The Gulf Is Paying For The Iran War

THE FINANCIAL COST — COUNTRY BY COUNTRY

JAFAJ STRATEGIC INTELLIGENCE BRIEF

August 12, 2026

IN A NUTSHELL

• Iran’s war is becoming an economic war against the Gulf. Energy, ports, military sites and shipping are under attack or threat.
• Hormuz is the biggest warning. Traffic has fallen from 125–140 vessels a day to just six — roughly a 95% collapse.
• Qatar and Kuwait are taking the biggest economic hits. Qatar faces major LNG infrastructure losses; Kuwait faces severe export and import disruption.
• Bahrain is highly exposed. Its small economy and strategic U.S. military role make it particularly vulnerable.
• The UAE and Saudi Arabia have more protection. Diversified economies, financial reserves and alternative export routes provide greater resilience—but defense and infrastructure costs are rising.
• Oman is the relative winner. Its key export infrastructure sits outside Hormuz, reducing its direct exposure.
• Consumers still pay. Disrupted shipping means higher costs for food, energy, transportation, insurance and imported goods.
• The hidden cost is development. Every dollar diverted to defense, reconstruction and infrastructure protection is a dollar that cannot be invested in economic growth.

JAFAJ BOTTOM LINE

The Gulf can survive the war. The question is how much economic development it must sacrifice to remain secure.

KEY JUDGMENT

The Gulf states are not experiencing a single economic crisis. They are experiencing six different versions of the same strategic problem.

Iran’s attacks have transformed the Gulf from a relatively protected economic zone into a front-line economic theater. Energy facilities, ports, military installations, desalination plants, airports and commercial infrastructure have been placed at risk. At the same time, the closure and repeated disruption of the Strait of Hormuz has impaired the region’s ability to export energy and import essential goods.

The result is a three-part financial burden:

• Iran is destroying or disrupting productive assets.
• Gulf governments are spending substantially more to defend those assets.
• The closure of Hormuz is preventing some of those assets from operating normally.

This produces a particularly important economic paradox: the Gulf states are spending more on security precisely as the war reduces their ability to generate economic returns from the infrastructure they are spending to protect.

The burden is highly unequal.

According to the latest Reuters economist survey, Kuwait and Qatar are projected to contract 8.1% in 2026, Bahrain 5.1%, and the UAE 0.5%. Saudi Arabia and Oman are still projected to grow because they possess greater ability to bypass the Strait of Hormuz. [1]

The International Monetary Fund’s April assessment reached a similar conclusion: Qatar suffered the region’s largest downward revision because of extensive infrastructure damage, while Oman was comparatively protected because its principal export access lies outside Hormuz. [2]

This is not simply an oil-price crisis. It is a simultaneous logistics, infrastructure, military and fiscal crisis.

 

THE FIVE NUMBERS THAT DEFINE THE CRISIS

Before examining individual countries, five numbers establish the scale.

1. HORMUZ SHIPPING: APPROXIMATELY 95% BELOW NORMAL

Normal commercial traffic through Hormuz was approximately 125–140 vessels per day.

Recent traffic has fallen to single digits. Reuters reported only six vessels transiting the Strait on Monday. [3]

That represents an approximate 95% decline in daily vessel traffic.

 

2. OIL FLOWS: DOWN APPROXIMATELY 77%

U.S. Energy Information Administration data indicate that oil and petroleum-liquid flows through Hormuz averaged approximately 4.9 million barrels per day during the second quarter of 2026, compared with approximately 21.6 million barrels per day during the fourth quarter of 2025. [4]

That is a decline of approximately:

16.7 million barrels per day.

The scale matters because the pre-war volume represented roughly 20% of global petroleum-liquids consumption.

 

3. MIDDLE EASTERN PRODUCTION SHUT-INS: 5.5 MILLION B/D

Approximately 5.5 million barrels per day of Middle Eastern oil production was shut in during July, according to the EIA. [4]

This is no longer merely a shipping problem.

Production itself is being curtailed because the transportation system cannot reliably move the product.

 

4. QATAR LOST 17% OF LNG EXPORT CAPACITY

An Iranian strike on the Ras Laffan LNG complex destroyed two LNG trains.

