The Trump administration’s decision to raise import tariffs on foreign goods has triggered global concern as economists worry it will dampen economic growth. This in turn will depress oil prices, which could pose fiscal risks for the Middle East’s oil-dependent economies.
The International Monetary Fund (IMF) has warned that the new U.S. tariffs will not only slow global economic momentum and reduce global demand, but also push inflation upward. These effects, though indirect, could impact oil-exporting countries, especially in the Persian Gulf region, whose economies remain heavily reliant on hydrocarbon revenues. Fitch Ratings estimates, “a $10 drop in oil prices could significantly reduce fiscal revenues of Gulf Cooperation Council members.”
Since President Donald Trump announced tariffs on April 2, 2025, Brent crude prices have dropped by $8, falling below $67 per barrel; they briefly dipped below $63, the lowest level since August 2021.
Despite the recent mild rebound in oil prices, analysts urge caution. Goldman Sachs recently revised its Brent crude forecast for the end of 2025 downward by more than ten percent to $62 per barrel. The investment bank warned that such price levels, if sustained, could significantly strain fiscal balances across the region—potentially more than doubling Saudi Arabia’s budget deficit of $30.8 billion and casting doubt over the financial viability of its mega-projects and economic diversification efforts under Crown Prince Vision 2030.
JP Morgan also cut its 2025 Brent price forecast to $66 per barrel from $73 and its 2026 target to $58 from $61.
Yet, fiscal breakeven points—the oil price at which the fiscal balance is zero—for most Middle Eastern oil producers remain higher than current oil prices. The International Monetary Fund estimates that Saudi Arabia and Iraq require oil prices above $91 per barrel to balance their budgets. For Iran and Bahrain, the figure climbs to a staggering $124 per barrel.
While Persian Gulf states have sought to diversify their economies, they nevertheless require substantial oil revenues. Iraq, for instance, has shelved dozens of development projects due to oil price volatility.
In Iran’s case, the situation is particularly more fragile. The government has projected daily oil exports of 1.85 million barrels at a price of $63 per barrel for the current fiscal year. However, even if this target is fully achieved, the budget would still face a deficit of nearly one-third. To cover this shortfall, the budget includes provisions for government borrowing, which means printing money and weakening the national currency.
Although the current oil price roughly aligns with the price assumed in Iran’s state budget, data from tanker tracking companies indicate that Iranian oil discharges in China have dropped to 1.4 million barrels per day in recent months. Moreover, a significant portion of Iran’s oil revenues is spent on the high costs of circumventing sanctions and offering heavy discounts to Chinese buyers.
By contrast, Qatar, Oman, and the United Arab Emirates are relatively better positioned. These countries either have more diversified economies or rely less on oil exports. The United Arab Emirates benefits from a strong non-oil sector, Qatar derives the majority of its revenues from liquified natural gas exports, and in Oman, oil and refined products made up only 56 percent of total exports last year.
Moreover, the Organization of the Petroleum Exporting Countries (OPEC) has also revised its forecasts for global oil demand downward. In its April 14, 2025 report, the cartel projected that the global oil demand will rise by 1.3 million barrels per day in 2025 and by 1.28 million barrels per day in 2026—both figures 150,000 barrels per day lower than its last month’s estimates.
Adding to the pressure are three other factors:
First, a potential ceasefire between Russia and Ukraine, which could result in the lifting of Western sanctions on Russian oil exports. Second, the initiation of direct talks between Iran and the United States, potentially lifting sanctions on Tehran and increasing Iranian oil exports by up to one million barrels per day. Lastly, the surge in U.S. oil production will likely maintain an upward trajectory until at least 2027.
While Persian Gulf states have sought to diversify their economies, they nevertheless require substantial oil revenues. Iraq, for instance, has shelved dozens of development projects due to oil price volatility.
Iraq is currently developing the Grand Faw Port–Turkey transit megaproject and implementing major contracts aimed to achieve self-sufficiency in electricity and gas supply. While Iraq and Turkey originally signed contracts for these projects more than a decade ago, first the sharp decline in oil prices in 2015-2016 and then their dramatic collapse during the COVID-19 pandemic led to their postponement. Likewise, Saudi Arabia’s ambitious Vision 2030 economic diversification plan remains heavily dependent on sustained high oil income.
More than a half century ago, Saudi Oil Minister Zaki Yamani warned, “The Stone Age came to an end not for a lack of stones, and the Oil Age will end, but not for a lack of oil.” Despite his warning about the dangers of rentier economies, many Middle Eastern states remain overly dependent on hydrocarbon exports. While increases in oil prices can bring great wealth, declining prices can bring just as stark retractions.
Trump may view his tariff plans through the lens of competition with China and a belief that many trading partners take advantage of the United States, but the second order effects of the tariffs on the global economy promise to hit the Middle East hard. As oil prices decline, regional states may react differently to financial stress. Some may tap hard currency reserves if they have them, but others may turn toward aggression to distract their publics from financial strains and unpaid salaries. There is only one certainty: the Middle East’s oil states should prepare for a rough ride.
