The economic impact of the escalating conflict in the Middle East will be concentrated in the Gulf, with global spillovers largely confined to higher energy prices, according to Ryan Sweet, Chief Global Economist at Oxford Economics. Tourism has grown in recent years, but the expected reduction in visitors is expected to be manageable.

“The conflict in the Middle East will likely have significant implications for Gulf Cooperation Council economies,” Ryan Sweet, Chief Global Economist for Oxford Economics said in an emailed briefing. “But because the region accounts for less than 2% of world GDP, the economic spillovers to the rest of the world will be largely via higher gas and oil prices.”

Oxford Economics judges that a moderate disruption to shipping through the Strait of Hormuz would have only a limited global impact.

“We think higher energy prices from a moderate disruption in the Strait of Hormuz would only knock 0.1ppt off world GDP growth this year,” Sweet said.

He argued that Iran would struggle to sustain a full closure of the Strait, making “a period of lower-level disruption to trade flows for up to a couple of months” more plausible. Any prolonged shut down of traffic through the straits would backfire on Iran, which relies on the export of 1.5mbpd of oil in 2025 for a large part of its own revenues.

Under that scenario, “the average oil price” would rise “to almost $80 per barrel in Q2 before gradually falling back to a little more than $60 towards year-end,” while gas prices would “rise sharply too”, says Sweet. Other analysts have estimated that a sustained shutdown could send oil prices to over $100 per barrel and in an extreme as high as $150.

The inflationary consequences would be contained. “We estimate that US and Eurozone CPI inflation would only average 0.3ppts-0.4ppts more in 2026, which will do little to crimp spending and is unlikely to prompt central banks to contemplate a significant change to their courses for policy rates,” Sweet said.

He added that “the duration of the conflict and the nature of any regime change in Iran is key to understanding the economic impact”, warning of risks of a sharper spike in energy prices or adverse financial market reactions. For now, however, “apart from the GCC, we anticipate only modest changes to our economic forecast”.

Tourism, oil and gas in the front line for GCC

For Gulf economies themselves, the effects are more acute. “The latest strikes are a game changer for the GCC,” Sweet said. With most oil and gas exports passing through Hormuz, disruptions are already lifting insurance costs by 50% and slowing traffic “to a trickle”. Iran’s targeting of port infrastructure could prolong shipping constraints.

Yet Sweet argued the indirect effects may prove more damaging. Previous US military actions in the region have tightened financial conditions and depressed tourism.

“The hit to tourism will be felt immediately via tourists avoiding the region, air travel disruptions as flights are cancelled, and a hit to sentiment,” he said. The shock could linger, particularly after attacks on destinations such as Dubai.

Tourism accounted for 10% of Middle East GDP in 2024, according to the World Travel and Tourism Council, a larger share than in previous conflicts. A prolonged downturn would weigh heavily on employment and inward migration, especially in Qatar and the United Arab Emirates, where expatriates have driven much of recent population growth.

“We now think that the two-month disruption scenario, which pushes the average oil price to just below $80 per barrel in Q2, highlighted in a recent Research Briefing, seems the most plausible assumption for how developments play out,” Sweet said, adding that a fuller assessment would follow in Oxford Economics’ global forecasts due on March 10.