Gulf nations face indirect but significant risks from trade war

The GCC region faces mounting economic challenges as intensifying global trade tensions, particularly US tariff threats, and a sharp decline in oil prices ripple through its markets.

- Issac John [e-mail]

A recent S&P Global Ratings report highlights the indirect but significant risks to GCC economies, with banks likely to face increased market volatility and investor risk aversion.

However, the region's financial institutions appear well-positioned to weather the storm, bolstered by strong liquidity, profitability, and capitalisation, according to credit analyst Mohamed Damak.

S&P has revised its oil price forecast to $65 per barrel for 2025, down from previous estimates, reflecting heightened trade disputes and weaker global demand. This drop, a roughly 15 per cent decline from mid-2024 Brent crude averages of $80 per barrel, threatens government revenues and spending in oil-dependent GCC economies.

Saudi Arabia, the UAE, Qatar, and other GCC nations rely heavily on hydrocarbon exports, which account for 60-80 per cent of fiscal revenues across the region, as per International Monetary Fund (IMF) data. Lower oil prices could curb public investment in projects like Saudi Arabia's Vision 2030, dampening growth in both oil and non-oil sectors.

The IMF projected GCC GDP growth at 3.2 per cent for 2025 before the tariff escalation, but analysts now warn of a potential downgrade to 2.5 per cent if oil prices fall further. A sustained drop below $60 per barrel could exacerbate fiscal deficits, with Saudi Arabia's breakeven oil price estimated at $80-$85 per barrel by Bloomberg Economics. Reduced government spending may also pressure corporate earnings and consumer confidence, indirectly straining banks' asset quality.