I. Introduction

The 2026 US-Iran war, including the closure of the Strait of Hormuz, has led to what the International Energy Agency has characterized as the “largest supply disruption in the history of the global oil market.” [1] Following the closure of the Strait of Hormuz on March 4, 2026, as Figure 1 shows, oil and LNG exports were stranded, causing Brent crude to surge past $120 per barrel and forcing Qatar and Kuwait to declare force majeure on oil exports.

Figure 1: Map of the Strait of Hormuz (source: http://www.drishticuet.com)

Traffic through the Strait of Hormuz has dropped following US-Israeli attacks on Iran on February 28, 2026. Since the outbreak of the Iran war, Iran has effectively blockaded and controlled the Strait of Hormuz, a key passage for global energy trade. As shown in Figure 2, maritime traffic through the Strait of Hormuz has dropped to near zero due to Iran’s threats and subsequent attacks by the Iranian Revolutionary Guard on ships actually navigating the Strait.

In particular, the passage of oil tankers (light blue) transporting crude oil has almost ceased in March 2026 compared to February.

Figure 2: Traffic through Strait of Hormuz, February, March, April 2026 (source: IMF Portwatch & Statista)

As a result, this disruption to oil flows from the Gulf countries through the Strait of Hormuz made global oil price skyrocket as Figure 3 shows. Brent crude oil price has hovered around $100 per barrel on March and April 2026, following the Iran war on February 28, 2026.

Figure 3: Brent crude oil price (source: Trading Economics)

The disruption to oil flows from the Gulf region through the Strait of Hormuz would have huge consequences for the world as well as Gulf states. As Figure 4 shows, Saudi Arabia moved more crude oil and condensate during the period of 2020 to the first half of 2025 through the Strait of Hormuz than any other country, followed by Iraq, UAE, Iran, Kuwait, and Qatar.

Figure 4: Origin and destination of crude oil and condensate transported through the Strait of Hormuz, 2020–1H25

Against this backdrop, this paper analyzes the impact of the Iran war and the resulting closure of Strait of Hormuz and soaring global oil price on economy of Gulf states. The focus is on six Gulf states: Saudi Arabia, Iraq, UAE, Kuwait, Qatar, and Oman. To this end, the paper first demonstrates the significant dependence of Gulf states on the Strait of Hormuz by examining the volume of crude oil exports of these six countries through the Strait. Subsequently, the paper explores the impacts of the Iran War and closure of Strait of Hormuz on the economy of six Gulf states.

II. Gulf States’ reliance on the Strait of Hormuz for their oil exports

International energy markets depend on reliable transport routes. The blockage of oil transit through a major chokepoint, even temporarily, can lead to substantial supply delays and higher shipping costs, resulting in higher world energy prices. Although most chokepoints can be circumvented by using other routes — which adds significantly to transit time – some chokepoints have no practical alternatives.

The world’s most important strategic chokepoints by volume of oil transit are the Strait of Hormuz, leading out of the Persian Gulf, and the Strait of Malacca, which links the Indian and Pacific Oceans (see Figure 5).

Figure 5: The world’s most important maritime oil chokepoints (source: EIA)

In the first half of 2025 (1H25), the total world petroleum and other liquids supply was about 104.4 million barrels per day (b/d). It is estimated that about 76% of that amount (79.8 million b/d) traveled via seaborne trade. [2]

As Table 1 shows, in the first half of 2025, 20.9 million barrels per day of crude oil and petroleum liquids passed through the Strait of Hormuz – nearly 25% of seaborne-traded oil worldwide, according to the US Energy Information Administration (EIA). Only the Strait of Malacca, with 23.2 million barrels per day, moved more crude oil and petroleum liquids in the first half of 2025 than the Strait of Hormuz.

Table 1: Volume of crude oil and petroleum liquids transported through world chokepoints, 2020 to the first half 2025(1H25)

Among 20.9 million barrels per day of crude oil and petroleum liquids that passed through the Strait of Hormuz in the first half of 2025, 14.7 million barrels per day were crude oil and condensates, while 6.1 million barrels per day were petroleum products, as Table 2 shows.

Table 2: Volume of crude oil, condensate, and petroleum products transported through the Strait of Hormuz, 2020–1H25

As Table 3 shows, Saudi Arabia moved more crude oil and oil products through the Strait of Hormuz than any other country in 2025. In 2025, Saudi Arabia exported 6.23 million barrels per day of crude and condensate through the Strait of Hormuz. Iraq, UAE, Iran, Kuwait, Qatar, and Bahrain followed Saudi Arabia.

