Qatar and Kuwait's economies contracted by 14% due to the Strait of Hormuz crisis
Introduction to Economic Forecasts
Goldman Sachs, in a recent analytical report, predicted that the GDP of both Qatar and Kuwait will contract sharply by up to 14% this year. This pessimistic forecast assumes that current geopolitical conflicts persist until April, potentially leading to a two-month disruption of maritime traffic and trade through the strategic Strait of Hormuz. This potential economic downturn represents the most severe economic crisis the two countries have faced since the early 1990s, specifically since the repercussions of the Gulf War, which severely impacted the stability of regional economies.
Historical context and strategic importance of the Strait of Hormuz
To understand the magnitude of this impact, one must consider the immense strategic importance of the Strait of Hormuz. It is one of the world's most vital waterways, through which approximately one-fifth of global oil consumption and nearly one-third of all seaborne oil trade pass. Furthermore, Qatar relies almost entirely on this strait for exporting liquefied natural gas to Asian and European markets. Therefore, any closure or disruption of shipping traffic through it would cripple the economies of countries that lack alternative maritime outlets for exporting their hydrocarbon resources.
The impact varies among the Gulf countries
On the other hand, the picture appears less bleak for Saudi Arabia and the United Arab Emirates. They are expected to be in a relatively stronger economic and strategic position thanks to their proactive investments in oil export infrastructure. Saudi Arabia owns the East-West pipeline, which transports oil to Red Sea ports, while the UAE owns the Habshan-Fujairah pipeline, which allows for direct oil exports to the Gulf of Oman and the Arabian Sea, bypassing the Strait of Hormuz. This ability to redirect oil flows away from conflict zones gives both countries considerable resilience in the face of crises.
The impact of tensions on global oil markets
In global energy markets, these tensions were directly reflected in oil trading. Brent crude, the international benchmark, traded at around $105 a barrel, influenced by escalating news of tit-for-tat attacks and the involvement of international and regional actors in the conflict, including the United States and Israel on one side, and Iran on the other, in its third week. The price of Brent crude has seen a cumulative increase of approximately 40% since the escalation began in late February, reaching $104.73, despite a slight dip from its peak of $106. Meanwhile, the price of West Texas Intermediate (WTI) crude rose by 1% to $99.68 a barrel, marking a jump of nearly 50% since the start of the crisis.
Expected impact locally, regionally, and internationally
Internationally, these developments are raising serious concerns about global energy security. This was evident in US President Donald Trump's call for other countries to contribute to protecting the Strait of Hormuz, emphasizing its vital role as a lifeline for global oil and gas shipments. The anticipated impact of this crisis extends beyond regional boundaries; domestically, affected countries will suffer budget deficits and reduced government spending, while regionally, investment uncertainty will increase. Internationally, rising energy prices will inevitably lead to higher global inflation and slower economic growth, presenting central banks worldwide with complex challenges in controlling prices without triggering a recession.
