GCC: Shock transmission and buffers – Standard Chartered

Standard Chartered Bank analysts Bader Al Sarraf and Razia Khan assess how the Middle East escalation and potential Strait of Hormuz disruptions could affect Gulf Cooperation Council (GCC) economies. They argue overall economic impact should remain contained but uneven, depending on export flexibility, bypass capacity and non-oil sector structures. Large sovereign wealth assets and FX reserves above USD 6.5tn provide substantial macroeconomic buffers.

Hormuz risks and GCC resilience

"We are now in the fourth week of the Middle East escalation, with disruption risks centered on the Strait of Hormuz and broader Gulf energy infrastructure. While the market focus has been largely on oil price volatility and global supply implications, we consider here how the shock may be transmitted to GCC economies."

"To gauge the economic impact, we focus on: (1) fiscal outcomes, (2) non-oil growth dynamics, and (3) sovereign buffers. We find an uneven impact on GCC economies across all three factors. "

"We expect the economic impact to remain contained overall. However, divergence between GCC economies is likely, based on their exposure to export disruptions, how much capacity they have to bypass the Strait of Hormuz, and how their non-oil sectors are structured."

"The GCC entered this episode from a position of strength, supported by large sovereign balance sheets in most cases. GCC sovereign wealth assets and FX reserves exceed USD 6.5tn; we believe this provides a substantial buffer against domestic and external shocks, helping to underpin longer-term macroeconomic stability."

"Economies with more export flexibility and alternative routes to the Strait of Hormuz are likely to be better able to absorb the shock; they include Saudi Arabia, the UAE and Oman, in our view. Those more reliant on the strait and constrained trade routes are likely to see a greater impact."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)