World Bank: Gulf Financial and Investment Margins Enhanced Regional Resilience Amid War Challenges

Al Arabiya – Roberta Gatti, Chief Economist for the Middle East and North Africa and Afghanistan and Pakistan (MENAAP) region at the World Bank, said that Gulf economies have demonstrated resilience against the economic repercussions of the war with Iran, supported by fiscal buffers and investment capacities that help them absorb shocks and recover.

In an interview with Al Arabiya Business, Gatti added that Saudi Arabia is in a better position than some regional countries, benefiting from its economic diversification, strong infrastructure, and alternative oil export routes, which have helped mitigate the impact of disruptions caused by the closure of the Strait of Hormuz.

Gatti explained that previous oil shocks primarily affected prices, which benefited oil-exporting countries. However, the current shock was characterized by a decline in exported oil volumes due to the closure of the Strait of Hormuz.

She noted that the rise in oil prices to levels approaching $100 per barrel did not fully offset the impact of reduced export volumes, pointing out that the drop in oil exports in terms of quantity represented the largest shock so far for countries heavily reliant on the Strait of Hormuz for their export routes.

Gatti emphasized that the current crisis clearly highlighted the importance of diversifying export routes, alongside economic and financial diversification. She pointed out that Saudi Arabia’s possession of the East-West pipeline and alternative oil export routes, along with its diversified economy and products, helped mitigate the potential impact of the conflict, and that the crisis’s impact could have been much greater without these alternatives.

She mentioned that future investments in infrastructure for economic resilience may include creating alternative export routes and what economists refer to as redundancy or duplication in infrastructure, aimed at reducing reliance on a single route and protecting economies from future risks.

Regarding the fiscal space available to regional governments, Gatti said that Gulf countries, with limited exceptions, entered the crisis with substantial fiscal buffers.

She clarified that governments will need to continue using their financial resources in the future to restore productive capacity and invest in enhancing resilience, stressing that balancing support for those affected by shocks with maintaining fiscal sustainability will be a priority.

She noted that peace and security are fundamental conditions for growth, but looking ahead, resilience will be a crucial consideration. In this context, for example, thinking about infrastructure would mean building alternative export routes, which may involve some redundancy or duplication as defined by economists, to diversify away from additional potential risks.

She added that debt levels in most Gulf countries remain relatively low, with exceptions such as Bahrain, highlighting the importance of considering each country’s fiscal position upon entering the crisis and its capacity to absorb additional shocks.

She concluded: “Looking to the future, balancing the provision of a buffer to absorb the impact of shocks, particularly for the most affected groups, with building resilience and adopting a well-calibrated, measured, and countercyclical fiscal policy will certainly be a priority for countries.”

Regarding the World Bank’s growth forecasts, Gatti clarified that the Bank anticipates a regional growth rebound of 7.8% in 2027, excluding Iran. She noted that a significant portion of this projected rebound is linked to the recovery of hydrocarbon production and exports lost during the conflict. This outlook assumes that the war or conflict will subside by the end of 2026, allowing production and export capacities to return to normal levels, particularly the resumption of navigation through the Strait of Hormuz.

She pointed out that part of the expected rise in growth rates is attributable to the “base-year effect,” as the sharp decline in economic activity during the shock makes growth rates appear relatively high when activity recovers in the following year.

She warned that continued conflict or further escalation, along with any technical issues that delay the restoration of production and export capacities, would inevitably result in a smaller-than-expected economic rebound in 2027.

She added that the impact would be greater on countries most dependent on oil and gas exports if the return of production and exports to normal levels is delayed.