It was a pleasure to contribute to China Daily on the likely effect of recent US tariffs on the GCC economies. The direct near-term impact appears limited. Crucially, oil and gas, which constitute the bulk of GCC exports, are exempt from these measures. Also, the US maintains a modest trade surplus in non-oil goods with GCC nations largely due to exports of machinery, electronics and vehicles.

While precise figures for non-oil trade balances across all GCC countries are not readily available, the situation in the UAE will serve to illustrate. In 2023, the US exported $24.8 billion in non-oil goods to the UAE and imported $6.6 billion resulting in a surplus for the US of approximately $18.2 billion.

However, the indirect effects will likely be much more pronounced. Brent crude prices have already fallen nearly 15% over five days to $64 per barrel. WTI stands at $61. A slowdown in major global economies, and certainly any global recession now being discussed as a potential outcome, will further suppress oil demand, reduce oil prices and increasingly strain the fiscal budgets of the oil-dependent GCC states.

Anticipation of this outcome has already been reflected in regional equity markets with recent declines in Dubai, Abu Dhabi and Saudi Arabia’s Tadawul. Saudi Aramco alone has lost over $88 billion in market value in just two days signalling broad-based investor concerns.

Given the limited direct effect but potentially highly significant indirect consequences, the GCC is likely to tread cautiously. The US remains a vital security and investment partner making direct retaliation improbable. Instead, Gulf countries may well seek to negotiate exemptions or preferential terms leveraging their strategic relationships with Washington.