Iran war threatens Gulf states’ $4T in US pledges

The economic toll of the US-Israel war on Iran is hitting Middle Eastern economies far harder than the rest of the world, with the International Monetary Fund projecting a 6.8% contraction for Iraq in 2026 and steep growth downgrades for Gulf states whose trillion-dollar commitments to the United States now face growing doubt.

Gulf States Under Fiscal Strain

A new analysis released Monday by the Peterson Institute for International Economics warns that Saudi Arabia, Qatar, and the United Arab Emirates may struggle to deliver on nearly $4 trillion in economic commitments made to the US under President Donald Trump's "America First" agenda. The 15-page report said the war has weakened the Gulf states' fiscal positions and may have "lasting effects on their growth models," while also eroding confidence in the US security umbrella in the region.aljazeera

The IMF cut Qatar's 2026 growth forecast by 14.7 percentage points to 8.6%, while Saudi Arabia's was reduced from 4.5% to 1.7% and the UAE's from 5.6% to 1.7%. In its July World Economic Outlook update, the Fund further lowered regional projections, cutting the Middle East and Central Asia forecast to 0.7% for 2026.shafaq+2

The PIIE report noted that Saudi Arabia's Public Investment Fund has already reduced its international portfolio allocation to 20%, down from 30% in 2020, and that the conflict "appears to have reinforced that shift" toward domestic spending.aljazeera

Iraq Faces Deepest Blow

Iraq's projected 6.8% contraction makes it one of the hardest-hit economies in the region. The IMF attributed the decline to disruptions in oil output and export logistics caused by the conflict. Iraqi economic analyst Manar Al-Obeidi warned this month that the forecast "exposes structural rot in Iraq's non-oil economy and banking credit," suggesting the damage extends well beyond disrupted crude exports.amwalalghad+3

Iraq exported just 10 million barrels through the Strait of Hormuz in April 2026, down from 93 million before the war, underscoring the scale of the disruption to an economy where oil accounts for 84% of government revenues. The IMF projects a rebound to 11.3% growth in 2027, assuming energy production and transport networks normalize.statisticsoftheworld+1

Political Pressure on Commitments

The PIIE report warned that delays in Gulf investment pledges could provoke retaliation from Washington, noting that the Trump administration threatened to raise tariffs on South Korean goods in January 2026 over legislative delays in enacting an investment agreement. The Wall Street Journal News Corp ↘ 2.07% reported last week that South Korea is close to a potential energy investment deal worth more than $100 billion to support US artificial intelligence infrastructure.aljazeera

The lack of clear definitions, timelines, and measurement methods in the Gulf commitments makes accountability difficult, the report said. "The question now is whether, and in what form, the three countries will implement their commitments".dispatchtimes+1