How the Iran War Is Squeezing Gulf Economies—and Testing U.S. Security Ties

The economic stakes of the Iran war are concentrated in one waterway: the Strait of Hormuz. Before the conflict, it carried about a fifth of global oil and liquefied natural gas flows. Its disruption has constrained the ability of Gulf exporters to turn production into cash, even as the resulting rise in oil prices cushions some government revenues. 512

That distinction matters. A country with limited export alternatives can lose revenue and be forced to curb output when storage fills up; a country with a pipeline to a port outside the strait has more flexibility, but not immunity. The result is an uneven regional shock that is pressuring budgets, growth plans and confidence in the security arrangements that underpin Gulf investment.

Why Hormuz disruption hurts even when oil prices rise

A higher oil price benefits barrels that can reach customers. It does not fully compensate for barrels—or LNG cargoes—that cannot be shipped. Reuters reported that the strait’s closure divided the fortunes of regional producers: Saudi Arabia benefited from higher prices and alternative export capacity, while states without comparable routes lost billions of dollars. 12

The longer disruption persists, the more the problem expands beyond hydrocarbon revenue. Shipping constraints can force production cuts, while attacks and regional insecurity can affect ports, airports, hotels and commercial hubs. 1516 Gulf governments are also responding by committing capital to new pipelines, ports and other infrastructure intended to reduce reliance on Hormuz. 2

The country-by-country exposure

Iraq: the clearest fiscal vulnerability

Iraq is among the most exposed exporters because it lacks a meaningful alternative route for its oil exports. That makes public finances highly sensitive to lost physical volumes: if exports are blocked, oil income that supports government spending is immediately at risk. Reuters’ analysis identified states without alternative shipment routes as the principal losers from the closure. 12

For Iraq, the issue is therefore not simply a lower growth forecast. A sustained inability to ship crude constrains the fiscal capacity behind salaries, public services, reconstruction and capital spending.

Saudi Arabia: partial protection, not a full shield

Saudi Arabia can move some oil through infrastructure linked to the Red Sea, giving it a greater ability than Iraq to bypass Hormuz. That route, combined with higher oil prices, has made Saudi Arabia relatively better positioned than exporters with no alternative outlet. 12

But partial rerouting does not eliminate the economic cost. Regional attacks and disruption have damaged or threatened transport, tourism and commercial activity, while Riyadh faces pressure to spend on security and on resilient energy and logistics infrastructure. 215 These demands compete with the fiscal room needed to sustain long-term domestic investment plans.

Qatar: LNG depends on secure passage

Qatar’s vulnerability is especially acute because its liquefied natural gas export model depends on maritime access through Hormuz. Reuters has described Gulf exporters as overly reliant on this single chokepoint and warned that future closures are now a persistent risk even if a durable peace is reached. 3

For Qatar, safe navigation is not a peripheral logistics issue: it is a condition for reliably serving LNG customers and for protecting the confidence that supports long-lived gas investment. A reopening that remains uncertain or restricted would therefore leave an economic overhang even after immediate hostilities ease.

UAE: a bypass route, but a more diversified economy at risk

The UAE has some ability to bypass the strait through pipelines and ports outside Hormuz, including its Fujairah outlet. That reduces exposure compared with countries dependent on a single route, but it does not remove it. 12

The UAE’s broader exposure also runs through trade, ports, aviation, finance and property. Regional strikes and shipping restrictions affect an economy built around connectivity as well as oil exports. Investment in alternative infrastructure can improve resilience over time, but it is also an added near-term cost. 215

Growth and fiscal pressure are reinforcing each other

The growth outlook has weakened as export disruption lasts longer than initially expected. A Reuters poll in July found that most Gulf economies were expected to contract more sharply in 2026 than forecast three months earlier, with a possible rebound in 2027. Qatar and Kuwait recorded the sharpest forecast downgrades in that survey, each projected to shrink 8.1% in 2026. 6

The central fiscal problem is a squeeze from both directions:

• export volumes and related activity are impaired;
• security, repair and resilience spending rise;
• governments face pressure to protect domestic investment and economic diversification plans; and
• prolonged uncertainty can weaken trade, aviation and private-sector confidence. 2615

Saudi Arabia and the UAE have more buffers and alternative routes than Iraq or Qatar, but the conflict demonstrates that even diversified Gulf economies remain tied to the security of regional energy and trade corridors.

Why the conflict is straining the U.S. security relationship

The economic shock has sharpened a political question for Gulf capitals: whether the U.S. security umbrella provides protection commensurate with the risks created by regional escalation. Reuters reported that Gulf sources and analysts saw growing unease after Iranian strikes damaged infrastructure and exposed vulnerabilities in countries that depend on U.S. protection. 1415

The immediate policy demand is not merely a ceasefire. Gulf states have pressed Washington for an arrangement that permanently constrains threats to energy infrastructure and prevents energy supplies from being used as coercive leverage again. Their stated priorities include enforceable limits on missile and drone attacks and a durable safeguard for shipping through Hormuz. 11

That does not guarantee a break in U.S.-Gulf relations. It does mean future economic, military and diplomatic cooperation is likely to be judged against a more practical test: whether it makes the region’s export lifeline and commercial infrastructure safer.

What nearly $4 trillion in commitments means for Washington

An analysis cited by Al Jazeera put announced Saudi, Qatari and UAE economic commitments to the United States at nearly $4 trillion, while cautioning that the war could make them harder to deliver as the three governments prioritize defense, energy infrastructure and trade resilience. 18

Those announcements should not automatically be treated as fully contracted, immediate spending. But the underlying political risk is real: lower export cash flow and higher domestic priorities could slow, resize or redirect planned investment, purchases and partnerships.

For Washington, delays could turn an economic timetable into leverage in a broader security negotiation. Gulf governments have strong incentives to seek firmer air and missile defenses, secure shipping arrangements and credible protection for critical infrastructure before committing capital abroad at the same pace. The more Hormuz remains a recurring vulnerability, the stronger the incentive to diversify infrastructure, trade and external relationships beyond any single security partner. 21114

The bottom line

The war has exposed a structural weakness in Gulf economic models: enormous energy wealth and global investment capacity still rely on a narrow, vulnerable maritime exit. Iraq is most exposed on the oil-revenue side; Qatar faces a particularly direct LNG shipping constraint; and Saudi Arabia and the UAE have useful but limited alternatives.

The lasting consequence may be as political as it is economic. Reopening Hormuz would restore trade, but only durable confidence in the route’s security can restore the investment certainty—and the U.S.-Gulf bargain—that the conflict has put under strain. 31114