Gulf Cooperation Council economies face a prolonged drag on growth, trade flows, and foreign direct investment from the ongoing military conflict between Israel and Iran and its spillover effects across the wider Middle East, according to a report released Tuesday by the Dubai-based Gulf Economic Forum. The assessment warns that elevated geopolitical risk premiums, disruption to regional shipping lanes, and suppressed tourism and hospitality revenues could collectively shave between 1.4 and 2.1 percentage points from GCC-wide GDP growth over the next three years under a sustained-conflict scenario.
The conflict, which escalated sharply in early 2026 following a series of missile exchanges and proxy engagements across the Levant, has injected fresh uncertainty into a region that had been posting some of its strongest non-oil economic numbers in more than a decade. Saudi Arabia and the United Arab Emirates both revised their 2026 growth forecasts downward earlier this month, citing deteriorating business sentiment and a sharp contraction in inbound tourism bookings.
The Forum’s research division calculates that air travel to and from the Gulf has fallen roughly 14 percent year-on-year since the conflict intensified in March, with particular weakness in European and South Asian tourist flows. Hotel occupancy rates in Dubai dropped to 71 percent in April, the lowest April figure since 2020, while advance bookings for the summer peak season are running approximately 22 percent below the same period last year.
Shipping disruption is adding a second layer of pressure. Insurance premiums for vessels transiting the Gulf of Oman and the Strait of Hormuz have climbed more than 340 percent since January, according to Lloyd’s Market Association war-risk data cited in the report. While traffic through the Strait itself has not been formally curtailed, several major container lines have rerouted freight around the Cape of Good Hope, adding 12 to 14 days to journey times and significant fuel and charter costs.
“The core problem is duration,” said Dr. Fatima Al-Rashidi, the Forum’s chief economist and lead author of the report. “Markets can absorb a short, sharp shock. What they price in very differently is a conflict with no clear endgame. Every month this persists, another tranche of infrastructure projects gets deferred, another wave of expatriate workers reconsiders their contracts.”
Foreign direct investment flows into the GCC, which reached a record 112 billion dollars in 2025, are showing early signs of hesitation. The Forum’s survey of 340 international investors found that 38 percent had placed planned Gulf investments under review, while 12 percent said they had already redirected capital to Southeast Asia or North Africa pending greater clarity on regional security.
Gulf governments have responded with a mix of stimulus measures and diplomatic outreach. The UAE announced a 15-billion-dirham package of business support in April, including accelerated permitting for manufacturing and logistics projects and expanded subsidies for the hospitality sector. Saudi Arabia’s finance ministry indicated it would draw on its fiscal buffers to maintain Vision 2030 megaproject timelines even as oil revenues face pressure from a global crude price that has softened despite the regional tension.
Not all indicators are negative. Defence spending across the GCC has risen sharply, with combined procurement budgets estimated to increase by more than 18 billion dollars in 2026, providing a partial offset through domestic contracts and technology transfer arrangements. Energy sector revenues remain relatively resilient; Gulf producers have maintained output discipline within the OPEC+ framework, keeping Brent crude above 82 dollars a barrel.
“The Gulf states entered this period with historically strong balance sheets, and that matters enormously,” said James Whitfield, a regional economist at a London-based sovereign debt advisory firm. “Bahrain is the outlier with limited buffers. For Saudi Arabia and Abu Dhabi, this is manageable for two or three years. Beyond that, if the conflict metastasizes or draws in additional actors, you are in genuinely uncharted territory.”
The Forum’s report identifies three scenarios. In a de-escalation track, growth recovers to pre-crisis trend by late 2027. In a protracted stalemate, the cumulative GDP cost across the six GCC members reaches approximately 480 billion dollars through 2030. In a wider regional escalation involving closure of the Strait of Hormuz, the economic damage is described as “severe and incalculable.” Policymakers across the region have been briefed on the findings, the Forum said, and a follow-up ministerial roundtable is scheduled for June in Riyadh.