In Fortune Gulf Brief today:
U.S.-Iran interim deal and the Gulf’s road to recovery SpaceX’s meteoric IPO: Gulf states reap windfalls Paramount-Warner Bros. merger gets green light U.S. Private Credit firms flock to the Gulf Plus: The 3 things we enjoyed reading this weekThe Gulf Cooperation Council will have breathed a collective sigh of relief when the U.S. and Iran agreed an interim deal to end more than 100 days of war.
Announced on Sunday evening, the memorandum of understanding, which provides a 60-day ceasefire extension and free passage of shipping through the Strait of Hormuz, is due to be formally signed in Geneva on Friday.
The Gulf states, often to their surprise, have been on the front line of the conflict, facing missile and drone attacks.
Is it too soon for them to start talking about a bounce back?
Historically, the Gulf has shown an ability to recover quickly after major shocks. After the 1991 liberation of Kuwait, oil production and core economic activity rebounded more quickly than many observers had anticipated, supported by oil revenues, substantial overseas assets, and government-led reconstruction. Studies of Kuwait’s recovery highlight the importance of sovereign wealth funds and strong state finances.
More recently, the recovery of Dubai’s tourism sector in the aftermath of the COVID pandemic was unusually fast by global standards. By the end of 2022, Dubai received 14.36 million international visitors, reaching 86% of pre-COVID tourism levels and outperforming the 63% global tourism recovery rate.
Admittedly, this rapid resurgence was in part driven by a combination of mega-events such as Expo 2020 and the Qatar World Cup, but Dubai also wasted no time in leveraging its position as a global aviation hub and luring tourists and residents alike through a host of tax-free incentives, visa, and citizenship reforms.
Clearly, a direct analogy cannot be drawn between a global pandemic and war—missiles striking buildings has not only shaken residents’ nerves but also investor confidence. And that will take time to return.
No doubt GCC states will need to redouble efforts to attract inward investment as businesses sit on the sidelines to see if peace lasts, but in aggregate, their economic fundamentals remain sound.
At the end of May, Fitch maintained the credit ratings and stable outlooks on five GCC states—excluding Oman—largely due to their substantial fiscal buffers that have acted as a cushion against economic shocks.
While Saudi has seen some notable downsizing of its gigaprojects, the Gulf’s healthy coffers will help ensure they remain broadly committed to pursuing their respective economic diversification strategies. The UAE’s exit from OPEC, meanwhile, brings it more immediate liquidity and fiscal flexibility.
Wood Mackenzie estimates that the fields affected by the Strait’s closure could return to 70% of pre-conflict production within three months and 90% within six months, assuming operators choose a measured and controlled ramp-up. Safely transiting the oil through the Straits of Hormuz will arguably present the bigger challenge.
The Iran war has redrawn the economic and geopolitical landscape of the Gulf but the conflict has also deepened its conviction to accelerate reforms and plans for recovery are already being hammered out.
As we have seen during the course of this war, a lot can happen in a day, let alone 60 days. Successful negotiations on the most contentious issues and the emergence of a permanent deal that could reset the Gulf’s fortunes hang in the balance.
Melissa Hancockmelissa.hancock@fortune.com
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This story was originally featured on Fortune.com
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