The affected facilities represented approximately 17% of Qatar’s LNG export capacity, with the damage potentially affecting production for three to five years. The damaged units had cost approximately $26 billion to construct. [5]

This is one of the clearest examples of the difference between economic disruption and physical destruction.

 

5. GLOBAL MILITARY SPENDING IS ALREADY $2.9 TRILLION

SIPRI estimates global military expenditure reached $2.887 trillion in 2025.

Middle Eastern military expenditure was approximately $218 billion. Saudi Arabia alone spent approximately $83.2 billion, making it the world’s eighth-largest military spender. [6]

The Gulf is therefore not entering this conflict without defenses.

It is entering the conflict after already spending enormous amounts on defense—and is now being forced to spend more.

 

THE GULF COST MAP

The Gulf’s economic exposure is uneven: each state is absorbing the war through a different combination of lost output, physical damage, defense spending and trade disruption.

COUNTRY	2026 ECONOMIC OUTLOOK	IRANIAN ATTACK / EXPOSURE	MILITARY SPENDING	PRIMARY FINANCIAL DAMAGE
Qatar	−8.1% GDP	Ras Laffan LNG; infrastructure attacks	High; public comparable data limited	LNG exports, infrastructure, investment
Kuwait	−8.1% GDP	Energy, military sites, desalination	~$8.1B in 2025	Oil exports, infrastructure, imports
Bahrain	−5.1% GDP	Sitra refinery and military sites	Public comparable data limited	Refining, trade, defense
UAE	−0.5% GDP	Fujairah, ADNOC-related infrastructure, ports	Public comparable data limited	Gas, shipping, tourism, trade
Saudi Arabia	+1.4% GDP forecast	Energy infrastructure, missiles/drones	$83.2B in 2025	Lost exports, defense, infrastructure
Oman	+3.1% GDP forecast	Lower direct exposure; maritime risk	~$6B range	Trade disruption; comparatively limited
Iraq	Severe contraction	Oil infrastructure and shipping exposure	$6.4B in 2025	Oil production/export disruption
Iran	Severe contraction	Direct war damage and sanctions	$7.4B in 2025 officially estimated	Infrastructure destruction, oil losses, military costs

 

 

The economic forecasts in this table are not estimates of the dollar amount destroyed by Iran. They represent projected changes in economic output. That distinction is important. A country’s GDP can contract without physical assets being destroyed, while a destroyed refinery can create a large future economic loss that does not immediately appear in GDP.

 

1. QATAR — THE BIGGEST SINGLE INFRASTRUCTURE HIT

Qatar is arguably the clearest example of how Iran’s strategy can produce an economic effect disproportionate to the physical size of the target.

The Ras Laffan attack destroyed two LNG trains, eliminating approximately 17% of Qatar’s LNG export capacity. The affected equipment cost approximately $26 billion to build and could require three to five years to restore fully. [5]

The consequences extend beyond LNG: condensate exports are expected to fall approximately 24%, LPG 13%, helium 14%, and naphtha and sulfur 6%. [5]

The IMF consequently projects Qatar’s real GDP to contract by approximately 8.6% in 2026. [7]

The Reuters July survey similarly placed the expected contraction at 8.1%. [1]

JAFAJ ASSESSMENT

Qatar has moved from being an energy superpower whose geography provided substantial strategic protection to being an energy superpower whose principal economic asset has become a military target. That is a fundamental change in Qatar’s strategic environment.

 

2. KUWAIT — THE MOST EXPOSED ECONOMICALLY

Kuwait is suffering from the same basic problem as Qatar, but without Qatar’s enormous LNG position or the UAE’s diversified commercial economy.

The Reuters July survey projects an 8.1% contraction in Kuwait’s economy in 2026, the largest projected decline among GCC economies alongside Qatar. [1]

Iranian attacks have also extended beyond military targets. Reuters reported damage to a Kuwaiti desalination plant, highlighting a particularly serious vulnerability: Kuwait’s dependence on desalinated water. [8]

The IMF estimates that more than 80% of food consumption in Kuwait, Qatar, Bahrain and the UAE comes from imports. [9]

That statistic changes the meaning of Hormuz: the Strait is not merely an export route; it is also an import lifeline.

