Goldman Sachs warns GCC growth to plunge amid Hormuz crisis

March 06, 2026 (MLN): The Middle East is at a critical economic crossroads as the conflict between the US/Israel and Iran intensifies, forcing the Gulf Cooperation Council (GCC) into a complex financial paradox.

While the "war premium" on oil is padding government budgets, the mechanical reality of shuttered trade routes is dragging down overall growth and threatening ambitious long-term diversification plans.

According to a recent Goldman Sachs Economics Research report, the duration of the conflict has become the single most vital variable for the region's economic stability.

Their updated base-case scenario assumes that disruptions to the Strait of Hormuz which currently see only 10% to 15% of normal oil flows will persist for one week before beginning a 28-day linear recovery toward pre-conflict levels.

The geographic resilience of individual nations reveals a stark divide between those who can bypass the chaos and those who are trapped by it.

Oman and Saudi Arabia are currently the best-positioned within the bloc; Oman’s loading facilities sit entirely outside the Strait, while Saudi Arabia possesses the latent pipeline capacity to divert roughly 3 million barrels per day about two-thirds of its Strait-dependent exports to the Red Sea.

In contrast, the UAE can divert approximately 1 million barrels per day, while Kuwait, Bahrain, and Qatar have no capacity to reroute shipments, making them significantly more vulnerable to prolonged blockades.

This vulnerability becomes extreme in a "Downside Scenario", where an indefinite disruption to the Strait of Hormuz would send oil prices to $100/bbl.

In this scenario, the massive loss in export volumes would eventually overpower even the gains from $100 oil, causing fiscal benefits to dissipate for all but those with the greatest capacity to avoid the Strait.

The conflict has fundamentally reset global energy expectations for 2026, with Goldman Sachs factoring in significant price increases compared to previous futures-based forecasts.

The impact on regional GDP is described as "unambiguously negative" due to the combined effect of oil production "shut-ins" and a sharp decline in non-oil activity.

The report estimates that non-oil growth will decline by three percentage points across the board as sectors like aviation, tourism, real estate, and logistics reel from retaliatory strikes and a potential erosion of confidence among the large expatriate populations.

Consequently, while oil revenues may rise due to higher prices, the actual physical production of wealth is shrinking, leading to projected economic contractions in countries like Kuwait and Bahrain.

Despite the growth slump, the "price effect" of more expensive oil is currently outweighing the "volume effect" of lower exports, leading to temporary improvements in fiscal and current account balances across the GCC.

The most significant long-term threat involves the potential derailment of the region's structural diversification strategies.

 A prolonged conflict risks shattering global perceptions of the Middle East as a stable haven for high-tech investment and foreign capital.

If geopolitical instability persists, strategic sectors such as Artificial Intelligence, finance, and manufacturing which rely heavily on foreign direct investment could see a lasting detrimental effect.

While the current fiscal outlook appears robust due to high oil prices, the ultimate economic legacy of the war will depend on the geopolitical environment that emerges post-conflict, a factor that remains shrouded in high uncertainty.

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