The Gulf’s hidden strength: its differences

The first week of March witnessed the biggest market movements, similar to the start of the COVID-19 pandemic in 2020. In those several days of trading, portfolios from New York to Singapore reduced their “Middle East” exposure by shedding Gulf assets. As in 2020, the market reflex was sell first, sort countries later.

The year has shown that the Gulf isn’t a single economy. For a start, the IMF’s October forecast puts the UAE at a 3.9 per cent annual contraction, Oman at 4.1 per cent growth, and Kuwait at a staggering minus 16.7 per cent. That represents a difference of over 20 per cent within a single region. A financial “line in the sand” is drawn across the region’s main shipping lane as economies that ship through it have lost volumes, and economies with pipelines around it have not. Kuwait, whose exports have no alternative route, has paid the highest price. The UAE’s pipeline to Fujairah and Saudi Arabia’s pipeline to the Red Sea have kept oil moving.

None of this is new, however. A recent academic study of all six Gulf stock markets over the fifteen years to 2024 found that the UAE delivered the strongest returns. It also found that the reward investors earned for the risk they took differed from one market to the next. There is no such thing as a single “Gulf risk”.

Some Gulf economies still lean almost entirely on oil, and some stock markets are not deep enough to absorb a shock. What decided where the money went this year was economic structure, exposure to trade and energy routes, and how vulnerable investors believed each country to be.

In early March, Dubai’s main index fell 4.7 per cent in a single session, and at one point that month it stood nearly a fifth below its February level. Energy, telecom and utility stocks sold off hard in those first trading days, then recovered. Technology stocks held up best.

Then the money came back, and it came from abroad. March was the busiest month of the year for new investor accounts on the Dubai Financial Market, clearing about a fifth of the nine-month total.

In the first half of 2026 the exchange recorded Dh119.5 billion ($32.5 billion) in trading value, up 40 per cent on a year earlier. Foreign investors accounted for 51 per cent of that trading and for 71 per cent of new registrations. By late September the index was back within about 1 per cent of where it had started the year.

Why the UAE? Partly the plumbing: the pipeline to Fujairah and the ports that offer alternative routes to market. Partly the balance sheet: S&P puts the country’s sovereign wealth and foreign reserves at about 200 per cent of GDP, and Fitch still expects a budget surplus this year. And partly credibility: the dirham’s peg to the dollar and a government whose announcements can be banked mean that households and companies can plan.

None of this makes the UAE immune. The IMF expects its economy to shrink 3.9 per cent this year, as uncertainty weighs on tourism, transport, trade and real estate. The 7.7 per cent rebound the Fund pencils in for 2027 assumes that regional shipping returns to normal. That is a forecast, not a promise.

The deeper lesson is that risk is not the same as loss. A crisis can make an economy look riskier without making it produce less. Dubai’s property sector led the March sell-off, yet its largest developer reported first-half revenue up 21 per cent, even if part of that reflects sales booked before March.

Dubai’s toll roads tell a similar story. Traffic fell 9.5 per cent in the first half, but by June it was back near normal. Technology, infrastructure, energy and utilities proved the most resilient, because their revenues barely notice a regional scare. Real estate and consumer businesses feel a crisis more directly, but even there, the damage was far smaller than the fear.

Three lessons follow for the region. First, diversity is a defence: economies with more than one engine of growth, and more than one route to market, absorbed the shock best. Second, infrastructure is strategy: pipelines and ports that offer alternative routes proved their worth quickly. Third, credibility counts. Buffers can be counted; a government’s record of doing what it announced cannot, and in 2026 it has been the asset that mattered most. The UAE’s job is to keep it.