Gulf faces $200bn war hit, yet global capital stays put as CEOs bet on access over risk

The economic toll of the ongoing conflict involving Iran is mounting rapidly, with the United Nations Development Programme (UNDP) estimating that Arab economies could lose up to $200 billion in output if hostilities persist. Yet, even as growth forecasts are slashed and recession risks deepen, multinational corporations and global investors are choosing to hold their ground in the Gulf, underscoring a long-term strategic bet that outweighs near-term geopolitical shocks.

The UNDP estimates losses ranging between $120 billion and $194 billion in gross domestic product across Arab states, with the impact concentrated in the Gulf Cooperation Council (GCC) and Levant regions. Even a short-lived escalation, the agency warned, could trigger widespread socio-economic disruption, including a rise in unemployment by as much as four percentage points, putting up to 3.6 million jobs at risk and pushing millions more into poverty.

The conflict, now stretching into its second month, has already rattled energy markets and trade routes across West Asia, particularly around the strategically vital Strait of Hormuz. Disruptions here have amplified concerns around oil supply, food security, and inflation, especially for import-dependent economies.

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Recession risks deepen in Gulf economies

Private sector estimates paint an equally grim picture. According to Oxford Economics, the GCC bloc is now likely to slip into recession in the first half of 2026, with aggregate real GDP growth revised sharply down by 4.6 percentage points to -0.2 per cent.

The downgrade reflects a broad-based slowdown across oil production, exports, tourism, and domestic demand. Countries such as Qatar, Kuwait, Bahrain, and the UAE face steeper hits due to their heavy reliance on the Strait of Hormuz for hydrocarbon exports, limiting their ability to reroute shipments amid disruptions.

The damage is already visible on the ground. Strikes on Qatar’s liquefied natural gas infrastructure at Ras Laffan in March are estimated to have knocked out up to 20 per cent of production capacity, with recovery likely to take years and resulting in significant revenue losses.

While higher oil prices offer a partial fiscal cushion for some producers, economists warn that the broader economic drag—from stalled infrastructure projects to weakening tourism flows—could linger well beyond the conflict itself.

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Global recession scenario looms

In a worst-case scenario, a prolonged disruption to oil supplies—particularly if the Strait of Hormuz remains effectively closed—could trigger a sharp contraction in the global economy. Oxford Economics estimates that global oil supply could fall by nearly 20 million barrels per day, pushing crude prices towards $190 per barrel and driving inflation to near 7.7 per cent.

Such a shock would likely tip the world into recession, with global GDP growth slowing to around 1.4 per cent in 2026. Major economies including the US and parts of Europe could enter downturns, while energy-importing regions in Asia would face severe cost pressures.

Capital stays despite rising risks

Despite the deteriorating macroeconomic outlook, global capital has shown little sign of retreating from the Gulf. Corporate executives and fund managers argue that exiting the region at this stage risks forfeiting long-term strategic access to one of the world’s most capital-rich and transformation-driven markets.

The Gulf economies—particularly Saudi Arabia and the UAE—remain central to global investment narratives around infrastructure, energy transition, logistics, and financial services. Large sovereign wealth funds continue to deploy capital globally, while domestic diversification agendas are opening new sectors to foreign participation.

For multinational firms, the calculus is increasingly clear: short-term volatility is being underwritten in exchange for multi-decade exposure to structural growth stories tied to economic diversification and state-led investment programmes.

This dynamic helps explain why, even amid rising geopolitical tensions and operational risks—including potential expatriate outflows and project delays—there has been no broad-based capital flight from the region.

Access over uncertainty

The result is a growing divergence between economic fundamentals and investor positioning. While headline indicators point to slowing growth and rising risk, capital flows remain anchored by long-term considerations.

As one senior executive at a global investment firm put it, the choice is less about avoiding risk and more about maintaining access. “If you step out now, you may not get the same entry point again,” the executive said, reflecting a sentiment widely shared across boardrooms.