan and Pakistan region even under a reference scenario in which trade resumed and production normalized by midyear. That was a 2.3-percentage-point downgrade from its October 2025 projection. The Fund said directly affected Gulf oil exporters faced downward revisions of up to 15 percentage points.

Subsequent reporting on the IMF’s July update put growth for the broader Middle East and Central Asia region at just 0.7% in 2026, 1.2 percentage points below the Fund’s April forecast. The outlook assumed the Strait of Hormuz would begin reopening in mid-July and traffic would return to prewar levels by March 2027—an assumption that underscores how dependent the projected recovery is on restored energy flows.

Country-level estimates illustrate the uneven exposure:

• Qatar: Its 2026 forecast was cut by 14.7 percentage points, to an 8.6% contraction, reflecting extensive infrastructure damage and high exposure to disrupted gas exports.
• Saudi Arabia: The IMF forecast was reduced from 4.5% to 1.7% in the cited update. Saudi Arabia has more resilience than some neighbors because of alternative export infrastructure, but it still faces lower growth and war-related fiscal pressure.
• United Arab Emirates: The IMF forecast was reduced from 5.6% to 1.7% in the same reported update.
• Iraq: The IMF projected a 6.8% economic contraction in 2026 before a potential rebound if energy production and transport normalize.

A 2027 rebound should therefore be read carefully. It may reflect the restoration of disrupted production and trade from a depressed 2026 base, not a resolution of deeper economic vulnerabilities.

Hormuz turns high energy prices into lost revenue

The Strait of Hormuz is central to the region’s economic damage. It carries roughly a quarter to 30% of global oil and about 20% of global liquefied natural gas, according to the IMF. When shipping is blocked or unsafe, exporters can lose sales volumes even as benchmark energy prices rise.

That is why the war’s impact differs across producers. States with alternative routes can retain some export capacity. Iraq and Kuwait, which have limited bypass options, are more exposed to lost revenue when Hormuz is shut.

Iraq is the starkest case. Reuters reported that output from its main southern fields fell around 70% to 1.3 million barrels per day early in the disruption because exports through Hormuz could not move normally. As storage filled, output was cut further.

The fiscal implications are severe because oil is the foundation of Iraq’s public finances. Columbia University’s Center on Global Energy Policy estimated that the IMF had expected Iraq to earn $79 billion from oil exports in 2026, based on average exports of 3.5 million barrels a day. At prewar assumed prices, each month of near-zero exports would imply about $6.6 billion in lost revenue.

Iraq’s vulnerability did not begin with the war

The conflict exposed an existing weakness: Iraq has limited protection against an interruption in oil cash flow. A shutdown of its principal export route affects government revenue, production, imports and the state’s ability to maintain spending at the same time.

The IMF’s 6.8% contraction forecast is tied to disrupted oil output and export logistics, while its projected 2027 recovery assumes those systems normalize. That means recovery is possible, but it would not by itself resolve the structural dependence on hydrocarbon revenue or create a more diversified export base.

Political and strategic consequences for Washington and the Gulf

The investment commitments also carry an accountability problem. Their size has made them politically valuable, but their long horizons and incomplete project-level detail make it difficult to distinguish firm implementation from broad commercial ambitions. PIIE has described the wider America First pledges as clouded by uncertainty. 114

That uncertainty can become a source of leverage. South Korea’s $350 billion US investment commitment became entangled with tariff negotiations: Washington threatened to raise tariffs on certain South Korean imports to 25% from 15%, citing delays in implementing the agreement. The case is not a direct template for the Gulf, and it does not establish that comparable action is planned. It does show, however, that investment pledges can become bargaining tools in broader trade and security relationships.

For Gulf governments, the war also tests a basic strategic assumption: whether close alignment with the United States provides dependable protection for energy infrastructure and shipping. If leaders conclude that the security relationship leaves them exposed to escalation or retaliation, they may favor greater strategic autonomy and more discretion over where sovereign wealth is deployed. That would make investment decisions less responsive to political pressure from Washington.

What determines whether the pledges are delivered

The decisive variable is the duration of disruption. A durable restoration of Hormuz shipping, energy exports and investor confidence would improve fiscal room and support a 2027 rebound. A prolonged conflict would instead force tougher choices between defence, reconstruction, domestic diversification and foreign investment.

The Gulf commitments to the United States have not disappeared. But the war has changed their meaning: they are no longer just diplomatic announcements or commercial ambitions. They are now contingent on the region’s ability to restore trade routes, protect critical infrastructure and finance economic resilience at home. 9