Economic resilience in the Gulf states faces an unprecedented test due to economic risks stemming from the United States’ and Israel’s war with Iran. The closure of the Strait of Hormuz has disrupted export and import supply chains, endangering business continuity, food security, and hydrocarbon revenues across the region.
Strait of Hormuz Closures Disrupt Regional Supply Chains
The closure of maritime routes through the Strait of Hormuz has forced businesses to adopt costly rerouting strategies. Goods are currently moving overland through ports along the Gulf of Oman and the Red Sea. Saudi Arabia and the United Arab Emirates have expanded the use of cargo trains, while Bahrain and Kuwait have mobilized overland links with Saudi Arabia. Businesses have also utilized air freight to mitigate supply-chain disruptions. To survive the geo-economic shock without widespread layoffs, local firms have resorted to reducing salaries and providing unpaid annual leave.
Water supplies remain stable despite power-generation facility attacks
Iranian targeting of civilian infrastructure has threatened the provision of essential public services, including desalinated water and electricity. Despite missile and uncrewed-aerial-vehicle attacks on power-generation facilities in Bahrain, Kuwait, and the United Arab Emirates, water supplies across the region have remained stable. Attacks resulted in only limited power outages in Bahrain and Kuwait, while electricity supply remained uninterrupted in the UAE. The Gulf states have maintained short-term absorptive capacity, supported by effective air defenses and coordination among members of the Gulf Cooperation Council (GCC).
Long-Term Vulnerabilities Threaten Future Stability
Current adaptation strategies are not designed for the long term. The absorption of heightened operational expenses, salary reductions, and reduced operating scales cannot be sustained indefinitely by businesses. While local markets remain well-supplied with food, the conflict exposes a heavy reliance on imported food and the Strait of Hormuz as a critical choke point, vulnerabilities that would intensify during a prolonged conflict.
Frequently Asked Questions
How have Gulf businesses maintained operations despite closed maritime routes?
Businesses have rerouted goods overland through ports on the Gulf of Oman and the Red Sea, while Saudi Arabia and the UAE expanded cargo train usage. Bahrain and Kuwait have mobilized overland links with Saudi Arabia, and companies have increased their reliance on air freight.
Which countries experienced power outages during the conflict?
Missile and uncrewed-aerial-vehicle attacks on power-generation facilities resulted in limited power outages in Bahrain and Kuwait, while the UAE maintained uninterrupted electricity supplies.
What measures have firms taken to avoid staff layoffs?
Gulf-based businesses have adapted to the economic shock by providing unpaid annual leave and reducing salaries instead of laying off staff.