Israel-Iran war could slow Gulf investment inflow in 2025, warns World Bank regional chief
Foreign direct investment in the Gulf could slow in the second half of this year as the war between Iran and Israel dents investor sentiment, the World Bank 's director for the region has said.
Investors will probably adopt a wait-and-see approach as the conflict that started with Israel's attacks on Iran's nuclear sites on June 12 worsens, Safaa El-Kogali told The National in Riyadh.
'Even if they've started [investing beforehand], they [foreign investors] might hold off until they see things settling down a bit,' she said on the sidelines of a World Bank seminar on Sunday.
De-escalation does not seem likely after President Donald Trump ordered the first-ever direct US military attack on Iranian soil earlier that day. The US attacked three Iran nuclear facilities with six bunker-buster bombs and launched Tomahawk missiles.
GCC countries had varied in their ability to attract FDI in 2024.
The UAE received Dh167 billion ($45.5 billion) in foreign direct investment last year, Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai, said in a post on X on Thursday. This represented a 48 per cent increase, he added.
The UAE accounted for 37 per cent of the total foreign investment flows in the region, he said.
Saudi Arabia's net FDI inflows in 2024 decreased as a share of GDP, amounting to 1.1 per cent compared to 2.1 per cent in 2023, according to a recent report by the World Bank.
Bahrain, Kuwait, and Qatar saw FDI fall by 7.3 per cent, 2.3 per cent and 0.5 per cent of GDP respectively from 2023 to 2024, it added.
Oman saw FDI increase by 2.4 per cent of GDP. This was due to 'prudent fiscal management and diversification efforts' the report said.
What is the impact?
No one can accurately measure the impact of the escalation on the regional economies, but peace is necessary for economic security and the implications will be broad, Ms El-Kogali said.
'Increasing costs of commodities, of shipments – this will impact a number of industries that import raw material', she said. The conflict will add to inflation, which will affect investors and consumers alike, she added.
'Whenever there is uncertainty … in any region, tourists usually decide not to go,' she said.
Travel and tourism made up about 11.4 per cent of the region's gross domestic product in 2024, according to the latest data from the Statistical Centre for the Co-operation Council for the Arab Countries of the Gulf.
Oil prices, which have surged since the beginning of the war, will also have an impact on the fiscal balance of Gulf countries that still rely heavily on oil as their primary source of revenue and exports, she said.
Brent and WTI surged by as much as 13 per cent in the first few hours of trading after Israel began its military campaign against Tehran.
Oil prices posted a third weekly gain in a row despite falling on Friday as the war sparked supply fears.
On Friday, Brent, the benchmark for two thirds of the world's oil, fell 2.33 per cent to settle at $77.01 a barrel. West Texas Intermediate, the gauge that tracks US crude, closed 0.28 per cent lower at $74.93 a barrel.
Who will feel it more?
Gulf countries that have diversified away from oil, such as the UAE, are more likely to resist hits caused by global economic uncertainty, Ms El-Kogali said.
This was a key message of the World Bank report, Smart Spending, Stronger Outcomes: Fiscal Policy for a Thriving GCC, released last week, that measured the growth of Gulf economies until June 1.
'I think this report is really timely, because it focuses on what the GCC countries have been doing, and what impact, or the effect, those policies that have been put in place [have had],' said Ms El-Kogali.
'The UAE has started the diversification agenda a while back and currently, with 74 per cent of GDP being from the non-oil sector, puts them in a stronger position.
'The more you diversify, the more you have different opportunities to deal with crises that come your way. When you put all your eggs in one bag, and something happens to that bag, then you're in greater trouble.'
Proper investment
Ms El-Kogali said that higher oil prices can benefit Gulf countries, depending on how revenue is spent in the non-oil sector.
'We think that as the non-oil sector continues to be strong and growing, with the easing off of the oil production cuts, that the countries of the GCC have good gross prospects in the short and medium term,' she said.