JAFAJ ASSESSMENT

Kuwait may be the Gulf state where the economic multiplier effect of the war is greatest.

A disruption to oil exports reduces government revenue.

A disruption to imports raises costs.

A disruption to desalination threatens basic services.

And increased military expenditure adds another fiscal burden.

Kuwait is therefore absorbing the war simultaneously through government revenue, household costs, infrastructure and national defense.

 

3. BAHRAIN — A SMALL ECONOMY CARRYING A LARGE SECURITY BURDEN

Bahrain’s vulnerability is magnified by its size.

The Reuters survey projects a 5.1% contraction in GDP during 2026. [1]

Iranian attacks have included military targets and energy infrastructure. Bahrain previously declared force majeure after its Sitra refinery was attacked. [11]

The country also hosts the U.S. Navy’s Fifth Fleet, making Bahrain an especially important military target from Tehran’s perspective.

This creates a difficult strategic equation: Bahrain benefits from the U.S. security presence, but that presence also increases its exposure to Iranian retaliation.

JAFAJ ASSESSMENT

Bahrain faces a severe small-state security dilemma: it cannot independently match the military capabilities of larger regional powers and therefore depends heavily on external security partnerships, but those partnerships also increase its strategic visibility to Iran.

 

4. UNITED ARAB EMIRATES — THE ECONOMY THAT CAN REROUTE, BUT NOT ESCAPE

The UAE is structurally better positioned than Kuwait or Qatar.

It possesses multiple ports, diversified logistics, substantial sovereign wealth and alternative routes around Hormuz.

The IMF says the UAE has demonstrated “remarkable resilience,” supported by financial buffers and the ability to reroute oil and other trade flows. [12]

But resilience is not immunity.

Iranian attacks have targeted UAE infrastructure, including Fujairah, an important oil-storage and bunkering center outside the Strait itself. ADNOC has experienced operational disruption, and ADNOC Gas reported a 52% decline in second-quarter 2026 profit, to approximately $665 million from $1.39 billion a year earlier, largely because of disrupted sales following the Hormuz closure. [13]

The company’s 2026 full-year profit expectation has also been reduced to approximately $3.5–4 billion, compared with a record $5.2 billion in 2025. [13]

JAFAJ ASSESSMENT

The UAE may ultimately emerge economically stronger relative to several neighbors if it can preserve its role as the Gulf’s alternative logistics and financial hub.

But that outcome depends on maintaining physical security.

Dubai can diversify away from oil, but it cannot diversify away from the strategic risks created by its geography.

 

5. SAUDI ARABIA — THE MILITARY SPENDER THAT CAN PARTIALLY BYPASS HORMUZ

Saudi Arabia is the Gulf’s most financially powerful state and possesses the greatest ability to absorb the shock.

But it is also one of Iran’s most important targets.

Saudi oil infrastructure has repeatedly been threatened or attacked by Iranian missiles and drones.

Saudi Arabia’s principal economic advantage is infrastructure.

The East-West pipeline allows Saudi oil to reach the Red Sea without passing through Hormuz.

This explains why Saudi Arabia is projected to continue growing in 2026, although the Reuters survey reduced the expected growth rate to approximately 1.4%. [1]

That is a dramatic reduction from earlier expectations and underscores the cost of the war even where exports can be rerouted.

Saudi Arabia is simultaneously increasing its security burden.

SIPRI estimates Saudi military expenditure at approximately $83.2 billion in 2025, equal to roughly 6.5% of GDP and making Saudi Arabia the eighth-largest military spender in the world. [6]

A 2026 estimate from Defense Budget places Saudi military expenditure at approximately $85.5 billion, or about 6.3% of GDP. [14]

JAFAJ ASSESSMENT

Saudi Arabia demonstrates the strategic value of infrastructure redundancy: the ability to move oil through the East-West pipeline gives Riyadh an economic resilience that its Gulf neighbors cannot easily replicate.

Its ability to export oil without Hormuz is a major source of economic resilience.

But that resilience comes at a price:

Saudi Arabia must spend enormous sums to protect the infrastructure that makes it resilient.

