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Trump factor weighs on the region’s economies

2 January 2025

 

If 2024 was a slow road back to stabilisation for economies in the Middle East and North Africa (Mena) region, with lower interest rates and generally improved fiscal positions providing some ballast against tumultuous geopolitical risk events, the coming year portends yet more instability with the return to the White House of Donald Trump. This will, for good or ill, have a decisive impact on the region’s economic trajectory. 

The region is looking at a more rapid economic growth rate in 2025 than the previous year. The World Bank, which estimated real GDP growth in the Mena region of 2.2% in 2024, sees region-wide growth at 3.8% in 2025, with Gulf economies driving this improvement. 

This reflects the gradual phasing out of voluntary oil production cuts starting from December 2024. 

Mena oil importers will see real GDP growth expand from just 1.3% in 2024 to 3.4% in 2025, says the World Bank. 

Interest rates are a key ingredient in the mix, linking to the second Trump presidency, with its likely ramp-up of  global trade-war pressures. 

If the president-elect follows through on his tariff plans, which range from a proposed 60% on Chinese imports to 20% on the rest of the world, it will trigger higher inflation, thereby slowing the Federal Reserve’s moves to cut interest rates.

So while Mena exports to the US are unlikely to suffer direct fallout from planned tariffs – according to consultancy Capital Economics, the share of Mena goods exports going to the US stood at just 3.5% this decade – it is the secondary effects that could knock regional economies off their stride.

“If we do get the tariffs, and that leads to higher inflation in the US, that also means there will be tighter monetary policy in the Gulf countries with dollar pegs than would otherwise be the case,” says James Swanston, Mena economist at Capital Economics.

The possibility of a stronger dollar in 2025 means that for those economies with dollar pegs, their domestic industries could become less competitive. This jars with the thinking behind regional economic diversification schemes such as Saudi Arabia’s Vision 2030, which are predicated on developing manufacturing sectors that are mainly export-oriented.

Regional fortitude

The largest Gulf economies should at least be well positioned to withstand such headwinds, even if a trade war hits the global economy. According to the World Bank, a lower interest rate environment, together with further investment and structural reform initiatives, will yield non-oil growth of more than 4% in the region’s two largest economies, Saudi Arabia and the UAE. This – plus higher oil production – should be enough to offset any loss of momentum from lower oil prices and weaker fiscal balances.

Saudi Arabia is expected to show steady growth in 2025, with its Q3 2024 average GDP growth of 2.8% underscoring the kingdom’s stronger performance. However, the robust spending of past years is giving way to a more conservative fiscal approach, and that will inevitably impact project activity.

Riyadh’s 2025 pre-budget statement revealed a tougher fiscal stance for 2025, with anticipation of a deficit of 2.9%. With revenues expected to be 3.5% weaker in year-on year terms in 2025, this will mean reduced spending – around 3% lower than that outlined in the 2024 budget. 

“Saudi Arabia is being a bit more prudent about how they spend their money,” says Swanston. 

While there will be continued support for current spending, and for the official gigaprojects, capital expenditure will shoulder the burden of cuts. This will likely feed through to weaker non-oil GDP growth.

The UAE should see comparatively stronger growth momentum in 2025, driven by a combination of healthier dynamics in its touchstone real estate and tourism sectors, and the impact of infrastructure investment programmes. 

NBK Economic Research sees the UAE non-oil economy enjoying another year of 4%-plus growth in 2025, possibly as high as 5.1%. However, the bank’s economists offer a note of caution, as this is still below the 7.2% annual average growth rate the government requires to achieve the Vision 2031 target of a doubling in GDP by 2031.

On the fiscal front, the UAE is looking at a better situation in 2025. “The UAE has diversified its revenues to the point where non-oil revenues are larger than oil revenues. So, even if oil prices turn negative, they still wouldn’t run a deficit,” says Swanston.

Qatar is maintaining a tight fiscal policy, but from late 2025 it will begin to feel the effects of a significant predicted revenue boost when the first phase of its liquefied natural gas (LNG) expansion comes on stream. This will eventually add 40% to the country’s existing LNG export capacity of 77 million tonnes a year.