'We really expect growth to reach 4.5 per cent by 2026 driven by the oil and the non-oil.' It takes time to see the returns of investments she added.
This growth is particularly important during period of geoeconomic uncertainty.
However, 'there may be the risk of spillovers' of the war which will impact the growth trajectory of Gulf nations, she said.
Gulf countries have been prudent in the past during crises and 'we saw that implementing fiscal spending during downturns had a positive impact', she said.
There is room to do more to further streamline spending and the Gulf countries must prioritise investments that have high returns, and can create jobs during difficult times, that will then sustain growth through economic cycles, she added.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Gulf Today
2 hours ago
- Gulf Today
UAE, Canada leaders explore ways to boost bilateral ties
Sheikh Abdullah Bin Zayed Al Nahyan, Deputy Prime Minister and Minister of Foreign Affairs, met Mélanie Joly, Minister of Industry and Minister responsible for Canada Economic Development for Quebec Regions, during his working visit to Canada. During the meeting, Sheikh Abdullah discussed the close friendship between the UAE and Canada, explored frameworks for cooperation, and ways to enhance it in a manner that serves mutual interests and contributes to the prosperity and well-being of both nations. The two sides reviewed prospects for cooperation across various sectors, particularly in industry, trade, investment, technology, and renewable energy. During the meeting, Sheikh Abdullah highlighted the importance of joint efforts between the two friendly nations to strengthen cooperation in the industrial sector, building on the strong UAE-Canada ties and the sector's diverse and attractive opportunities that align with both countries' ambitions for sustainable economic development. The meeting was also attended by Reem Bint Ebrahim Al Hashimy, Minister of State for International Cooperation; Dr Thani Bin Ahmed Al Zeyoudi, Minister of Foreign Trade; Sultan Al Mansoori, Envoy of the Minister of Foreign Affairs; Saeed Mubarak Al Hajeri, Assistant Minister for Economic and Trade Affairs, and Abdulrahman Ali Al Neyadi, the UAE Ambassador to Canada. On Friday, Sheikh Abdullah had met Anita Anand, Minister of Foreign Affairs of Canada. During the meeting, Sheikh Abdullah and the Canadian Foreign Minister discussed bilateral relations and means to further develop them across various fields. Sheikh Abdullah and Anita Anand also reviewed opportunities to enhance cooperation in several key sectors, including the economic, educational, investment, trade, technology and energy fields. Sheikh Abdullah reiterated the deep and long-standing friendship between the UAE and Canada, and highlighted the UAE's commitment to further advancing this distinguished relationship, which holds promising opportunities for growth and development in line with the aspirations of both nations for a more prosperous future. Discussions also touched on the latest regional and international developments, with a focus on their repercussions for global peace and security. Also on Friday, Sheikh Abdullah had met François-Philippe Champagne, Canada's Minister of Finance and National Revenue. Sheikh Abdullah and Champagne discussed the distinguished bilateral relations between the UAE and Canada and explored ways to promote them to serve both countries' shared interests and developmental priorities. WAM
Gulf Today
2 hours ago
- Gulf Today
Pakistan condemns Trump's bombing of Iran — a day after nominating him for Peace Prize
Tariq Butt, Gulf Today Correspondent / Reuters Pakistan condemned on Sunday the strikes ordered on its neighbour Iran by Donald Trump, a day after Islamabad had said it would nominate the US President for the Nobel Peace Prize. Pakistan on Sunday said Trump's decision to bomb Iranian nuclear facilities violated international law and that diplomacy was the only way to resolve the Iran crisis. "The unprecedented escalation of tension and violence, owing to ongoing aggression against Iran is deeply disturbing. Any further escalation of tensions will have severely damaging implications for the region and beyond," Pakistan's Ministry of Foreign Affairs said. Shiite activists hold placards to condemn US and Israel's attacks on Iran, during a protest in Karachi on Sunday. AFP Also on Sunday, Pakistan's Prime Minister Shahbaz Sharif