 

6. OMAN — THE RELATIVE WINNER

Oman occupies the most unusual position in the Gulf.

It is geographically close to the conflict but is less dependent on Hormuz because its major export facilities are located outside the Strait.

The Reuters survey projects approximately 3.1% economic growth in 2026, making Oman one of only two GCC economies expected to expand. [1]

The IMF likewise identifies Oman’s geographic position as a major source of resilience. [2]

This creates an unexpected strategic opportunity.

If Hormuz remains unreliable, Oman’s ports become more valuable.

JAFAJ ASSESSMENT

Oman may be the Gulf’s relative economic beneficiary if the crisis persists, because its ports and export infrastructure outside Hormuz could gain strategic value as alternative regional trade routes. That advantage will depend on maintaining neutrality and preventing the conflict from expanding into Omani territory.

 

THE MILITARY BILL

The economic analysis becomes incomplete if defense spending is treated as an unrelated budget item.

It is part of the cost of the war.

SIPRI estimates that Middle Eastern military spending reached approximately $218 billion in 2025. Saudi Arabia alone spent $83.2 billion. Kuwait spent approximately $8.1 billion. Iran spent approximately $7.4 billion, although SIPRI warns that Iranian official figures almost certainly understate military spending because Tehran also uses off-budget oil revenues to finance missiles and drones. [6][10]

This produces three distinct categories of war cost:

DIRECT WAR COST — replacing interceptors, missiles, drones, radar, air-defense ammunition, aircraft, naval assets, fuel and personnel.

INDIRECT WAR COST — hardening energy facilities, backup infrastructure, desalination and port security, cybersecurity, emergency inventories, alternative pipelines and civil-defense systems.

OPPORTUNITY COST — investment displaced from infrastructure, education, health, diversification, technology, tourism, sovereign investment, housing and social programs.

The opportunity cost is the least visible—and potentially the most consequential over time.

 

THE IRANIAN ATTACK STRATEGY

Iran’s strategy increasingly appears designed not merely to defeat military forces but to raise the economic cost of supporting Washington and maintaining pressure on Tehran.

Reuters reported in August that Iranian officials warned Gulf states that oil, power and water infrastructure could be attacked if the United States continued military operations against Iran. [15]

This is strategic coercion: the objective is to make support for Washington sufficiently costly that Gulf governments pressure Washington to negotiate.

That explains why economic infrastructure is itself a battlefield.

 

WHAT HAS ACTUALLY BEEN DESTROYED?

The physical damage is significant, but the public record remains incomplete and continues to develop.

At least 40 energy assets across nine Middle Eastern countries had been assessed by the IEA as severely or very severely damaged earlier in the conflict. [16]

The Qatar case is the clearest quantified example:

$26 billion of LNG infrastructure affected.

But replacement cost is only part of the loss: a damaged LNG facility also creates lost exports, government revenue, foreign exchange, employment and contracts, while raising insurance and reconstruction costs and reducing investor confidence.

That is why the economic loss from a $26 billion facility can ultimately exceed $26 billion.

 

THE REAL COST TO THE GULF CONSUMER

The most important consumer story is not the price of oil.

It is the price of everything that must move.

The IMF estimates that more than 80% of food consumption in Bahrain, Kuwait, Qatar and the UAE comes from imports. [9]

If Hormuz remains closed or unreliable:

• Food becomes more expensive.
• Shipping becomes more expensive.
• Insurance becomes more expensive.
• Air travel becomes more expensive.
• Construction materials become more expensive.
• Industrial inputs become more expensive.
• Electricity and water become more expensive to produce.

Consumers therefore pay for the war even when no missile lands in their neighborhood.

That is the defining economic feature of the conflict.

 

THE STRATEGIC QUESTION: WHO IS ACTUALLY LOSING?

The answer depends on the measure: GDP, physical assets, defense burden, trade exposure or long-term investor confidence.

MEASURE 1 — GDP LOSS

• Qatar and Kuwait: approximately −8.1% projected.
• Bahrain: approximately −5.1%.
• UAE: approximately −0.5%.
• Saudi Arabia: approximately +1.4%.
• Oman: approximately +3.1%.

