GCC region may see indirect impact of US tariffs

While the Middle East has largely been spared by US President Donald Trump's high "reciprocal tariffs", economic experts have warned of their indirect impact on the region.

As economies in the region rely primarily on importing equipment and machinery in wide-ranging sectors, they said levies could see multidimensional negative effects for countries and consumers.

On April 2, Trump announced a universal 10 percent tariff on all imports to the US, with additional reciprocal tariffs targeting specific countries.

The Gulf Cooperation Council (GCC) nations — Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman — will be subject to the baseline 10 percent tariff.

Yemen, Iran, and Turkiye also got 10 percent while Jordan was given a 20 percent levy.

According to Arabian Gulf Business Insight, exports from the GCC countries to the US amounted to $30 billion in 2023.

David Gibson-Moore, president and CEO of Gulf Analytica, a business consultancy to international firms and family offices in Dubai in the United Arab Emirates, played down the potential impact.

He noted that the GCC countries "recorded a relatively modest dependence on US trade" in 2023.

Furthermore, Gibson-Moore said oil and gas — the majority of GCC exports — were exempt from these tariffs.

He added that the immediate, direct effect of the new tariffs on GCC economies "is expected to be limited".

Gibson-Moore also said that while the immediate trade impact may be minimal, longer-term GCC countries could experience indirect repercussions.

For instance, he said oil prices dropped $2 on April 3 after the tariff announcement. This followed concerns that a global trade war may dampen demand for crude oil. Brent futures stood at $72.98 a barrel and West Texas Intermediate crude futures at $69.73.

He said a slowdown in major economies may lead to decreased demand for oil affecting the oil-dependent revenues of GCC countries. The break-even point for the Saudi budget is approximately about $70 a barrel while it is higher for other Gulf countries such as Bahrain and Oman.

Furthermore, he said, oil price reductions will push most Gulf countries into a budgetary deficit.

Gibson-Moore said that regional financial markets are showing generally negative reactions to the tariff announcements.

The Abu Dhabi stock market posted a 0.4 percent decline, while Reuters reported that the Kuwait and Bahrain stock markets also slumped.

The exchanges in Saudi Arabia, Qatar, Egypt, and Oman remained closed for Eid al-Fitr, the festival marking the end of the Muslim holy month of Ramadan.

"Given the limited direct impact but potentially significant indirect effects, GCC nations are likely to adopt a cautious approach," Gibson-Moore said.

Anis Khayati, an economics professor at the College of Business Administration at the University of Bahrain, noted that Middle East economies rely primarily on imports.

"It can be generally said that the trade war and tariffs between the US and major powers will have multidimensional negative effects on Middle Eastern economies and consumers," Khayati told China Daily.

He said imposing tariffs will increase prices for importers — including in the Middle East — and they may ultimately be forced to pass these costs to consumers, increasing their financial burden.

"While the direct impact of the newly announced US tariffs on GCC countries appears limited in the short term, the broader economic implications, particularly concerning oil prices and global economic growth will certainly be monitored closely by policymakers and economic stakeholders in the region," said Gibson-Moore of Gulf Analytica.