Gulf region is spared high US tariffs, but not the pain of a global trade war

Apr 4, 2025, 10:59am EDT

US President Donald Trump holds a signed executive order, on the day he delivers remarks on tariffs in the Rose Garden at the White House in Washington, April 3 2025. — Carlos Barria/File Photo/Reuters

The News

The Gulf appears likely to have escaped the direct impact of US President Donald Trump’s blanket tariffs this week. Oil, gas, and refined products — the bulk of Gulf exports — are exempt, and the US is no longer a key market for Gulf crude. That’s why regional countries were hit with the blanket 10% tariff. There’s also little chance of retaliation: Gulf states import high-value goods from the US, like advanced tech and weapons systems, and aren’t expected to haggle with Trump for additional exemptions.

A chart showing the total trade with the US for 2024 of different Gulf countries.

But the secondary effects of “Liberation Day” and growing US protectionism are hitting hard. Projections of slower global growth may crimp oil demand, a weaker US currency will erode the purchasing power of the dollar-pegged Gulf currencies, and slumping assets are denting sovereign wealth portfolios. Even countries hit with minimal US tariffs can’t escape the havoc of a global trade war.

Here’s what Justin Alexander, director of consultancy Khalij Economics, thinks about the levies:

Mohammed Sergie: The Gulf got the baseline 10% tariff, and you expect limited direct impact to trade with the US. So, all good? Justin Alexander, director of Khalij Economics: Unfortunately not. Trade with the US is not that important for the Gulf, but a global trade war will hurt global oil demand and rekindle inflation. Together, these factors will drive down crude prices and push up borrowing costs, which are linked to US rates. Saudi Vision 2030 and other major investment programs in the region will become more expensive at a time when Gulf oil revenue will be weaker. Trump’s expectation of huge investment inflows from Gulf sovereign wealth funds will also need to be tempered. These states have long invested sizable shares of their surpluses, earned by selling hydrocarbons mainly to Asia and Europe, into US assets. But if their revenue is weaker and their costs are higher in a new era of tariffs, then they will have less available to invest. More positively, as one of the remaining bastions of free trade, with some of the lowest and most consistent tariffs, the Gulf itself could become an even more attractive safe haven for investments.