Kuwait, meanwhile, is set to run continued budget deficits, although the country’s non-oil economy has emerged from two years of negative growth and is forecast by NBK Research to expand by 2.6% in 2025. But Kuwait faces structural challenges, including a low investment rate and the need for fiscal consolidation, which will absorb policymakers in 2025. 

Oman, in contrast, looks to be in a better position than in previous years. According to an Article IV assessment released by the Washington-headquartered IMF in November, reform implementation under Oman Vision 2040 is proceeding decisively, along with initiatives to improve the business environment, attract large-scale investments and empower small and medium-sized enterprises. 

The sultanate’s economy continues to expand. Growth, says the IMF, is set to rebound starting in 2025, supported by higher hydrocarbons production and the continued acceleration of non-hydrocarbons growth. 

Bahrain faces a challenge when it comes to containing the country’s rising debt-to-GDP ratio, which grew from 100% in 2020 to just under 130% in 2024. The country needs to press ahead with fiscal consolidation moves if it is to improve the debt position.

Wider region

Outside the GCC, the picture will vary in 2025. Egypt has realistic expectations of a better year ahead, with falls in inflation and interest rates providing relief after a tough 2024. But foreign investors may feel a note of alarm at recent indications from President Abdul Fattah El-Sisi that the challenges associated with the country’s reform programme – a hint at the tough impact of reform on Egyptian consumers – might lead it to review its existing IMF deal. 

Tunisia presents a similar challenge. President Kais Saied’s proposed bill stripping the central bank of its ability to set interest rates and influence exchange rate policy without government consent is unlikely to encourage investors. 

In Egypt at least, there are silver linings that should assure investor confidence, even if the government’s commitment to reform wavers. “When it comes to the debt issue, everything’s in a pretty good place in Egypt,” says Swanston. 

“Yes, interest service payments on the debt have risen over the past 12 months, and the feed-through means that they will still be paying quite high debt servicing costs over the next six months. But yields are coming down in terms of its dollar-denominated debt. Worries about default are not as strong as before.”  

President El-Sisi may also find support from other sources. Given his previous close ties with the Trump administration in 2016-20, there may be a greater willingness in Washington to disburse funds to such an integral partner of US foreign policy, particularly when it has been buffeted by the Gaza conflict and the impact of Houthi attacks in the Red Sea.

Iraq’s economic fortunes remain bound up with the price of oil, which accounts for 90% of state revenues. The IMF has forecast a 4.1% GDP growth rate for Iraq in 2025, reflecting in part its surprising resilience to regional conflicts. However, lower oil prices may yet erode the country’s economic momentum. 

Progress on major projects such as the Development Road would at least suggest prime minister Mohammed Shia Al-Sudani’s government is focused on long-term delivery and tackling Iraq’s overreliance on hydrocarbons exports. 

Meanwhile, Iraq’s larger neighbour Iran, which saw GDP growth increase to 5% in the 2023-24 Iranian year, faces still bigger challenges linked to Trump’s return. It can expect to face a much tighter sanctions regime on its oil sector in 2025, with efforts to curb its ability to sell its crude oil on international markets expected to gain traction. The effects of these moves are still in the balance. 

The positive news for Tehran is that several of its crude buyers appear to be undaunted by a reimposition of deeper curbs on exports. For example, Chinese refiners have been importing Iranian oil to the tune of 1.5 million barrels a day. The country’s seeming imperviousness to international financial pressures could undercut the impact of a beefed-up US sanctions regime, although few would relish being in the shoes of Iranian economic policymakers right now.

 

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James Gavin

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    5 March 2026

     

    The joint US-Israeli military campaign against Iran, launched on 28 February under operations codenamed Epic Fury and Operation Roaring Lion, has pulled the GCC into the most destabilising regional confrontation in a generation.

    Six days into the crisis, the scale of collateral damage to Gulf capitals is becoming fully visible in damaged infrastructure, grounded aircraft, shuttered ports, halted energy production and a darkening investment climate.

