What began as a temporary ceasefire has now lasted almost as long as the fighting that preceded it. America and Iran are nearing the sixth week of a truce announced on April 8th. Many in the Gulf had hoped it would bring a swift end to the war, and to the economic disruption it has caused. Instead they find themselves in limbo. The war may be paused, despite a few skirmishes in the Strait of Hormuz and Iranian attacks on the United Arab Emirates (uae). But there is no lasting peace either—and thus almost no traffic through the strait.
As the talks continue, some Gulf residents are starting to ask the unthinkable: what if this drags on for months? The Gulf Co-operation Council (gcc), a club of six petro-monarchies, has managed the crisis well, spending tens of billions of dollars to support their economies. Officials sound confident that they can weather a bit more disruption and bounce back quickly when it ends. As weeks turn into months, though, the risk of lasting damage grows.
On May 10th Iran offered its latest proposal for a permanent ceasefire, which came in response to an American plan from the previous week. It did not release the text publicly (nor did America). But diplomats in the region say key issues remain unresolved. The parties have yet to agree on the duration of a moratorium for uranium enrichment; what to do with Iran’s stockpile of highly-enriched uranium; and whether Iran will have to dismantle some of its nuclear facilities, among other things. Not surprisingly, Donald Trump called the proposal “totally unacceptable”.
It is easy to see the consequences of a prolonged stalemate for America and Iran. Motorists in America are now paying an average of $4.52 a gallon for petrol, up 52% from before the war. In Iran, meanwhile, one official estimates that more than 1m people have lost their jobs. Quantifying the damage in Gulf states is harder, given that they are desperate to project an image of normality.
The clearest hit is in the oil and gas industry, which accounts for roughly a quarter of the region’s gdp and most of its export revenue. Saudi Arabia’s oil exports have fallen by around a third since the war began, and the uae’s by half. Bahrain, Kuwait and Qatar have exported almost nothing. “If trade and shipping remain curtailed by more than a few weeks from today, we anticipate the supply disruption to persist, and the market to normalise only in 2027,” Amin Nasser, the boss of Saudi Aramco, the kingdom’s state-run oil giant, said on May 10th.
A tanker loaded with Qatari liquefied natural gas (lng) did manage to pass through the Strait of Hormuz at the weekend, the first Qatari one to do so since the war began. The vessel was bound for Pakistan. It took a northerly route out of the strait, through Iran’s territorial waters, where the Islamic Revolutionary Guard Corps (irgc) has tried to levy tolls.
A source familiar with the arrangement denied that any such fees were paid, however. Instead they described a deal between Iran and Pakistan, which has been the central mediator between America and Iran—and is also desperate for gas. “Pakistan has been in discussions with Iran to allow a limited number of lng tankers to pass through the strait, as Islamabad urgently needs to address its gas shortage,” the source says. Yet Iran is unlikely to allow many more such transits.
The energy sector is not the only one desperate for a lasting deal. Take travel and tourism, which accounted for more than 11% of pre-war Gulf gdp (and an even larger share in the uae). Though few tourists are arriving in the Gulf, transit traffic has kept their airlines in business. Emirates, the largest of the bunch, moved a total of 4.7m passengers in March and April. That is only around 50% of the Dubai-based carrier’s usual load—but still arguably better than one would expect from an airline whose hub has been repeatedly bombed. On recent flights to Doha, Dubai and Riyadh, your correspondent found cabins nearly full.
Step outside the airport, however, and things look bleak. Hotels are empty enough that receptionists can greet arriving guests by name, because no one else is checking in that day. In Bahrain the value of credit-card spending at hotels was 64% lower in March than in February. Moody’s, a ratings agency, estimates that hotel occupancy in Dubai will be just 10% this quarter, down from 80% in February. Tens of thousands of workers have been furloughed or fired from service-sector jobs across the Gulf.
Shops are still well-stocked, despite the closure of Hormuz. Saudi Arabia has emerged as a lifeline, with goods delivered by ship to its Red Sea ports and then hauled overland to neighbouring countries. Wartime shortages seem trivial: restaurants apologise for running out of Australian Wagyu beef or Italian burrata; the lone liquor store in Riyadh has periodically exhausted its stocks of white wine. But the cost has been eye-watering, both for governments and retailers. “They told us to spend whatever it takes to avoid empty shelves,” says one merchant.
Gulf countries have varying abilities to cope. The Qataris say they can manage for a few more months despite the near-total loss of export revenue from lng, helium and other commodities. Banks in the uae still look well-capitalised. They have deferred loan payments and waived fees for thousands of businesses, part of a relief package worth more than 6bn dirhams ($1.6bn). Bahrain, on the other hand, has already signed a $5.4bn currency-swap agreement with the uae; it may need further bail-outs if the crisis drags on.
Many officials and executives point to the end of summer as a key deadline. The next few months would be a dead time anyway, as scorching temperatures put off visitors and residents alike. By September expats ought to be back from holidays and firms should be preparing to welcome millions of tourists and conference-goers. If America and Iran have not reached a deal that reopens the strait and removes the spectre of war, a temporary downturn could turn into something much more serious.