Can Saudi Arabia conquer global uncertainty and become a financial giant?

RIYADH: Gulf Cooperation Council nations will face a 10 percent US tariff under Donald Trump’s new trade policy, aimed at addressing what he called long-standing unfair practices. 

While the GCC was spared the steepest penalties, other Arab nations were hit harder — with Syria and Iraq facing tariffs of 41 percent and 39 percent, respectively, followed by Libya at 31 percent, Algeria at 30 percent, Tunisia at 28 percent, and Jordan at 20 percent. 

Egypt, Morocco, Lebanon, and Sudan received the same 10 percent baseline as the GCC, reflecting their relatively stable trade ties with the US, particularly in oil and petrochemical exports.

While Trump’s tariffs are technically imposed on imports into the US, most GCC countries run trade deficits with the North American country, meaning they import more than they export.

As such, any rise in US prices due to tariffs on global goods could increase the cost of US-made or US-routed products being imported into the Gulf, especially in sectors like construction and electronics.

Hamza Dweik, head of trading at Saxo Bank, told Arab News: “Non-energy sectors in the GCC that are most vulnerable to the new tariffs include electronics, automobiles, construction, retail, and consumer goods.”

He added: “These industries rely heavily on imported goods, and the increased costs from tariffs could lead to higher prices for consumers and reduced competitiveness in the market.”

Dweik also cautioned that the region’s financial services sector may face challenges, as heightened global uncertainty could disrupt investment flows and impact regional financial markets.

Concerns have been raised that even a baseline tariff could have ripple effects across GCC supply chains, especially in metals, chemicals, and industrial sectors. 

Dweik said that global retaliation or trade spillovers are a possibility and could indirectly affect the Gulf economies.

“The uncertainty in policy and potential for rapid changes weigh heavily on global markets, including those in the GCC. The region’s focus should be on diversifying trade relationships and strengthening ties with unaffected regions to mitigate potential losses,” he added.

Oil exempt from tariffs 

In a notable relief for Gulf exporters, the White House has confirmed that oil and gas imports will be exempt from the new tariffs. The decision — which also applies to energy imports from Canada, Mexico, and Europe — is intended to avoid disrupting US energy markets and driving up fuel prices. 

For the GCC, this exemption protects the region’s most critical export sector, as oil and gas account for over 60 percent of Saudi Arabia’s exports to the US and remain a key pillar of Gulf-US trade. 

“Given the GCC’s reliance on oil exports, any global economic slowdown caused by trade tensions has the potential to negatively impact oil prices, putting extra strain on their economies,” said Dweik, adding: “The exemption helps mitigate some of these impacts, ensuring that the primary revenue stream for these countries remains relatively stable despite the broader trade disruptions.” 

Tariffs have long been a cornerstone of Donald Trump’s economic strategy, rooted in his “America First” agenda to protect domestic industries and reduce trade deficits. 

The president reignited this approach with sweeping new import duties, arguing that unfair trade practices have disadvantaged US workers for decades. 

Countries hit hardest by the tariff hikes — including China, the EU, Australia, and Japan — have sharply criticized the move, with several already imposing retaliatory duties on US goods. The sweeping measures have raised alarms globally, fueling concerns over rising protectionism, supply chain disruptions, and the risk of a broader trade war. 

While the GCC countries are not among the hardest hit, analysts have warned that the region’s exporters may still face rising costs, supply chain disruptions, and increased trade friction — particularly in sectors such as aluminum, petrochemicals, and industrial goods. 

GCC indirect risk from US tariffs 

According to a February analysis by S&P Global Market Intelligence, countries including Saudi Arabia and the UAE — which maintain fixed exchange rates to the US dollar — are particularly vulnerable to tighter monetary conditions, as the US Federal Reserve may keep interest rates elevated to contain inflationary pressures stemming from trade disruptions. 

A stronger dollar could erode export competitiveness and weaken trade balances in these pegged economies. The report warns that sustained high US interest rates could also reduce portfolio inflows into emerging market debt, potentially triggering capital outflows and liquidity pressures — particularly in debt-stressed countries such as Egypt and Tunisia. 

Although Egypt’s position has improved through Gulf investments and an International Monetary Fund program, a prolonged US rate tightening cycle could undermine this recovery. 

Moreover, if oil prices fall amid global economic slowdowns, GCC oil exporters may be compelled to delay infrastructure spending, putting pressure on large-scale diversification programs.

Shipping giant Maersk has warned of the global ripple effects of the new US tariffs, cautioning that escalating trade tensions could disrupt supply chains and raise shipping costs worldwide. 

For the GCC region, which relies heavily on maritime trade for both oil and non-oil exports, such disruptions pose a notable risk. While Gulf oil exports to the US remain exempt, sectors like aluminum, petrochemicals, and industrial goods could be indirectly impacted by slower global demand and rising freight costs. 

Dweik noted that the GCC could potentially benefit from shifting global trade patterns — particularly if US tariffs remain focused on competitors in other regions.

Reaction of GCC equity market 

Regional equity markets in the GCC largely declined following the tariffs announcement, according to data from Bloomberg. 

Saudi Arabia’s main index, the Tadawul All-Share Index, fell by 72.78 points or 0.61 percent, while the parallel Nomu market dropped 0.77 percent at 12:20 p.m. Saudi time. The UAE saw the steepest declines, with the Abu Dhabi index sliding 2.86 percent and Dubai’s DFM index dropping 2.64 percent. 

Oman’s Muscat Stock Exchange MSX 30 Index lost 0.76 percent, Bahrain Bourse All Share Index fell 0.50 percent, and Jordan’s Amman Stock Exchange General Index declined by 1.70 percent. 

In contrast, Qatar emerged as an outlier, with all major indices showing positive movement. The Qatar Stock Exchange gained 0.46 percent, possibly reflecting investor confidence in the country’s diversified economic positioning and lower direct exposure to US trade policy risks. 

While oil exports from the region remain exempt from the new tariffs, market sentiment appears to have been weighed down by concerns over indirect impacts on key sectors such as metals, manufacturing, and industrial goods. The reaction underscores growing investor sensitivity to escalating global trade tensions and their potential spillover effects on regional economies. 

GCC actions to mitigate US tariff risks 

Although the latest US tariffs primarily target China, Mexico, and Canada, GCC exporters cannot afford to remain passive. With the US explicitly tying its trade policy to national security and reviewing all global trade deals under a “Fair and Reciprocal Plan,” Gulf-based businesses face increased exposure. 

According to PwC’s March trade advisory report, newly announced tariffs on aluminum and steel will apply across all countries — including the UAE, Bahrain, and Oman — overriding existing free trade agreements. The report also warns that duty drawbacks will no longer apply to these commodities, raising costs for GCC exporters and affecting competitiveness in the US market. 

PwC recommended that GCC companies urgently evaluate their exposure by modeling cost impacts, revisiting trade classifications, and leveraging tools like free trade zones and customs optimization strategies. 

Businesses should also strengthen trade compliance, invest in digital supply chain solutions, and explore market diversification to reduce US dependency. 

As the global trade environment shifts toward more protectionist policies, the report concludes that a “wait-and-see” approach is no longer viable for the region.