    Every member of the GCC has absorbed Iranian missile or drone strikes, despite none having launched offensive operations against Tehran.

    In contrast to the restrained signalling from Iran during the 12-day war in June 2025 – when it choreographed its Gulf retaliation to a single base in Qatar – this campaign represents a deliberate effort to punish the US and states harbouring its assets.

    By 4 March, Iran had fired 186 ballistic missiles at the UAE alone, according to the UAE Ministry of Defence, with all but one intercepted, but with lethal debris falling across Abu Dhabi and Dubai. Of 812 drones launched toward the UAE, 57 made impact.

    Across the Gulf, however, the overall damage tallied so far is stark, particularly at US military bases. Iranian volleys have been directed with special intensity at the US Navy’s 5th Fleet headquarters in Bahrain and the Al-Udeid airbase in Qatar, alongside every US airbase and associated radar and satellite communications system across the region.

    Strangled logistics

    The Strait of Hormuz – the 33-kilometre-wide channel between Iran and Oman – was also declared closed to traffic by the Islamic Revolutionary Guard Corps (IRGC) the same day the US-Israeli attacks began.

    Closing the strait, through which approximately 20 million barrels of crude oil pass every day, has been a perennial Iranian threat, and now Tehran is making good on it.

    The strait is the sole maritime exit for much of the energy exported from the Gulf states, making up around a fifth of all seaborne oil traded globally in total.

    At least five vessels have been struck so far in enforcement of the blockade, but the real impediment to ships is now the withdrawal of war risk cover by insurance underwriters – leaving ships inside and outside of the strait stranded.

    Oil prices have responded accordingly, with Brent crude rising above $80 a barrel – up from closer to $60 – and with analysts placing $100 a barrel firmly back on the table if the disruption runs for more than a few weeks.

    LNG shutdown

    If the Hormuz closure has convulsed oil markets, the direct attack on Qatar’s energy infrastructure has delivered a separate and arguably more structurally significant blow.

    Iranian drones struck QatarEnergy’s facilities at both Ras Laffan Industrial City and Mesaieed Industrial City, forcing a complete halt to all liquefied natural gas (LNG) production and associated output.

    Qatar, which operated 14 LNG trains with a combined annual capacity of 77 million tonnes – accounting for roughly 20% of global LNG trade – now operates none. Doha, incensed, has cut ties with Iran.

    European benchmark gas futures meanwhile jumped almost 50% within hours of the announcement. Asian LNG spot prices rose by more than a third. Country-level squeezes have been even harder, with gas prices spiking by 93% in the UK, for example.

    Qatari production had been filling the void left in Europe by its boycott of Russian gas, so its halting of production now places European energy stocks under significant stress. Asian buyers, including Bangladesh, India and Pakistan, will also be feeling the strain.

    Regional trade risk

    The same war risk exclusions that have grounded the tanker fleet apply with equal force to container shipping, bulk carriers and general cargo vessels – extending the disruption beyond energy into every category of goods that moves through Gulf ports.

    And the ports themselves are also in jeopardy. Jebel Ali in Dubai – the region’s busiest port – was temporarily closed after fire broke out from debris falling from missile interceptions overhead. Other regional ports have also seen various suspensions.

    The world’s major container carriers have also drawn their own conclusions. MSC, Maersk, Hapag-Lloyd and CMA CGM have all halted Hormuz crossings entirely.

    Importers across the Gulf – a region that is overwhelmingly dependent on seaborne trade for food, consumer goods, construction materials and industrial inputs – face costly re-routing.

    Vessels are discharging Gulf-bound containers at Salalah in Oman, Khor Fakkan, Sohar and Duqm, from where onward delivery might be arranged overland. Spot freight rates for Gulf-destined cargo are in turn rising sharply as feeder capacity is overwhelmed.

    Travel under assault

    The Gulf’s aviation hubs have also been brought to a relative standstill.

    A drone strike on Dubai International, the busiest airport on earth for international travel, was the most dramatic incident, but several airports have been hit and sweeping airspace closures have grounded all but a handful of flights over the Gulf.

