More than two months into the U.S.-Israel war with Iran, the Gulf states keep paying for a conflict they did not start, cannot control, and cannot afford to end on the wrong terms. A conditional ceasefire reached between the United States and Iran on April 8 is holding, but the Strait of Hormuz remains functionally closed by both countries, and the costs behind the calm keep accumulating. Brent crude briefly exceeded $109 a barrel in April and May, and oil giant Saudi Aramco reported adjusted net income of $33.6 billion in the first quarter (Q1) of 2026, a 34 percent increase on the previous quarter. Yet Saudi Arabia simultaneously recorded its largest quarterly budget deficit since 2018—$33.5 billion in three months, against oil revenues that fell 3 percent year-on-year. This demonstrates the paradox of the crisis: The majority state-owned Saudi Aramco records higher profits, but the war’s costs still exceed the country’s fiscal capacity.
A Bottleneck for Hydrocarbons
The Strait of Hormuz closure affects the Gulf Cooperation Council (GCC) states unevenly, particularly regarding hydrocarbon exports, and that asymmetry is now the region’s central economic and diplomatic problem. Saudi Arabia and the United Arab Emirates have partial bypass capacity. Saudi Arabia converted its East-West Pipeline to full crude-only operation two weeks into the war, surging Red Sea exports from roughly 1 million to 4.0–4.3 million barrels per day (bpd). The pipeline’s nameplate capacity is 7 million bpd, but Yanbu’s terminals can load only 5.4–5.9 million bpd under optimal conditions, leaving an infrastructural gap that limits actual export capacity, costing roughly $100 million per day in stranded export revenue. The UAE’s Abu Dhabi–Fujairah pipeline provides 1.5–1.8 million bpd of bypass capacity, or roughly half of pre-war production. Combined with a budget breakeven of around $65 per barrel, Abu Dhabi has the most fiscal room in the GCC. Neither bypass is invulnerable, however. In April, Iran struck Saudi Arabia’s East-West Pipeline, and a subsequent barrage set the UAE’s Fujairah port ablaze, establishing that the infrastructure enabling exports to circumvent Hormuz can also become a target.
Unlike their GCC counterparts, Qatar, Kuwait, and Bahrain have no ability to bypass the Strait. Qatar Energy declared force majeure on some liquified natural gas (LNG) contracts following Iran’s March 18 strike on Qatar’s Ras Laffan facility, which cut LNG production capacity by 17 percent. Rebuilding that capacity could take three to five years. May 10 marked the first time since the start of the war that a Qatari tanker passed through the Strait of Hormuz, reportedly with Iran’s permission. Kuwait exported no oil in April. Bahrain combines the lack of a bypass with a breakeven oil price—the minimum price needed to meet its expected budget spending—between $110 and $130 per barrel, prompting the international ratings agency Moody’s to downgrade its credit outlook from stable to negative as exports grind to a halt. Oman, meanwhile, sits outside the main closure corridor but near the strait’s narrowest navigable point, and has been drawn into Iran’s emerging permit regime through a proposed bilateral transit protocol.
… and Everything Else
Non-hydrocarbon sectors are also experiencing severe disruption. Fertilizer, aluminum, helium, and sulfur exports have been disrupted across the region. Transshipment, logistics, marine insurance costs, and war-risk premiums have risen as London’s Joint War Committee—a grouping of insurance underwriters—has widened its high-risk zone to include the Gulf.
Tourism has taken an immediate hit. The World Travel and Tourism Council estimated the war cost the region $600 million a day in lost revenue during the conflict’s first weeks. In real estate, perhaps the clearest gauge of long-term confidence, searches on regional property platforms dropped 70 percent in the immediate aftermath of the conflict; they have since recovered only to around 80 percent of pre-war levels, with transaction volumes at roughly 60 percent. Oxford Economics has flagged the risk of a real estate correction that would eventually reach the UAE’s banking sector, given how much of the country’s growth depends on a migrant workforce now reconsidering whether to relocate.
