GCC: Building resilience to de-risk geopolitics - EUROPE SAYS
Gulf economies are accelerating infrastructure upgrades and diversification efforts to reduce vulnerabilitiesThe U. S. -Israel war on Iran has generated an unexpected and unprecedented series of shocks for the. . .
Gulf economies are accelerating infrastructure upgrades and diversification efforts to reduce vulnerabilitiesThe U. S. -Israel war on Iran has generated an unexpected and unprecedented series of shocks for the GCC, disrupting energy supplies, economic activity, trade, transport and logistics, and destroying infrastructure. These shocks have added to the challenges of adapting to a fragmenting international economic order, characterized by intensifying trade wars, weaponized financial networks and a restructuring of global trade, investment, financial and payment architectures. Financial and logistical realities of the regional conflictThe fallout demonstrates that modern warfare can impair global networks as severely as it destroys local economies. The closure of the Strait of Hormuz morphed into a global economic and inflationary shock. Brent crude crossed $130 per barrel and maritime war-risk insurance premiums skyrocketed by more than 600 percent. The damage extended beyond oil flows, as strikes hit energy infrastructure across the GCC – for example, destroying 17 percent of Qatar’s liquefied natural gas (LNG) capacity for an expected duration of up to five years. The macroeconomic scarring caused by these disruptions led the IMF and the World Bank to sharply downgrade global and regional growth forecasts, amid growing stagflationary pressures. With potential diplomatic agreements expected to normalize trade flows, the World Bank is projecting GCC growth to make an aggressive recovery in 2027, to 5. 2 percent from a projected 1. 3 percent this year. Despite the signing of the U. S. -Iran MoU and the U. S. issuance of a sanctions waiver on Iran’s energy exports, cracks continued to appear. Disagreements emerged, including over nuclear inspections, the allocation of unfrozen assets, the $300 billion Iran fund, and the ceasefire in Lebanon. Direct military hostilities resumed over the last weekend of June, including attacks on commercial vessels, as well as on Bahrain and Kuwait. The Strait remains severely congested with over $125 billion worth of commercial cargo awaiting safe passage through the Gulf, according to Allianz. It is too early to conclude that the reopening of the Strait marks a return to normal. Read more: Why the global economy has not broadly slowed despite Middle East conflict, energy shocksRedefining policy: The infrastructure mandateThe lesson from the ongoing conflict is that geography still matters even in an increasingly digital world. Relying on maritime chokepoints without alternative infrastructure exposes even the most financially wealthy states to massive income and revenue shocks. For the GCC nations, the ongoing multiple shocks could result in long-term scarring effects. The strategic mandate is clear: the region must de-risk its infrastructure, reconfigure, redesign and rewire its economies to build physical and economic resilience. The war has highlighted that energy, water and desalination and digital infrastructure (including data centers) are interconnected strategic, national security assets, similar to defense assets. Damage or destruction of power infrastructure threatens both desalination and digital infrastructure, posing existential risks. The first line of defense requires mapping, stress-testing, and actively hardening critical national infrastructure. Power generation assets, water desalination facilities, ports, airports, telecommunications networks, roads, medical centers and domestic fuel supply lines must be defended against both physical attacks and sophisticated cyber warfare. The GCC must reconfigure its entire logistics and public utilities architecture to systemically de-risk vulnerable maritime corridors like the Strait of Hormuz. The physical network must be safeguarded by expanding land-based crude oil and natural gas pipelines, scaling up strategic storage terminals and optimizing alternative logistics hubs (such as in Fujairah, Oman, Egypt, Korea, Japan and China). Alternative routes such as the UAE’s Habshan-Fujairah pipeline and Saudi Arabia’s East-West pipeline account for just over one-third of normal throughput, highlighting a vital infrastructural gap that must be aggressively closed through new capital investment. To de-risk trade corridors, the GCC will have to decentralize, diversify, invest in new, and augment existing physical infrastructure (oil and gas, water, digital), accelerate road and rail transport and logistics networks running from East to West across the Arabian Peninsula, across the Red Sea and through Egypt, Jordan, Iraq, Syria and Lebanon to the Mediterranean, Turkey and Central Asia. Diversification and safeguardsPhysical rerouting is insufficient if it is not paired with a diversification of trade partners and institutional frameworks. To reap the benefits of the new trade corridors, the Gulf countries must become the architects and engineers of greater regional integration and pair new infrastructure investments with expanded Free Trade Agreements (FTAs) and Comprehensive Economic Partnership Agreements (CEPAs). The agreements are necessary to secure trade benefits, diversify export partners and cement trade ties with BRICS+, ASEAN, the Asian giants, India and China, and the high-growth emerging economies of Africa and Asia. Economic diversification must also focus on the digital economy: digital service sectors, AI, and advanced fintech services reduce vulnerability to physical barriers and blockades. Data centers and digital connectivity should be sustainable, powered by renewable (solar) energy and nuclear infrastructure. This also frees up oil and gas capacity for export optimization. Gulf financial systems must be able to withstand extended periods of geopolitical tensions and sanctions. While the region’s vast sovereign wealth funds provide exceptional buffers, the GCC must build robust domestic fiscal buffers during periods of higher energy prices to support financial stability. Central banks and ministries of finance should pre-design comprehensive monetary and fiscal resilience packages and create automated liquidity mechanisms capable of protecting the private sector and critical supply-chain firms from sudden credit crunches or capital flight during active crises. We need business safety nets. Additionally, in an era of dollar weaponization, adoption of a Wholesale Central Bank Digital Currency (CBDC) network such as the mBridge project connecting central banks from Asia, the UAE and Saudi Arabia, would enable real-time cross-border clearing and settlement without involving a potentially weaponized U. S. banking and financial system. From crisis to opportunityThe U. S. -Israel war on Iran and its regional spillovers have stress-tested the economic models of the GCC and wider Middle East. The unprecedented shock should serve as a catalyst for structural reforms and transformation. By hardening critical infrastructure and redesigning its digital, payments, financial and physical trade networks, the GCC can reduce geopolitical risk and change economic geography. The ongoing disruptions add to global economic and geopolitical fragmentation and represent a historic opportunity for the Gulf region to build a self-sustaining and resilient foundation for the coming decades. Dr. Nasser Saidi is President of Nasser Saidi & Associates; Former DIFC Chief Economist; Lebanon’s former Economy & Trade and Industry Minister and Vice-Governor of the Central Bank of Lebanon; Economic Adviser and Consultant.