The list of hostages in the war waged by Donald Trump and Benjamin Netanyahu in Iran is extensive. Thousands of miles away, two continents — Asia and Europe — are experiencing a price surge not seen since Russia’s invasion of Ukraine in 2022. Just around the corner, half a dozen Persian Gulf countries that have suffered the brunt of the attacks — the United Arab Emirates, Iraq, Bahrain, Qatar, Kuwait, and Saudi Arabia — are seeing their oil and gas exports severely restricted by the double blockade of the Strait of Hormuz. It is an economic blow of biblical proportions, already prompting the first calls for help to the United States, the historic ally of this cluster of petrostates and, at the same time, the trigger of a crisis with unpredictable reach and consequences.
The Trump administration, through Treasury Secretary Scott Bessent, acknowledged last Wednesday that “several” Gulf countries — including the United Arab Emirates (UAE), as first reported by The Wall Street Journal — have already approached the White House to request a currency‑swap arrangement to secure short‑term access to U.S. dollars. Although the Emirates reject the term “bailout,” this first move signals an unprecedented shortage of hard currency in the face of a crisis triggered by Trump.
It is, in short, an SOS rarely seen in nations with vast reserves, powerful sovereign wealth funds, and massive overseas investments. The same countries that have lavishly courted Trump — the Qatari royal family’s gift of a luxury Boeing 747 remains a notorious example — and pledged multibillion‑dollar investments that now hang in the balance.
“The request is, above all, preventative: if a swap line is established, it is less likely to be used, since the markets will not put excessive pressure on exchange rates,” explains Azad Zangana, head of analysis for the Persian Gulf at the consultancy Oxford Economics, via email.
Washington’s willingness to consider the request is also in its own interest. “Gulf sovereign wealth fund holdings skew toward U.S. dollar-denominated assets,” explains Paul Donovan, chief economist at the Swiss investment bank UBS, in a note to clients. “Using these assets to meet short-term fiscal needs risks disrupting U.S. markets.”
Donovan adds: “Swap arrangements give Gulf economies the cash without creating disorderly markets. However, in the longer term, the need to reconstruct and rearm means that asset sales may be considered.” In other words, they will open their checkbooks — just not yet.
Since the start of the war in Iran, Pimco, the world’s largest fixed-income fund, has already lent more than $10 billion to countries in the region, according to data compiled by Bloomberg.
Financial shock
The closure of the Strait of Hormuz is triggering a genuine economic earthquake across the Gulf petrostates, prompting the International Monetary Fund (IMF) to forecast a broad recession from which only Saudi Arabia is expected to escape — though not unscathed. Nothing suggested such a scenario just a couple of months ago, when the region was heading into a year of record exports and buoyant growth.
Everything changed on February 28, when the first missiles struck Iran and set off a shock comparable only to the 2020 pandemic. Oil and gas sales are drying up: aside from the pipelines that allow a small fraction of Saudi, Emirati and Iraqi exports to be rerouted, most of their fuel simply cannot reach its usual markets. And the export blow is compounded by a sudden halt in tourism and major events — sectors that countries like the UAE, Qatar and Saudi Arabia have been cultivating to diversify their economies.
In an article last week, Yousuf Hamed Al Balushi, a researcher at the Gulf International Forum think tank, described the blockade of the Strait of Hormuz as a “stress test for the Gulf.” “In the worst-case scenario, a sustained closure reshapes energy trade patterns for years, and the Gulf Cooperation Council states must turn to their sovereign wealth reserves,” he warned.
U.N. figures are even starker than the IMF’s: the region’s five major economies — not even counting Iraq — stand to lose between $103 billion and $168 billion. At the midpoint of that range, the hit is equivalent to Spain’s entire annual tourism revenue.
A fractured economic picture
The Gulf, for all its shared geography, is far from a homogeneous bloc. Even with a pipeline that allows some of its oil to exit through Turkey, Iraq — the only republic among these states, the rest being petro‑monarchies — is by far the poorest, with a per‑capita income one‑sixth that of Saudi Arabia and 12 times lower than Qatar’s.
Bahrain, though far wealthier than Iraq — its per‑capita GDP is roughly five times higher — has seen its exports of crude and aluminum collapse to virtually zero. Its cushion of hard‑currency reserves is thin compared with its neighbors’, and it carries one of the highest public‑debt burdens in the world, close to 150% of GDP. It’s a structural problem, but it becomes acute when financing costs spike, as they have now.
A second tier includes Qatar and Kuwait, also hit hard by the collapse in gas and oil exports — and, in Qatar’s case, by the disruption to air connectivity, which has slashed visitor arrivals and hurt its flagship carrier, Qatar Airways. But both countries have more room to maneuver thanks to years of accumulated savings. In short, they can afford to hold out a bit longer without the export windfall. But not indefinitely: Doha’s economy is expected to shrink by 8.6% this year, compared with the 6.1% growth the IMF projected just six months ago, and Kuwait’s GDP will fall 0.6%, versus the 5.1% expansion previously forecast.
The United Arab Emirates — paradoxically the first country to approach Washington for help — and Saudi Arabia appear somewhat better equipped. Both have managed to reroute part of their oil flows through three pipelines that reach ports on the Mediterranean, the Red Sea and the Gulf of Oman. And they are the countries that have gone furthest in trying to reduce their dependence on fossil fuels. But even in these cases, the damage is severe: the IMF has cut its growth forecast for this year by 1.9% and 0.9%, respectively.
Even if the Strait of Hormuz reopens soon, the scars will be long-lasting. “Even after hostilities cease, investors are likely to require higher returns [on financing for these countries] to compensate for elevated geopolitical risk, raising long-run borrowing costs and reducing the region’s attractiveness as a destination for foreign direct investment,” predict experts from the United Nations Development Programme (UNDP) in their latest regional review. “This structural shift in risk perception could persist for years, complicating the GCC countries’ ambitions to diversify their economies and finance major development programmes.”
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