telephoned Iranian President Masoud Pezeshkian and "conveyed Pakistan's condemnation of the U.S. attacks," a statement from the Pakistani leader said. Pakistan's information minister and the foreign ministry did not respond to requests for comment on the apparent contradiction in the country's positions over the weekend. In Pakistan's biggest city, Karachi, thousands marched in protest against the U.S. and Israeli strikes on Iran. Shiites hold portraits of Iran's Supreme leader Ayatollah Ali Khamenei to condemn US and Israel's attacks on Iran, during a protest in Karachi. AFP A large American flag with a picture of Trump on it was placed on the road for demonstrators to walk over. The protesters shouted out chants against America, Israel and Pakistan's regional enemy India. Pakistan on Saturday said it was nominating Trump as "a genuine peacemaker" for his role in bringing a four-day conflict with India to an end last month. It said he had "demonstrated great strategic foresight and stellar statesmanship." Deputy Prime Minister and Foreign Minister Senator Ishaq Dar has formally sent a letter of recommendation to the Nobel Committee in Norway, nominating US President Donald Trump for the Nobel peace prize. Officials said the letter cited Trump's role in defusing tensions between Pakistan and India earlier this year. The move recognises Trump's efforts in bringing about a ceasefire between the two nuclear-armed neighbours and for highlighting the Kashmir dispute on the international stage. The development comes after the government's announcement, made earlier on social media, of its decision to formally nominate Trump for the world's most prestigious peace award. Pakistani nationals who were residing in Iran, arrive with their belongings in Quetta. AFP In a statement issued on X, the federal government said that the international community had witnessed "unprovoked and unlawful Indian aggression," which it described as a "grave violation" of Pakistan's sovereignty and territorial integrity. The attack, according to the statement, resulted in the "tragic loss of innocent lives, including women, children, and the elderly." In response, Pakistan launched Operation Bunyan-um-Marsoos - a "measured, resolute, and precise military" countermeasure. The operation, Pakistan stressed, was executed to re-establish deterrence and defend its territorial integrity while "consciously avoiding civilian harm." Amid the heightened tensions, the statement noted that President Trump "demonstrated great strategic foresight and stellar statesmanship" by engaging diplomatically with both Islamabad and New Delhi. This effort, it added, helped de-escalate the rapidly worsening situation, secured a ceasefire, and prevented a wider regional conflict. The government hailed Trump's actions as those of a "genuine peacemaker" with a firm commitment to resolving conflict through dialogue.
Gulf Today
2 hours ago
- Gulf Today
VIDEO: US strikes 3 Iranian sites, joining Israeli air campaign
The US military struck three sites in Iran early on Sunday, inserting itself into Israel 's effort to decapitating the country's nuclear programme in a risky gambit to weaken a longtime foe amid Tehran's threat of reprisals that could spark a wider regional conflict. Iran's nuclear agency on Sunday confirmed attacks took place on its Fordo, Isfahan and Natanz atomic sites, but is insisting its work will not be stopped. The Atomic Energy Organisation of Iran issued the statement after President Donald Trump announced the American attack on the facilities. "The Atomic Energy Organisation of Iran assures the great Iranian nation that despite the evil conspiracies of its enemies, with the efforts of thousands of its revolutionary and motivated scientists and experts, it will not allow the development of this national industry, which is the result of the blood of nuclear martyrs, to be stopped,' it said in its statement. The decision to directly involve the US comes after more than a week of strikes by Israel on Iran that have moved to systematically eradicate the country's air defences and offensive missile capabilities, while damaging its nuclear enrichment facilities. But US and Israeli officials have said that American stealth bombers and a 30,000-lb. bunker buster bomb they alone can carry offered the best chance of destroying heavily-fortified sites connected to the Iranian nuclear programme buried deep underground. President Donald Trump