Table 3: Volumes of crude oil and oil products per day exported via the Strait of Hormuz in 2025 (source: IEA and Kpler)

As Figure 6 shows, as of the first half of 2025, Saudi Arabia moved more crude oil and condensate through the Strait of Hormuz than any other country. Saudi Arabia exported 5.3 million barrels per day of crude and condensate through the Strait of Hormuz, followed by 3.24 million barrels per day for Iran, 1.83 million barrels per day for UAE, 1.51 million barrels per day for Iran, 1.43 million barrels per day for Kuwait, and 0.63 million barrels per day for Qatar.

Figure 6: Crude oil & condensate exports by Gulf states through the Strait of Hormuz, the first half of 2025 (source: Visual Capitalist)

If the Strait of Hormuz were to be closed, however, alternatives that exist could move only a portion of the oil volumes out of the Strait.

Pipelines in Saudi Arabia, the UAE, and Iran provide alternatives to the Strait of Hormuz (see Figure 7). Saudi Aramco’s East-West crude oil pipeline and the UAE’s Abu Dhabi pipeline together could provide about 4.7 million barrels per day of capacity to bypass the Strait in the event of a supply disruption. Iran inaugurated the Goreh-Jask oil pipeline and the Jask oil export terminal on the Gulf of Oman with a single export cargo in 2021, and it sent a few small loadings in late 2024. The pipeline’s effective capacity remains around 0.3 million barrels per day. [3]

Figure 7. Map of the Strait of Hormuz and its alternative routes (source: EIA)

Alternative export routes

Available capacity for alternative export routes is limited. Only Saudi Arabia and the UAE have operational crude pipelines that could potentially re-route flows to bypass the Strait of Hormuz, with an estimated 3.5 to 5.5 million barrels per day of available capacity. While additional capacity may exist in major pipelines to bypass the Strait, the logistics and supply chains needed to re-route and export substantial flows have not been robustly tested.

UAE – the Abu Dhabi Crude Oil Pipeline (ADCOP) runs 400 km from onshore oil facilities at Habshan to Fujairah. As Table 4 shows, the original nameplate capacity of the line is 1.5 million barrels per day with a reported current capacity of close to 1.8 million barrels per day. The UAE exports around 1.1 million barrels per day of domestic crude via this route, leaving room for up to 700 thousand barrels per day of additional volumes in the case of the Strait closure.

Saudi Arabia – the Abqaiq-Yanbu pipeline system (East-West Crude Pipeline or Petroline) crosses Saudi Arabia, connecting Abqaiq to Yanbu on the Red Sea. As Table 4 shows, the system is composed of two lines with a total design capacity of 5 million barrels per day of crude oil. In March 2025, Aramco reported that it had increased capacity to 7 million barrels per day, but sustainable flows have not been tested at this level. As of early 2026, it is estimated that about 2 million barrels per day of the pipeline’s capacity is used, leaving between 3 and 5 million barrels per day of spare capacity, depending on operational conditions and available export capacity on the Saudi West Coast.

Iran – the Jask Oil Terminal was officially inaugurated in 2021 to transport crude oil from the Goreh-Jask pipeline to Jask on the Gulf of Oman. The pipeline has a reported capacity of 1 million barrels per day. However, the pipeline and port effectively remain non-operational. A test load was exported from Jask in late 2024, but no further oil has been exported from Jask since then. The terminal is currently not considered a viable crude export option for Iranian crude.

In addition, as Table 4 shows, there is the Kirkuk–Ceyhan Oil Pipeline, known as the Iraq–Turkey Crude Oil Pipeline. This is a 600-mile-long (970 km) pipeline that runs from Kirkuk in Iraq to Ceyhan in Turkey. It is Iraq’s largest crude oil export line. In March 2026, Iraq announced it was exporting 250,000 barrels per day through the pipeline. The pipeline contract with Turkey expires in July 2026.

The sheer volume of oil that is exported via the Strait of Hormuz, and the limited options to bypass it, means that any disruption to flows would have huge consequences for world oil markets. A significant spike in oil prices would be inevitable, and physical shortages would quickly develop if the disruption were to be prolonged.

While most of the oil transiting the Strait is destined for Asian markets, the impact of a disruption to the Strait would be global due to its immediate impact on pricing. The market impact would be exacerbated by the fact that, in addition disrupting shipments of oil by transiting the Strait, the vast majority of the world’s spare crude oil production capacity could be made unavailable as well.

