Gulf economies strained by Iran conflict, may shift spending priorities
A new report from the Peterson Institute for International Economics says the US-Iran war is weakening the fiscal positions of Saudi Arabia, Qatar, and the UAE. The conflict has led to sharp cuts in growth forecasts for these countries. The report suggests they may prioritize domestic investments over commitments to the US.
The Peterson Institute report highlights that the US-Iran war has forced sharp downward revisions in growth forecasts for Saudi Arabia, Qatar, and the UAE, with Qatar’s cut exceeding 14 percentage points. These nations retain sufficient reserves to avoid immediate crises, but the strain is accelerating a pre-existing shift toward domestic spending. Saudi Arabia’s Public Investment Fund has already trimmed its international allocation from 30 to 20 percent since 2020. The report also notes Washington’s history of pressuring allies, citing tariff threats against South Korea over delayed investment implementation, while QatarEnergy continues LNG production in Texas.
This report could reshape expectations about Gulf states’ role as major foreign investors in the US, potentially affecting jobs and infrastructure projects tied to those commitments. If fiscal pressure leads these governments to prioritize domestic needs, American businesses and workers may see slower inflows of capital. Conversely, renewed US pressure tactics could strain diplomatic relations, influencing regional stability and global energy markets. The outcome may hinge on how quickly the conflict de-escalates and whether Gulf leaders perceive the US security guarantee as reliable.