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GCC shelters from the trade wars

18 April 2025

 

The ‘Liberation Day’ tariffs that US President Donald Trump announced on 2 April have plunged global markets into turmoil, with many previously bullish investors turning bearish as a large swathe of reciprocal tariffs were announced.

A week later, Trump announced a 90-day pause on the new tariff regime for most trading partners except China, which received an increased tariff rate of 145%, which was then increased to 245%.

As global stock markets suffered some of their worst days on record, for the GCC, the main mechanism of transmission of economic pain came through the negative oil price shock. Brent crude prices dropped by about 16% and dipped below $60 a barrel for the first time since 2021.

Falling prices

For TS Lombard’s general base case, the negative impact of weaker oil demand is offset by more constructive aspects, which highlight the region’s resilience as it is relatively sheltered from the direct effects of Trump’s tariffs compared to most other emerging markets.

To focus on the negatives first, oil prices have taken a significant hit, dropping to lows unseen since before the Russia-Ukraine war. 

It has been generally accepted that during the period from 2022 to February 2025, there was a $70 a barrel price floor for oil, supported by reduced Opec+ production in 2023 and 2024, coupled with geopolitical risk premium resulting from conflicts in Europe and the Middle East.

The geopolitical narrative began to untangle in 2024, and then completely unravel in 2025, as markets no longer price in any real oil shock risk. 

This story has been exacerbated in 2025 with a twofold blow in early April: Trump announced his Liberation Day tariffs, and Opec+ announced plans to raise production even further, from an increase of 114,000 barrels a day (b/d) to 411,000 b/d by May, which shocked the oil market.

It is key to note that non-oil expansion depends on crude prices to finance growth, rather than for oil’s contribution to GDP. In Saudi Arabia, for example, non-oil GDP grows at about 2% when oil is below the $60 a barrel range, versus 4.7% on average above $80 a barrel.

Low oil prices become a concern when discussing GCC government budget balances. Economic diversification and oil decoupling plans have required high levels of capital expenditure, as the region begins to brace for a future of less oil dependency – though the deadline for this remains at least 10 years away.

Although GCC markets have decoupled from oil, overall funding and spending in the GCC remains driven by oil revenues. This can be seen with the breakeven oil prices for GCC countries.

There is a wide range of fiscal breakeven points within the GCC, with states such as Bahrain and Saudi Arabia suffering the most from drops in oil revenues. Despite these variations, the outlook for oil can be summarised in four points:

  • Opec+ policy creates excess supply, coupled with weak global – and namely Chinese – demand on crude; 
  • Pricing out of geopolitical risk;
  • Tariff policy creates global uncertainty, especially in energy-intensive industries; 
  • An Opec decision on production numbers will hinge on the outcome of Trump’s visit to Saudi Arabia, Qatar and the UAE.

TS Lombard does not expect oil prices to fall much further. It would not be in Trump’s favour to depress oil prices too far, as it would result in too much pain for US shale producers. 

Trump wants lower energy inputs; a positive supply-side factor; and to showcase a win from his campaign pledges, many of which have yet to materialise. Nonetheless, the base case for oil remains bearish this year relative to the past two years, although TS Lombard is not overly negative on expectations about current price equilibrium in the $60-$70 a barrel range.

Potential upside

With markets remaining in a tumultuous state, and while questions are being asked about trade deals and the re-implementation of tariffs, it is key to note that oil, energy and various petrochemicals products have been exempt from US tariffs. 

This means that, for a volatile and demand-dependent market, oil may see some upside towards the end of this year, as markets begin to price in tariff risk and supply-side disruption.

In terms of non-oil exports from the GCC to the US, with the exception of aluminium, little has changed from pre-Liberation Day operations. 

In 2024, the US enjoyed a trade surplus with the GCC in general. For example, 91% of Saudi exports to the US in January 2025 were crude or crude-based products such as ethylene, propylene polymers, fertilisers, some plastics products, and rubber – most of which are exempt from tariffs. 

For the UAE, 80% of exports to the US were similarly exempt, including supplying the US with 8% of its total aluminium demand. Significantly, Canada and China are the main aluminium exporters to the US.

With China and Canada also being major targets for Trump, countries such as the UAE and Bahrain will maintain a competitive advantage in selling to the US market, despite facing either the 10% baseline tariff, or the specific 25% aluminium tariff. The best case scenario is that both these GCC states are able to negotiate a trade deal that could exempt or curb the negative tariff effect on their aluminium exports.