[1]

On this measure, Qatar and Kuwait are the largest Gulf economic losers.

 

MEASURE 2 — PHYSICAL ASSET LOSS

Qatar is the standout because approximately 17% of LNG export capacity was damaged and the affected facilities cost approximately $26 billion to construct. [5]

On this measure, Qatar is the clearest loser.

 

MEASURE 3 — DEFENSE BURDEN

Saudi Arabia is the clear outlier.

Its approximately $83.2 billion military expenditure in 2025 dwarfs the defense budgets of most regional states. [6]

But Saudi Arabia is also receiving the benefit of that expenditure: its large military, air-defense network and alternative oil-export infrastructure give it greater resilience.

 

MEASURE 4 — TRADE EXPOSURE

Kuwait, Qatar and Bahrain are particularly vulnerable because they depend heavily on maritime trade and imported goods.

The UAE is also exposed—but possesses superior logistical diversification.

 

MEASURE 5 — LONG-TERM STRATEGIC DAMAGE

The most difficult loss to quantify is investor confidence.

The Gulf spent years building a reputation as a safe, stable investment destination.

The war has introduced a new question:

Is the Gulf still a low-risk place to invest?

If the answer changes materially, the economic consequences could persist after the missiles stop flying.

 

THE JAFAJ SCORECARD

MOST ECONOMICALLY EXPOSED

1. Qatar
2. Kuwait
3. Bahrain
4. UAE
5. Saudi Arabia
6. Oman

MOST PHYSICALLY DAMAGED ENERGY INFRASTRUCTURE

• Qatar

LARGEST DEFENSE EXPENDITURE

• Saudi Arabia

MOST RESILIENT EXPORT SYSTEM

• Saudi Arabia

BEST GEOGRAPHIC POSITION

• Oman

MOST DIVERSIFIED ECONOMY

• UAE

MOST VULNERABLE TO IMPORT DISRUPTION

• Kuwait

MOST EXPOSED TO THE SECURITY DILEMMA

• Bahrain

 

JAFAJ ASSESSMENT

The Gulf is not economically collapsing. That would be the wrong conclusion. The more important conclusion is that the economic architecture of the Gulf is being rewritten by war.

Before the conflict, the region’s formula was relatively simple:

• Energy exports → foreign revenue → sovereign investment → infrastructure → diversification → growth.

 

The new formula increasingly looks like:

• Energy disruption → military spending → infrastructure protection → lost exports → higher import costs → reduced investment → slower growth.

That is a fundamentally different economic model—one in which security increasingly competes directly with economic development.

The Gulf states possess enough sovereign wealth to absorb a temporary shock. They do not possess unlimited capacity to absorb simultaneous infrastructure destruction, military expenditure, export disruption and import inflation.

The central strategic question is therefore no longer:

• “Can the Gulf survive the Iran war?”

It almost certainly can.

The more important question is:

• How much of the Gulf’s economic transformation will have to be redirected from development toward permanent security?

That is the question policymakers, investors and consumers should be watching.

Because if the answer is “a lot,” the cost of the Iran war will continue long after the last missile is intercepted.

 

WHAT SHOULD BE WATCHED NEXT

1. HORMUZ VESSEL TRAFFIC
   Six vessels versus approximately 125–140 normally remains the single clearest physical indicator.
2. QATAR LNG RECONSTRUCTION
   The timeline for restoring the damaged LNG trains will determine whether Qatar’s loss is temporary or structural.
3. KUWAIT GDP AND IMPORT PRICES
   An 8.1% contraction combined with high import dependence could create significant household pressure.
4. SAUDI DEFENSE SPENDING
   Watch whether Saudi military expenditures move materially above the approximately $83 billion 2025 baseline.
5. UAE ENERGY PROFITS
   ADNOC Gas provides an unusually useful corporate indicator of the economic effects of Hormuz disruption.
6. GULF SOVEREIGN WEALTH OUTFLOWS
   If governments redirect sovereign capital from international investment toward domestic defense and infrastructure, the consequences will extend beyond MENA.
7. FOOD AND WATER SECURITY
   Desalination attacks and shipping disruptions create a potentially more serious consumer problem than oil prices alone.
8. INVESTOR CONFIDENCE
   The long-term cost may be measured not in barrels or missiles but in whether international companies continue to regard the Gulf as a safe place to invest.