Aviation is the clearest indicator of how far the disruption extends beyond crude oil. Gulf-based airlines Emirates, Qatar Airways, and Etihad all halted operations during the kinetic phase of the war and have operated reduced schedules since. Dubai International Airport was struck by drones in March, temporarily grounding all flights. Globally, two million airline seats were removed from May schedules in the space of weeks; Germany-based airline Lufthansa has canceled twenty thousand flights between May and October. Jet fuel prices have risen roughly 94 percent year-on-year and nearly doubled since February. The more acute risk is physical supply: Refineries whose output reaches Asia through Hormuz-adjacent distribution networks are now causing fuel shortages at major airports, with Vietnam already rationing and other Asian hubs restricting capacity additions. For the Gulf, the threat is double: the jet fuel shortage combines with cautious travelers still avoiding a volatile region and threatens a logistical disruption after the military one, creating further economic pressure.
Outlook of Prolonged Closure
The most plausible near-term scenario is a continuation of the current stalemate. Neither side has conceded its core demands: Iran insists on full U.S. withdrawal as a condition for Strait normalization; Washington treats a genuine reopening as a precondition for sanctions relief. Both sides believe they can outlast the other. In the meantime, Iran is institutionalizing the closure in ways that a ceasefire agreement cannot easily undo.
On May 5, Iran launched the Persian Gulf Strait Authority, a bureaucracy that requires vessels to submit a 40-question permit form and pay fees up to $2 million before transiting. Iran’s parliament is simultaneously advancing a twelve-article Hormuz sovereignty bill that would formalize these restrictions into domestic law. The U.S. Treasury Department’s Office of Foreign Assets Control has warned that even just submitting the permit form may expose shipping companies to sanctions enforcement. This poses a dilemma to companies, which must either comply with Iran and risk losing American banking access, or refuse and face Iranian military interception in a waterway where only 45 vessels have transited since the April 8 ceasefire—roughly 3.6 percent of the pre-war monthly baseline. This architecture is designed to outlast any negotiation that fails to explicitly name and dissolve it.
The fiscal consequences of the ceasefire limbo are accumulating faster than published figures capture. Saudi Arabia’s pre-war annual borrowing plan, set at SAR 217 billion, or roughly $57.7 billion) was already 58 percent consumed in the first quarter. Saudi Arabia’s Public Investment Fund has shifted its geographic allocation from 30 percent international to 20 percent, redirecting approximately $92 billion toward domestically—not as an expansion of Vision 2030 but as a fiscal buffer against a prolonged disruption. Saudi Arabia’s PIF-inclusive fiscal breakeven sits at $108–111 per barrel, according to Bloomberg calculations, while Brent currently trades well below that number.
A quick reopening of the Strait with restored shipping confidence cannot be ruled out, but it is unlikely under current negotiating conditions. If it happened, recovery would still be slow and uneven, as production infrastructure and logistics would take months to recover. A full-scale resumption of the war is also not implausible. If the fighting restarts, the UAE likely faces the greatest exposure to Iranian retaliatory strikes on energy infrastructure, and the GCC’s collective fiscal buffers—adequate for the current moment—would face a far more severe test. No GCC state has an interest in this outcome, but the risk of miscalculation rises with every week the ceasefire holds without a genuine diplomatic framework behind it.
An Asymmetry With Consequences
Gulf governments have tended to frame the current disruption as a COVID-19 pandemic-type, V-shaped shock: acute, temporary, and ultimately reversible once the chokepoint clears. The comparison understates what is happening. Both hydrocarbon and non-hydrocarbon sectors have suffered damage that is durable, including LNG infrastructure with a multi-year repair timeline, investment confidence eroding as foreign workers and tourists reconsider the region, and a diplomatic architecture that Iran is building specifically to outlast any short-term deal.
The Strait closure is distributing this pain unevenly, thereby constraining the GCC’s capacity for a coordinated response. Saudi Arabia, the UAE, and Oman can sustain the current conditions considerably longer than Kuwait, Bahrain, or even Qatar at prevailing prices. That gap creates divergent incentives on UN Security Council votes, ceasefire terms, and post-war institutional arrangements. The UAE’s unilateral decision on May 1 to end its 59-year membership in OPEC is both a sign of its relative advantage and of the dissolving peninsular solidarity under asymmetric pressure.
The GCC collectively controls over $3.5 trillion in sovereign wealth funds and represents a market large enough to shape any credible Hormuz resolution process. That leverage exists on paper. Whether it can be deployed depends on whether the bloc can agree on how much pain each member should absorb. Right now, the answer differs by at least $45 per barrel. Until the bloc finds a way to equalize those costs, or accepts that it cannot, its collective leverage will remain potential rather than power.
