Oil, Dollars, and Debt: Is the Middle East Safe from the Global Trade War?

As global trade tensions escalate, major economies like the U.S., China, and the European Union face increasing economic uncertainty. The Middle East, though largely spared from direct tariff impacts, is not immune to the consequences. While the trade war poses risks—particularly for oil-dependent economies—some countries in the region may find opportunities amid the shifting global trade landscape.

Impact on Oil Prices and Economic Growth

One of the biggest concerns for Middle Eastern economies is oil demand. Historically, trade slowdowns have reduced global demand for energy, leading to lower oil prices. Since oil remains the primary source of revenue for countries like Saudi Arabia, the UAE, and Kuwait, any decline in prices could have serious economic consequences.

“The macro outlook for MENA is set to be weighed down by global tariff uncertainty indirectly through oil prices,” said Carla Slim, an economist at Standard Chartered.

While oil-exporting nations have worked on economic diversification since the oil price shock of 2014, the region remains highly dependent on petroleum revenue. Even in the UAE, one of the most diversified economies in the region, trade disruptions could slow economic growth due to its role as a global trade and logistics hub.

Dollar Pegs and Rising Debt Risks

Another challenge for Middle Eastern economies is the impact of U.S. dollar fluctuations. Many Gulf economies, including Saudi Arabia, the UAE, Qatar, Oman, and Bahrain, peg their currencies to the dollar. While a stronger dollar can boost oil revenues (since oil is priced in dollars), it also makes imports more expensive and increases the cost of servicing dollar-denominated debt.

Countries with high external debt, such as Lebanon, Jordan, and Egypt, are particularly vulnerable. A stronger U.S. dollar could raise borrowing costs and put additional strain on their economies.

“For Jordan, which sends about 25% of its exports to the U.S., tariff-related disruptions could be painful,” said James Swanston, an economist at Capital Economics.

Potential Opportunities: Trade Diversification

Despite the risks, the global trade war also presents new opportunities for the Middle East. Many Gulf nations are working to strengthen their trade ties with Asia, particularly through China’s Belt and Road Initiative (BRI). The GCC-Asia trade corridor, which has been growing at 15% annually, stands to gain from shifting global supply chains.

“We see increasing trade volumes leading to more investment flows between the Gulf states and Asia,” said Slim.

Additionally, the UAE has actively pursued new trade partnerships. Abu Dhabi has signed Comprehensive Economic Partnership Agreements (CEPAs) with countries that account for nearly 40% of its total exports, reducing reliance on Western markets.

U.S.-Gulf Relations: A Strategic Shield?

Despite global trade tensions, the Gulf states have maintained strong ties with Washington. Former U.S. President Donald Trump has repeatedly called on OPEC+ to increase oil production, a move that aligns with U.S. interests. Some analysts suggest that Saudi Arabia and the UAE could leverage their relationship with Washington to shield themselves from trade fallout.

“Trump sees the Gulf states as strategic allies and may prioritize their economic stability to keep them aligned with the U.S.,” Swanston noted.

Looking Ahead

While the Middle East remains vulnerable to the ripple effects of a global trade war, some nations are better positioned than others. Oil-exporting economies face risks from fluctuating crude prices, while dollar-pegged nations could see rising debt burdens. However, efforts to diversify trade and strengthen ties with Asia could help mitigate the impact.

For Gulf nations, maintaining strong diplomatic and economic ties with the U.S. and Asia may be the key to weathering the storm of an increasingly unpredictable global economy.