Limiting impact

Although several industries have already suffered – as petrochemicals in general has suffered because of the drop in demand and oversupply in the market – the GCC finds itself in a unique position. Its economies are geared to being market- and trade-friendly, and they have low regulatory barriers, large amounts of space and energy to engage in manufacturing-intensive activities.

Coupled with strong relations with the Trump administration, the GCC has both an economic and geopolitical opportunity to act as a global intermediary. It has already been announced that Trump’s first foreign visits will be to the region, and today major global negotiations – from ceasefires to investment mandates – take place in the GCC.

A common argument being made regarding the latest output decision by Opec+ is that it is a geopolitical ploy to appease Trump’s pursuit of lower energy prices and gain favourable negotiating positions for the GCC states. Items on this docket range from civilian nuclear and drone programmes through to the approach to Iran and the Gaza-Israel question.

Saudi Arabia’s non-oil GDP remains high, showing the resilience of the kingdom when facing economic headwinds. Specifically, the kingdom has kept up its streak of strong non-oil purchasing managers’ index performances. 

With the GCC exhibiting stable conditions as the world moves towards uncertainty and erecting trade barriers, the region’s overall competitiveness could be enhanced. This is especially true in the case of the real economy, where investments still have a mostly local rather than international reliance. 

Overall, the short-term story relates to oil – and namely to the capital flows that oil brings, which fund economic diversification expenditures in the GCC. 

Although lower oil prices are a key detractor for the region, the story is far from being all bad news. 

Improved geopolitical relations and opportunities arising from the positioning of the GCC states allows them to exploit emerging gaps in markets that were previously dominated by economies that have been targeted with tariffs.

 

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    Saudi Arabia’s Public Investment Fund (PIF) has published its audited consolidated financial statements for the year ended 31 December 2025, the first full set of annual results to follow the board’s approval of the fund’s 2026-30 strategy.

    The results show a sharp improvement in profitability last year even as leverage rose and volatility in its listed equity holdings widened. The performance helps explain the strategic shift towards capital discipline and focus on private sector partnerships set out in April.

    In April, PIF’s board, chaired by Crown Prince Mohammed Bin Salman Al-Saud, approved a new five-year strategy structured around three portfolios, the Vision Portfolio, the Strategic Portfolio and the Financial Portfolio, and organised around six domestic ecosystems: tourism, travel and entertainment; urban development and liveability; advanced manufacturing and innovation; industrials and logistics; clean energy, water and renewables infrastructure; and Neom as a standalone ecosystem.

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    The strategy followed a period of reprioritisation across PIF’s gigaproject portfolio and set out a renewed emphasis on private capital, with PIF stating it would “further enable the role of the private sector as an effective partner for sustainable economic development”.

    PIF’s consolidated profit for 2025 rose to SR65.2bn ($17.4bn) in 2025, up 152% from SR25.8bn in 2024. The increase was driven by operating profit more than doubling, to SR78bn from SR34.7bn, as revenue growth outpaced cost of revenue and general and administrative expenses moderated relative to the prior year. Profit attributable to the owner of the fund rose to SR46.4bn, up from just SR1bn in 2024, a swing that accounts for most of the year-on-year improvement.

    Total revenue, comprising SR312bn of operating revenue and SR137.9bn of income from investment activities, rose 8.8% to SR449.9bn. Core operating revenue alone was up 9.9%, from SR284bn in 2024.

    Segment mix                                                     

    The segment breakdown shows where that growth came from, and it lines up closely with the six ecosystems named in the 2026-30 strategy. Banking and financial services remained the largest single revenue line at SR85.3bn, followed by telecommunications at SR76.8bn ($20.5bn), which was down slightly on 2024. Mining revenue rose 19.3% to SR38.8bn, consistent with the strategy’s focus on industrials and logistics, while revenue from electronic gaming and related services held broadly flat at SR15.6bn, an area PIF governor Yasir Al-Rumayyan specifically cited as a sector for strategic investment alongside artificial intelligence and renewable energy. Agricultural and livestock revenue nearly tripled, to SR7.6bn from SR2.5bn, and revenue from events operations rose to SR7.6bn from SR6bn, both pointing to the diversification into domestic ecosystems the strategy describes. Real estate operations revenue and revenue from advanced electronics and aerospace both declined slightly year-on-year.