Table 4: Structural inadequacy of existing alternatives. (source: https://discoveryalert.com.au/strait-hormuz-closure-us-iran-talks-oil-supply-crisis/)

III. Impacts of the Iran war and the closure of the Strait of Hormuz on the economy of Gulf States

As Figure 8 shows, shipping traffic through the Strait of Hormuz has dramatically dropped in March and April 2026 after Iran declared the closure of the Strait on March 5, 2026. Even the US carried out the blockage of Iranian ports on April 13, 2026.

Figure 8: Shipping traffic through the Strait of Hormuz 2026 (source: Bloomberg)

As a result of the dual blockage of the Strait of Hormuz by Iran and the US, shipping traffic through the Strait of Hormuz has dramatically dropped in March and April 2026.

Only a handful of oil tankers have managed to pass through the Strait of Hormuz. The traffic of ships transporting crude oil has come to a standstill. The only alternative routes are two pipelines, in Saudi Arabia and the United Arab Emirates, which allow part of crude oil to be rerouted to the Red Sea and the Gulf of Oman. However, as explained above, oil shipping through these alternative routes has been limited.

Consequently, according to shipping data from Kpler, combined exports of crude oil from Saudi Arabia, Iraq, Kuwait, Oman, Qatar, and the UAE dropped from 469 million barrels in February 2026 to 263 million barrels in March 2026 – a significant decline of 206 million barrels, or 44 percent, as Figure 9 shows.

Figure 9: Crude oil exports from six Gulf states fell from 469 million barrels in February 2026 to 263 million barrels in March 2026 (source: Kpler and Aljazeera)

Iraq’s crude exports have been hit the hardest, falling 82 percent from 94 million barrels in February 2026 to 17 million barrels in March 2026. Kuwait and Qatar each lost around three-quarters of their crude shipments, with 75 and 70 percent drops, respectively. Saudi Arabia and the UAE managed a smaller proportional drop of 34 and 26 percent respectively, in part offset by floating storage and pipelines that avoided the Strait of Hormuz.

As oil exports significantly dropped, oil production in Gulf States significantly declined. With no ships available to transport their oil through the Strait of Hormuz, Gulf oil-producing countries are worried that their onshore storage facilities will reach capacity. Caught in the crossfire of the war between Iran and the US, all Gulf states are forced, to varying degrees, to cut oil production.

As Figure 10 shows, between the beginning and 26 of March 2026, oil production dropped by 25% in Saudi Arabia, by 59% in UAE, by 64% in Qatar, by 65% in Kuwait, and by 78% in Iraq. Iran is no exception. Iranian oil production fell by 13% in March, according to Kpler. The challenge for Gulf States that are still able to do so is to delay as long as possible the point at which storage facilities are completely full. In other words, to produce little but continuously, in order to avoid a shutdown with highly damaging consequences. Some wells, once shut down, become difficult to restart or even unusable.

As Table 5-1 & 5-2 show, crude oil production in the major Gulf states plunged in March 2026 due to the Iran War, according to data released by OPEC. Iraq took the biggest hit with oil production collapsing 61% from 4.2 million barrels per day in February 2026 to 1.6 million barrels per day in March 2026, according to OPEC’s monthly report. Oil output plunged 53% in Kuwait and 44% in the United Arab Emirates month over month, the data showed.

Oil production in Saudi Arabia, OPEC’s biggest oil producer, dropped 23% from 10.1 million barrels per day in February to 7.8 million barrels per day in March. Saudi Arabia relied on a crucial East-West pipeline to reroute million barrels per day from the Persian Gulf to the Red Sea for export.

But the pipeline, which has a capacity of 7 million barrels per day, recently came under attack by Iran. The attack cut the pipeline’s capacity by 700,000 barrels per day, according to the state-owned Saudi Press Agency.

Figure 10: Oil production reduction (crude oil & condensates in thousands of barrels per day) of Gulf states, 2026

Table 5-1: Crude oil production for March 2026 (source: OPEC)

Table 5-2: Crude oil production for March 2026 (source: OPEC) [2024 2025 3Q25 4Q25 1Q26 Jan 26 Feb 26 Mar 26 Mar/Feb]

The Gulf States have cut oil production because they are unable to export through the Strait of Hormuz due to the Iran War. Tanker traffic through the narrow sea route, which connects the Gulf region to global energy markets, has plunged due to attacks by Iran.

It will take months for the Gulf states to bring production back up to full capacity, said Sheikh Nawaf al-Sabah, the CEO of Kuwait Petroleum Corp.

