How the Middle East is Navigating the Global Trade War: Opportunities and Challenges

Understanding the Economic Impact and Strategic Shifts in the Middle East Amidst Global Trade Tensions

The ongoing global trade war, ignited by U.S. President Donald Trump's aggressive tariff policies, continues to disrupt economies around the world. Major players such as North America, China, and the European Union have already been reeling from these trade tensions, witnessing stock market declines and a slowdown in economic growth. As the trade conflict intensifies, economies dependent on international trade face an increasingly uncertain future.

While the Middle East has so far avoided being hit directly by additional tariffs, the region is not immune to the broader repercussions. In this article, we explore how the Middle East could be affected by the global trade war, and how it might both suffer and capitalize on new opportunities.

Direct Impact of Tariffs on the Middle East

For the most part, the direct impact of U.S. tariffs, such as those imposed on steel and aluminum imports, has been minimal for Middle Eastern countries. The Gulf region, for instance, accounted for approximately 16% of U.S. aluminum imports in 2024. Countries like the UAE and Bahrain lead in aluminum exports to the U.S. However, economists generally argue that these sectors won’t experience catastrophic effects due to the relatively small scale of trade.

Still, the ripple effects from the global trade slowdown could prove more challenging. As Carla Slim, MENA Economist at Standard Chartered, points out, the real concern lies in the potential weakening of oil prices, a key pillar of the Middle Eastern economy, as a result of reduced global demand.

The Impact of the U.S. Dollar and Oil Prices

A major concern for many Middle Eastern economies is the value of the U.S. dollar. Countries like Saudi Arabia, the UAE, Qatar, Oman, and Bahrain, whose currencies are pegged to the dollar, face rising costs for imports as the dollar weakens. Since the beginning of 2025, the U.S. dollar has depreciated, making it more expensive for these countries to purchase goods from abroad, further pressuring their economies.

Conversely, tariffs typically strengthen the dollar, which could lead to higher oil prices, since oil is traded in U.S. dollars. In the short term, this could provide a boost to oil-exporting countries in the region. However, Slim warns that the demand for oil could still face a significant decline due to the slowdown in global trade and shipping, which could ultimately lead to reduced prices for oil.

Vulnerabilities in Debt-Ridden Economies

The financial health of Middle Eastern countries with high levels of external debt, such as Lebanon, Jordan, and Egypt, could be significantly impacted by the global trade war. A stronger U.S. dollar makes it more expensive for these countries to service their dollar-denominated debt, adding to the economic pain they already face.

Jordan, in particular, is vulnerable. Approximately 25% of Jordan’s exports, including textiles and jewelry, are shipped to the United States. This heavy reliance on exports to the U.S. places the country in a precarious position amid the escalating trade tensions.

However, Jordan may be able to mitigate some of this risk through its strategic ties with the U.S. James Swanston, a senior emerging markets economist at Capital Economics, notes that Jordan has already secured carve-outs in foreign aid from the U.S., which could provide some cushion against the fallout from the trade war.

The Positive Side: Trade Diversification and New Opportunities

While the global trade war presents challenges, it also opens up new avenues for growth in the Middle East. One such opportunity lies in the development of alternative trade corridors. According to Standard Chartered’s Slim, the GCC-Asia trade corridor is one such avenue that could benefit from shifting trade patterns. The trade corridor has experienced long-term growth of around 15%, and the disruptions caused by the trade war are likely to accelerate this trend.

In addition to direct trade relationships with Asia, the Middle East is also seeing an increase in financial and investment flows, particularly as Asian businesses look to establish a greater presence in the region. This growth has been further fueled by China’s Belt and Road Initiative, which has expanded trade routes and infrastructure development between Asia and the Middle East.

Diplomatic and Economic Strategy: Strengthening Ties with the U.S.

The political landscape also plays a significant role in the Middle East’s response to the global trade war. President Trump has long viewed the Gulf states as key allies in his efforts to counter China’s growing influence. In exchange for political support, Trump has sought to bring these countries into the U.S. sphere of influence, which could help shield them from some of the economic fallout of the trade war.

One notable example of this strengthening relationship is Saudi Arabia’s involvement with OPEC+, which has faced increasing pressure from the U.S. to boost oil output and lower global prices. While the move was anticipated, Trump’s public push for OPEC+ to comply might have given the group the political cover it needed to make the necessary adjustments.

Strategic Responses by the UAE and Gulf States

The UAE has been particularly proactive in expanding its economic reach. Over the years, the country has signed Comprehensive Economic Partnership Agreements (CEPAs) with key trading partners, which collectively account for nearly 40% of the UAE’s total exports. This diversification strategy is designed to reduce reliance on any one market, which is crucial in an environment where global trade is increasingly uncertain.

Edward Bell, Acting Chief Economist at Emirates NBD, emphasizes that this diversification approach will continue despite global trade anxiety. Building relationships with a broad array of countries remains essential for the Gulf states, and the UAE's success in doing so offers a model for other nations in the region.

Conclusion: Preparing for the Future

The global trade war poses significant challenges for the Middle East, particularly with regards to oil prices, debt, and the dollar's impact on economies pegged to it. However, the region’s efforts to diversify and strengthen trade relationships with Asia and other markets could position it well for the future. By expanding trade corridors, securing economic agreements, and leveraging its political relationships, the Middle East could mitigate some of the negative impacts of the ongoing global trade conflict.

While uncertainties remain, the Middle East’s proactive approach to economic diversification and trade strategy suggests that it could emerge from this period of global tension with new opportunities for growth and development.

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