    Total assets grew 5.1% to SR4.54tn from SR4.32tn, continuing the expansion PIF has reported since 2015, when the strategy document put assets under management at $150bn, against more than $900bn today. The two figures are not directly comparable, since the IFRS consolidated balance sheet captures the full assets of consolidated subsidiaries such as the fund’s banking, telecommunications and mining operations, while PIF’s publicly cited assets-under-management figure uses a different valuation methodology, but both point to the same order of scale.

    Total equity, by contrast, fell 2% to SR2.63tn ($701bn) from SR2.68tn, despite the sharp rise in reported profit. The gap is explained by other comprehensive income, which swung to a loss of SR113.3bn for the year, driven primarily by a SR112.8bn fair-value loss on equity instruments measured at fair value through other comprehensive income. In other words, unrealised mark-to-market losses on part of PIF’s listed equity portfolio outweighed the operating profit improvement, leaving total comprehensive income attributable to the owner of the fund at a loss of SR64.7bn for the year, though this was narrower than the SR154.4bn loss recorded in 2024.

    Total liabilities rose 16.7%, to SR1.91tn from SR1.64tn, driven mainly by loans and borrowings, which climbed 27.2% to SR725.3bn from SR570.4bn. Property, plant and equipment grew 6.3%, to SR429.6bn, reflecting continued capital spending across PIF’s real estate and gigaproject portfolio, including the stadium, hospitality and urban development programmes.

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    The scale of PIF’s investment activity in the run-up to 2025 is set out in the April strategy announcement rather than the financial statements themselves. Between 2021 and 2025, PIF says it invested more than $199bn in new projects in Saudi Arabia, contributed $243bn to real non-oil GDP and spent more than $157bn with the local private sector, alongside growing assets under management six-fold and delivering an annualised total shareholder return of more than 7% since 2017. Read against the 2025 results, the rise in mining, gaming, agricultural and events revenue is an early indication that this domestic ecosystem investment is beginning to show up in operating performance, even as the wider balance sheet shows the cost of that expansion in higher borrowing and greater sensitivity to listed equity markets.

    The results reinforce a theme demonstrated by PIF’s ongoing award of construction contracts for Expo 2030, the 2034 Fifa World Cup and other gigaprojects in the kingdom. Growth is increasingly funded through a combination of retained earnings, debt and, with the new strategy, private co-investment, rather than balance-sheet expansion alone. The explicit retention of Neom as a named ecosystem in the 2026-30 strategy, despite the cancellation of several Trojena contracts and the loss of the Asian Winter Games over the past year, suggests PIF intends to continue funding the project, but within a more disciplined framework most likely centred on industrial development around the Port of Neom, which is also known as Oxagon.

    The 2025 results and the 2026-30 strategy point to a fund entering a new phase: profit generation has improved markedly, but leverage has grown and comprehensive income remains exposed to swings in listed markets, both factors consistent with a strategy that emphasises capital efficiency, institutional excellence and a larger role for private capital rather than a further scaling-up of gigaproject spending on PIF’s own balance sheet.

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  • UAE to add Ajman to its Etihad Rail passenger network

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    As part of ongoing procurement for the UAE’s national passenger rail rollout, Abu Dhabi’s Etihad Rail is adding Ajman to the planned network, extending coverage to five of the seven emirates.

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    • 30 June 2026: Introductory operational phase begins with services between Abu Dhabi and Fujairah only
    • 30 September 2026: Passenger rail services formally commence and expand to include Abu Dhabi, Dubai, Al-Dhaid and Fujairah
    • 30 December 2026: Services extend to Al-Dhafra stations
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    In response to MEED’s request for comment on the Ajman section, Etihad Rail said:

    “Etihad Rail remains committed to supporting the UAE’s vision for an integrated, efficient and sustainable transport network that enhances connectivity between communities and supports the nation’s long-term economic and social development.

    “As previously announced, Etihad Rail’s passenger services are being introduced in phases, with further expansion planned over time. We do not comment on market speculation, commercial discussions, procurement activity, or projects that have not been formally announced.

    “Any updates regarding future developments will be communicated through official channels in due course.”

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    Dubai-based contractor Al-Basti & Muktha has been awarded a contract to build the DIFC Heights Tower mixed-use development.

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    READ THE JULY 2026 MEED BUSINESS REVIEW – click here to view PDF

    Stress test for Gulf aviation; Mixed performance as country outlooks diverge in the Levant; GCC tourism sector pivots from crisis to recovery mode.

    Distributed to senior decision-makers in the region and around the world, the July 2026 edition of MEED Business Review includes:
    To see previous issues of MEED Business Review, please click here
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