was the first to disclose the strikes. There was no immediate acknowledgment from the Iranian government. Iran's state-run IRNA news agency reported that attacks targeted the country's Fordo, Isfahan and Natanz nuclear sites. The agency did not elaborate. The US is stepping up evacuation flights for American citizens from Israel to Europe and continuing to draw down its staff at diplomatic missions in Iraq as fears of Iranian retaliation again US interests in the Middle East grow. Even before those airstrikes were announced by President Donald Trump on Saturday evening in Washington, the US embassy in Jerusalem announced the start of evacuation flights for American civilians from Israel. In addition to the flights, a cruise ship carrying more than 1,000 American citizens, including several hundred Jewish youngsters who had been visiting Israel on an organized tour, arrived in Cyprus, according to the document. Donald Trump said he worked "as a team' with Israeli Prime Minister Benjamin Netanyahu, saying the collaboration was "perhaps' like "no team has worked before.' This handout satellite image shows an overview of Iran's Fordow Fuel Enrichment Plant (FFEP), in Fordo, Iran. AFP But Trump also noted that no military in the world except for that of the US could have pulled off the attack. President Donald Trump called Iran "the bully of the Middle East' and warned of additional attacks if it didn't make peace. "If they do not, future attacks would be far greater and a lot easier,' Trump said at the White House after the bombings of Iran's nuclear facilities were announced earlier. Trump portrayed the strike as a response to a long-festering problem, even if the objective was to stop Iran from developing nuclear weapons. The Washington-based Arms Control Association, which focuses on nuclear nonproliferation, said the attack was an "irresponsible departure from Trump's pursuit of diplomacy and increases the risk of a nuclear-armed Iran.' "The US military strikes on Iranian nuclear targets, including the deeply fortified, underground Fordo uranium enrichment complex, may temporarily set back Iran's nuclear program, but in the long term, military action is likely to push Iran to determine nuclear weapons are necessary for deterrence and that Washington is not interested in diplomacy,' it warned. A police tape blocks off an area near the White House, following US strikes on Iran's nuclear facilities, in Washington, DC, U.S., on Saturday. Reuters Iran's state-run IRNA news agency reported early Sunday that attacks also targeted the country's Isfahan and Natanz nuclear sites. IRNA quoted Akbar Salehi, Isfahan's deputy governor in charge of security affairs, saying there had been attacks around the sites. He did not elaborate. Another official confirmed an attack targeting Iran's underground Fordo nuclear site. Iran's state-run IRNA news agency early Sunday acknowledged an attack on the country's Fordo nuclear site. Quoting a statement from Iran's Qom province, IRNA said: "A few hours ago, when Qom air defenses were activated and hostile targets were identified, part of the Fordo nuclear site was attacked by enemies.' The IRNA report did not elaborate. Iran's semiofficial Tasnim news agency, believed to be close to the country's paramilitary Revolutionary Guard, quoted a provincial official in Qom that air defense did recently fire in an attack believed to target the area around the Fordo facility, but offered no other information. The semiofficial Fars news agency, also close to the Guard, quoted another official saying air defenses opened fire near Isfahan and explosions had been heard. Fars also quoted the same official in Qom province, saying air defenses fired around Fordo. President Abdel Fattah Al Sisi arrives at Baghdad International Airport. File/Reuters President Abdel Fattah El Sissi of Egypt has expressed his government's "complete rejection' of Israel's campaign against Iran, calling for a negotiated solution to the conflict. El Sissi's comments came in a phone call Saturday with Iranian President Masoud Pezezhkin, the Egyptian presidency said in a statement. The statement said El Sissi voiced Egypt's "complete rejection of the ongoing Israeli escalation against Iran,' as a threat to the Middle East's security and stability. The Egyptian leader called for an immediate ceasefire to resume negotiations with the aim of reaching a "sustainable, peaceful solution to this crisis.'
