The Gulf states’ long and expensive push to reinvent themselves beyond oil is facing a harsh stress test as Iranian strikes disrupt business across the United Arab Emirates, Saudi Arabia and neighboring countries, The Wall Street Journal reported Tuesday.
After years of pouring hundreds of billions of dollars into artificial intelligence, logistics and tourism, the region now finds core pillars of that strategy under strain. Drone attacks damaged three regional data centers, prompting Amazon (AMZN) to warn of extended service disruptions. Banking apps and other digital services have been affected, marking what many executives describe as the region’s most serious commercial shock since the pandemic.
Air travel has been severely curtailed, shipping routes interrupted and stock markets rattled. In Dubai, smoke from damaged buildings and hotels has clouded parts of the skyline as stranded tourists compete for limited outbound flights.
Jason Tuvey, deputy chief emerging markets economist at Capital Economics, said the attacks have shaken confidence in the Gulf’s reputation for safety and stability. He warned that while the immediate effect will be weaker non-oil activity, a prolonged conflict could also undermine foreign investment and long-term diversification plans.
Stable, business-friendly countries
For years, Gulf governments promoted their cities as stable, business-friendly hubs insulated from regional turmoil. Hedge funds, technology firms and global brands flocked to tap deep sovereign wealth and favorable tax regimes. Analysts say the latest escalation differs from past flare-ups because economic infrastructure and civilian areas appear more directly exposed.
The timing is particularly sensitive for Saudi Arabia’s Vision 2030 program, a sweeping effort to reduce reliance on oil revenue. The multitrillion-dollar initiative was already grappling with cost pressures and funding gaps that depended heavily on overseas capital.
Tech ambitions are also under pressure. PwC had projected regional AI data center capacity would more than triple by 2030. Now, multibillion-dollar facilities are showing signs of vulnerability. Amazon Web Services said two sites in the UAE were directly hit, while a third in Bahrain suffered nearby damage. The company indicated that even as repairs move forward, the broader business environment remains uncertain given the ongoing conflict.
Peak travel season
Tourism, a cornerstone of economic diversification, faces an abrupt setback. Residential and resort areas near landmarks such as the Burj Al Arab and Palm Jumeirah sustained damage, and several casualties were reported in the UAE. The attacks come during peak travel season. Tourism accounts for roughly 12% of the UAE economy, and Saudi Arabia recorded $41 billion in tourism revenue in 2024, surpassing petrochemical exports for the first time, according to Citi.
Citi analysts said the broader targeting of population centers and civilian infrastructure could damp both leisure and corporate travel demand more sharply than prior conflicts. Tourism Economics estimates the region could see an 11% to 27% drop in international arrivals this year, translating into tens of billions of dollars in lost visitor spending.
Strains for shipping
Energy and shipping networks are also under strain. Traffic through the Strait of Hormuz, a route that carries about one-fifth of global oil supplies, has slowed dramatically. While crude prices have climbed, Gulf producers face constraints in moving exports. Qatar has halted liquefied natural gas production, Saudi oil facilities have been struck and Israel has closed gas fields. Countries heavily dependent on Hormuz, including Kuwait, Qatar and Bahrain, face heightened risks.
Major shipping companies such as Maersk (AMKBY) (AMKAF) (AMKBF) and CMA CGM have limited regional operations and rerouted vessels around Africa. Insurance premiums for tankers have surged, driving up freight costs. Construction projects, which rely on imported steel and equipment, could also face delays.
Although stores remain stocked and panic buying hasn’t taken hold, economists warn that prolonged disruption could squeeze supply chains in some of the world’s most import-dependent economies. In Kuwait, authorities temporarily banned food exports to safeguard domestic supplies, while Saudi Arabia receives about 90% of its imports by sea and air.
Governments retain significant financial buffers, including large foreign reserves and relatively low public debt. Inflation has also remained subdued. But the conflict has introduced new uncertainty into a region that has spent years marketing itself as a haven of stability in a volatile neighborhood, the Journal reported.