Gulf States Feel Economic Squeeze Amid Ongoing US-Iran Conflict

The prolonged conflict between the United States and Iran is casting a shadow over the economic commitments of three Gulf nations—Saudi Arabia, Qatar, and the United Arab Emirates—potentially jeopardizing nearly $4 trillion in investments initially pledged under President Trump's "America First" policy. A recent report from the Peterson Institute for International Economics (PIIE) underscores the mounting fiscal pressures these nations are facing as they grapple with the ramifications of the conflict.

Fiscal Challenges and Economic Adjustments

According to the 15-page analysis released on Monday, the war has significantly impacted the Gulf economies, which are now experiencing greater financial strain compared to the global market. The International Monetary Fund (IMF) has notably revised its growth forecasts for these states, with Qatar seeing a staggering 14.7 percentage point reduction, bringing its projected growth down to 8.6 percent. Saudi Arabia and the UAE also faced cuts to their forecasts, with both countries now expected to grow at just 1.7 percent.

Shifts in Investment Strategy

Despite having adequate financial resources to avert an immediate fiscal crisis, the PIIE report suggests that the ongoing conflict may compel these Gulf states to prioritize domestic investments over their commitments in the US. For instance, Saudi Arabia's Public Investment Fund has already decreased its international investment portfolio share from 30 percent in 2020 to 20 percent today. This trend appears to have been reinforced by the current geopolitical climate.

Political Scrutiny and Future Commitments

As these nations navigate their investment strategies, they face not only economic hurdles but also political scrutiny from US lawmakers. Concerns over conflicts of interest and the implications of Gulf investments on national security have emerged, particularly regarding significant deals, such as a $2 billion investment in Binance by a UAE-backed firm. The report highlights that lawmakers are closely monitoring these transactions, emphasizing the need for transparency and accountability in the execution of these commitments.

Ultimately, the pressing question remains: how will Saudi Arabia, Qatar, and the UAE navigate their financial obligations amid these challenges, and in what form will their commitments to the US materialize?

Source: www.aljazeera.com