“We have resilient reservoirs that bring out quite a bit of production immediately — within a few days,” the CEO said at the CERAWeek by S&P Global conference on March 24. “The bulk of it will come within a few weeks, and then the full production will come within three or four months.” [4]

Iran’s oil production, meanwhile, dropped around 5% from 3.24 million barrels per day to 3.06 million barrels per day month over month, according to OPEC. The Islamic Republic of Iran has continued to export through the Strait during the war.

With oil production in decline and exports of Gulf states in slump, global oil price has skyrocketed following the Iran war, as Figure 11 shows.

March in 2026 marked one of the largest monthly oil price jumps on record, with Brent gaining 51% as Gulf oil output fell and exports stalled.

Since the start of the Iran War, Brent crude price jumped from around $72 a barrel on February 27, 2026, to nearly $120 at its peak, as fears mounted over supply disruptions through the Strait of Hormuz.

Figure 11: Brent oil price volatility since the Iran War broke out (source: CNBC)

As global oil prices have soared, oil revenues of some Gulf states have increased. As Figure 12 & 13 show, the Reuters analysis of export data in March 2025 and 2026 found that Iran’s oil revenues rose by 37% and Oman’s by 26%. Saudi Arabia’s oil revenues increased by 4.3%, while the UAE’s declined by 2.6% as the oil price surge offset lower volumes. By contrast, Iraq and Kuwait’s estimated notional oil export revenues both plunged by about three-quarters year-on-year.

Figure 12: Notional Gulf year-on-year oil revenues changes in March 2026 (source: Kpler & JODI Ahmad Chaddar)

Figure 13: Notional monthly oil revenues for Gulf states (source: Kpler & JODI Ahmad Chaddar)

As oil revenues significantly increased in some Gulf States, while they plunged in others, projection for economic growth in 2026 among Gulf States diverged. Table 6 and Figure 14 show that Gulf States revised economic growth projection in 2026 and 2027.

Table 6: Revised economic growth projection for Gulf States in 2026 and 2027.

Some Gulf States will feel the negative impact of the Iran War more strongly than others. According to IMF, revised economic growth projection for Qatar in 2026 is the lowest (-8.6). Qatar and Iraq’s economy is expected to contract by 8.6 percent and 6.8 per cent this year, respectively before rebounding to 8.6 percent and 11.3 per cent growth in 2027. In addition, GDP growth forecast for Iran in 2026 is –6.1. And GDP growth forecast for Kuwait and Bahrain in 2026 are also –0.6% and –0.5, respectively. By contrast, GDP growth forecast for Saudi Arabia and UAE in 2026 is 3.1, while that for Oman is 3.5, the highest among Gulf states.

Figure 14: IMF projection for economic growth in Middle East nations, 2026

IV. Conclusion

This paper analyzed the impact of the Iran War, the resulting blockade of the Strait of Hormuz, and soaring global oil prices on the economies of the Gulf States. This study focused on six Gulf countries: Saudi Arabia, Iraq, the United Arab Emirates, Kuwait, Qatar, and Oman. To this end, the study first analyzed the crude oil export volumes of these six countries through the Strait of Hormuz to demonstrate their heavy dependence on the Strait. Subsequently, it examined the impact of the Iran War and the blockade of the Strait of Hormuz on the economies of the six Gulf nations.

Iraq’s crude oil exports suffered the greatest blow due to the Iran war and the resulting blockade of the Strait of Hormuz, followed by Kuwait and Qatar. As a result, crude oil revenues for Iraq and Kuwait plummeted by approximately three-quarters compared to the same period of the previous year, whereas, in contrast, Iran’s oil revenues increased by 37% and Oman’s by 26%. Saudi Arabia’s crude oil revenues also increased by 4.3%. The United Arab Emirates (UAE) saw its revenue decline by 2.6% as crude oil exports decreased.

According to an IMF analysis report based on crude oil exports and revenue generation, which are the Gulf States’ primary revenue sources, Qatar’s revised economic growth forecast for 2026 is -8.6%, the lowest among the Gulf nations. Iraq’s economic growth rate was also projected at -6.8% this year. Despite high crude oil revenues, Iran’s GDP growth rate for 2026 is expected to be -6.1% due to economic and material damage caused by the war, while Kuwait and Bahrain’s growth forecasts for 2026 are projected at -0.6% and -0.5%, respectively. In contrast, Saudi Arabia and the UAE are projected to have GDP growth rates of 3.1% for 2026, while Oman’s economic growth forecast is expected to be the highest among the Gulf nations at 3.5%.