 

BOTTOM LINE

1. Iran is imposing three simultaneous economic costs on the Gulf:
   1. Direct cost: physical destruction of productive infrastructure.
   2. Indirect cost: increased military and infrastructure-protection expenditures.

• Opportunity cost: lost economic activity and investment.

2. Qatar is paying the largest infrastructure price.
3. Kuwait is facing one of the largest GDP shocks.
4. Bahrain is carrying a disproportionate security burden relative to its size.
5. The UAE is absorbing substantial commercial losses but possesses superior diversification.
6. Saudi Arabia is spending the most on defense but possesses the greatest economic resilience.
7. Oman has the most favorable geographic position.

The crucial conclusion is therefore not that the Gulf is collapsing.

It is that the Gulf is paying radically different prices for the same war.

And those costs are beginning to determine which Gulf economies emerge from the conflict stronger, which emerge weaker, and which discover that their greatest strategic vulnerability was not oil—

but geography.

 

FOOTNOTES

1. Reuters, “Most Gulf Area Economies Face Deeper Downturns This Year on Hormuz Disruption,” July 16, 2026.
2. International Monetary Fund, Regional Economic Outlook: Middle East and Central Asia, April 2026.
3. Reuters, reporting on Strait of Hormuz vessel traffic, August 2026.
4. U.S. Energy Information Administration, Short-Term Energy Outlook, August 2026.
5. Reuters, “Iran Attacks Wipe Out 17% of Qatar’s LNG Capacity for Up to Three to Five Years,” March 20, 2026.
6. Stockholm International Peace Research Institute, Trends in World Military Expenditure, 2025, April 2026.
7. International Monetary Fund, “Qatar and the IMF,” 2026.
8. Reuters, “How Vulnerable Is the Gulf to Attacks on Desalination Plants?” July 21, 2026.
9. International Monetary Fund, Regional Economic Outlook: Middle East and Central Asia, April 2026.
10. Stockholm International Peace Research Institute, Military Expenditure Database, 2026 edition.
11. Reuters, “Maps and Charts of the Iran War,” 2026.
12. International Monetary Fund, “IMF Staff Concludes Visit to United Arab Emirates,” July 17, 2026.
13. Reuters, “ADNOC Gas Second-Quarter Profit Falls 52% as Hormuz Closure Hits Sales,” August 10, 2026.
14. Defense Budget, “Saudi Arabia Military Spending 2026,” July 2026.
15. Reuters, “Iran Warns Gulf States: Tell Trump to Desist or We Hit You Hard,” August 6, 2026.
16. Reuters, “Which Firms Will Clean Up After the Iran War Is Finally Over?” March 25, 2026.

 

REFERENCES

• International Monetary Fund. Regional Economic Outlook: Middle East and Central Asia. Washington, DC: IMF, April 2026.
• International Monetary Fund. “IMF Staff Concludes Visit to United Arab Emirates.” July 17, 2026.
• International Monetary Fund. “Qatar and the IMF.” 2026.
• “ADNOC Gas Second-Quarter Profit Falls 52% as Hormuz Closure Hits Sales.” August 10, 2026.
• “Gulf Economies Head for Worst Crisis Since Pandemic as War Roils Energy Lifeline.” April 27, 2026.
• “Iran Attacks Wipe Out 17% of Qatar’s LNG Capacity for Up to Three to Five Years.” March 20, 2026.
• “Iran Warns Gulf States: Tell Trump to Desist or We Hit You Hard.” August 6, 2026.
• “How Vulnerable Is the Gulf to Attacks on Desalination Plants?” July 21, 2026.
• “Most Gulf Area Economies Face Deeper Downturns This Year on Hormuz Disruption.” July 16, 2026.
• Stockholm International Peace Research Institute. Trends in World Military Expenditure, 2025. Stockholm: SIPRI, April 2026.
• S. Energy Information Administration. Short-Term Energy Outlook. Washington, DC: U.S. Department of Energy, August 2026.