The volatility of oil prices reflects the uncertainties of the international environment. After falling in April following President Trump's announcement of "reciprocal" tariffs, oil prices rose by around ten dollars during the 12 days of conflict between Iran and Israel, before falling again since the ceasefire agreement. The fundamentals of the oil market are fragile and, provided that tensions in the Middle East stabilise, Brent prices are expected to average USD 65 in 2025-2026, compared with USD 79.8 in 2024. For the Gulf countries, where hydrocarbons generate 60% of government revenues and 70% of export earnings, there will be a myriad of consequences.
In order to measure the degree of vulnerability of these economies, we will use the concept of "breakeven price". This is the oil price that balances a country's public finances or external accounts. It is then compared with Brent price projections: if the breakeven price is below, the economy has room for manoeuvre, and vice versa if it is above.
A number of insights can be drawn from this graph.
Firstly, at the aggregate level, the Gulf countries' current account will continue to record surpluses, but public finances will slip into the red. The aggregate budget deficit is expected to reach 3% of GDP in 2025 and 2026.
Secondly, situations vary within the region. Regarding external accounts, the breakeven prices of four out of six countries are below USD 50/bbl, and even USD 40/bbl for the United Arab Emirates and Qatar. On the other hand, pressure will be strong for Oman and Saudi Arabia, but it will not destabilise them. Oman will be able to rely on significant foreign direct investment to cover its external financing needs, while Saudi Arabia has considerable buffers thanks to its foreign exchange reserves and assets held abroad.
A similar observation can be made for public finances. Three countries maintain comfortable budgetary margins: Oman, Qatar and the United Arab Emirates. Kuwait should be added to this list, as its public accounts are bolstered by significant revenues from its sovereign wealth fund. Bahrain is the most vulnerable, but the situation is still manageable thanks to support from other Gulf countries. With an estimated budget breakeven oil price of USD 94 per barrel, Saudi Arabia faces a more delicate situation.
Against this backdrop, a question comes to mind: what levers do these countries have in order to adapt? The breakeven price is a static measure that can mask positive dynamics or varying degrees of room for manoeuvre in terms of debt. This is the case in Saudi Arabia, where government debt is less than 30% of GDP. Furthermore, the authorities in most Gulf countries have learned lessons from the previous oil shock of 2015. Non-oil revenues have grown by 4 percentage points of GDP since then, and the momentum is still positive. Even if oil prices fall more sharply than anticipated in 2025-2026, this progress could spare them from having to choose between maintaining public finances sustainability and supporting economic diversification programmes.
