How the Gulf proved its economic resilience during the Iran-Israel crisis

The recent escalation between Israel and Iran may have lasted less than two weeks, but its economic implications have left a longer-lasting imprint. While the region avoided a broader military fallout, the episode provided a revealing stress test for the resilience of energy markets, Gulf stock exchanges, and regional preparedness.

Given that roughly 20 per cent of the world’s oil and gas flows through the Strait of Hormuz, it was natural for markets to worry about potential disruptions. Iranian threats to block the Strait briefly revived fears of a supply shock. Yet, oil markets remained largely composed. Brent crude rose around 13% to the mid-$70s during the peak of the crisis, but quickly returned to pre-conflict levels once tensions eased.

This stability is not accidental. It reflects market confidence in the fundamental structures underpinning energy supply. For years, the UAE and Saudi Arabia have invested in bypass pipelines - the Habshan-Fujairah pipeline and the East-West Pipeline respectively - that allow oil to flow outside the Strait of Hormuz. In addition, both countries hold the world’s largest spare production capacities, giving them a unique ability to respond swiftly to any supply disruption. These long-term strategies have proven essential not just for domestic energy security, but for global market stability.

Regional financial markets also handled the crisis with a level of calm that would have been hard to imagine a decade ago. While there was some initial turbulence in Riyadh where the Tadawul index touched a 20-month low, overall declines were limited. By the end of the recent escalation, the index was down less than 3% from pre-crisis levels. Markets across the GCC showed similarly measured reactions. After US strikes on Iranian targets, the Dubai and Abu Dhabi indexes, as well as the markets in Qatar and Kuwait, ended the week in positive territory.

This restrained response reflects a deeper confidence in the region’s economic fundamentals, diversified growth strategies, and growing investor sophistication. It also suggests that global and local investors are increasingly looking beyond short-term geopolitical risks.

Though the conflict’s duration limited its immediate impact on sectors like tourism, trade, and logistics, it served as a powerful reminder of why diversification remains at the core of the region’s long-term strategy for stability and resilience. Over the past two decades, the UAE and its GCC partners have made significant strides in reducing their dependence on hydrocarbons.

From renewable energy and advanced manufacturing to finance, logistics, AI, and tourism, the region has deliberately invested in creating alternative engines of growth. These sectors are not only helping to future-proof the GCC economies but also serve as economic shock absorbers during times of geopolitical tension.

Food and water security have also been prioritised, with the UAE, Saudi Arabia and the other GCC members investing in overseas agricultural assets, strategic reserves, and cutting-edge water desalination technologies, including efforts by the UAE to pump desalinated water into underground aquifers to create strategic reserves that can be tapped during emergencies. These efforts significantly reduce the region’s vulnerability to regional shocks.

Additionally, the UAE’s investments in cybersecurity, counter-terrorism capabilities, and critical infrastructure protection have become essential layers of economic defense. This broad-based resilience contributes to the attractiveness of the UAE economy to foreign direct investment, maintain sovereign credit ratings, and project economic confidence, even when geopolitical tensions rise.

Looking ahead, the UAE is well-positioned to further solidify its role as an economic stabiliser in the region. Its rapidly expanding global economic footprint, coupled with a trusted reputation for safety and innovation, makes it a natural hub for capital and talent during uncertain times.

For the region as a whole, it may benefit from deeper economic cooperation, especially in securing alternative energy routes, boosting supply chain connectivity, and coordinating on shared challenges. This cooperation could enhance collective economic resilience against unforeseen shocks.

Ahmed El Safty is an economic advisor at the Emirates Centre for Strategic Studies and Research (ECSSR) in Abu Dhabi.