    On the worst day so far, more than 1,500 flights to or from Middle Eastern destinations were cancelled. The broader long-haul linkage through the Gulf from Europe to Asia has also been severed, forcing international legs to reroute away from the Gulf corridor.

    Drone and shrapnel strikes on luxury hospitality projects in the region have meanwhile dealt a heavy blow to the GCC’s touristic safe-haven status. The region’s busy meetings, incentives, conferences and exhibitions (MICE) calendar is in disarray.

    Gulf tourism entered 2026 in a strong position. Regional travel bookings had reached close to $101bn – 23% above pre-pandemic levels. Luxury hotel occupancy across Dubai, Abu Dhabi, Doha and Riyadh had set successive records through the first two months of the year. That momentum has been destroyed inside of a week.

    Tourism Economics projects a fall in Middle East travel arrivals of around 11% year-on-year even in an optimistic scenario where the conflict resolves within weeks – meaning 23 million fewer visitors and a $34bn contraction in tourism spending.

    If the conflict runs for two months, the projected decline steepens to 27%, with up to 38 million lost arrivals and $56bn in foregone receipts.

    Long-term risks

    The IMF had projected GDP growth of about 4% across the six GCC economies in 2026, driven substantially by non-oil diversification and fuelled by sustained inflows of foreign capital, foreign talent and foreign visitors.

    Each of those flows is now disrupted, and some portion of the disruption will outlast the immediate security situation. Businesses could also restructure themselves to mitigate for elevated scenario of future regional risk.

    The GCC states find themselves in a position of extraordinary and largely undeserved exposure. They did not initiate this conflict, and several of them invested heavily in diplomatic outreach and mediation between concerned parties.

    The region is nevertheless absorbing the consequences.

    The preferred Gulf instruments of mediation, back-channel diplomacy and economic persuasion have been rendered irrelevant by the speed and scale of events.

    The region’s airlines, ports, refineries, LNG complexes, hotels, conference centres, stock exchanges and carefully constructed global image are all paying a price set by decisions made elsewhere. And the bill is still running.

    Investors will reassess, and the governments of the GCC now face the question of how to restore peace and order in a region being actively contested militarily by the US.

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    Recent attacks on energy infrastructure across the GCC have drawn renewed attention to the strategic importance of the region’s power and water sector.

    On 2 March, Qatar’s Ministry of Defence announced that the country had come under two drone attacks launched from Iran.

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    The conflict in the Gulf has so far had a limited impact on projects in the GCC, with most sites operating normally since hostilities began on 28 February. In total, there are 6,738 projects under execution across the GCC, with a combined value of $951bn, according to regional projects tracker MEED Projects.

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    While operations largely continue as normal, there are concerns that projects could be impacted later due to supply chain disruption. Ports in the region have been targets, and with international shipping passing through the Strait of Hormuz effectively stopping, there is an expectation that international shipments will be delayed. A related concern is the sharp spike in oil prices that will be inflationary.

    How the disruption is handled will depend on the terms of specific contracts and on how companies choose to navigate the issue. The general consensus among contractors and lawyers is that it is not a force majeure event. Instead, it is general disruption that should be noted and documented, should there be cost or time implications later in the project.

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    The region has been considered a safe place for tourism, and also for the rich to live in a tax-free haven. The attacks on Dubai may change that perception, and that will impact the market in the future
    International contractor

    Future prospects

    There are also concerns about the market’s future. There have been record levels of contract awards in recent years, and the worry is that the pace of contract awards may slow as uncertainty grips the market.

    At the same time, some contract awards have been expedited. One Dubai-based contractor has signed two contracts since the conflict started. “We have signed deals that had been lingering for a while. I think the logic is that the client wants to lock in resources before prices or anything else changes,” says the contractor.

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    The outlook for other sectors is more challenged, particularly real estate and tourism.

    “The region has been considered a safe place for tourism, and also for the rich to live in a tax-free haven,” says the international contractor. “The attacks on Dubai may change that perception, and that will impact the market in the future. Tourism is a key component of national visions across the GCC, so I think there will have to be a rethink of economic strategies for the future.”

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