The global trading system is undergoing a significant transformation. While a tariff truce between the US and China may have eased some tensions, a deeper shift is taking place, driven by geopolitical pressures, industrial policies, and lessons learned from recent disruptions. Trade liberalisation, which has been the norm for decades, is now being replaced by a more fragmented and competitive environment.
Impacts on GCC Countries
This change is particularly relevant for Gulf Cooperation Council (GCC) countries. On the downside, increased fragmentation could dampen global growth, and consequently, reduce energy demand. If major economies focus more on domestic production or regional trading blocs, this could slow the flow of goods and services. GCC energy exports would be directly impacted, as lower global demand would affect revenues and disrupt budgets and investment plans. Sectors like logistics, aviation, and tourism, which rely on high volumes of international movement, could also experience a slowdown.
However, fragmentation is also reshaping the Gulf’s role in global trade. For decades, the region has been an essential link between the East and West, appreciated for its infrastructure and connectivity. What has changed is the increasing importance of neutrality and diversification. Companies are now not only reorganising supply chains for efficiency but also to manage geopolitical risks. The Gulf’s ability to engage with multiple partners, such as hosting both US and Chinese investments, makes it an attractive location for investment, offering a more balanced platform.
Opportunities for GCC in Global Value Chains
Industrial policies in the US, Europe, and Asia are encouraging businesses to search for alternative production bases. As trade facilitation shifts, the GCC is in a position to anchor parts of global value chains, particularly in industries like aluminium, petrochemicals, and potentially green hydrogen. This could provide the region with a more sustainable stake in global production rather than just relying on re-exports. The evolving global trade environment may create room for the Gulf to strengthen its industrial base.
Technology also adds complexity to the equation. The US, Europe, and China are creating competing digital ecosystems in fields like artificial intelligence (AI), cloud computing, and 5G. For countries like Saudi Arabia and the UAE, which are heavily investing in AI, renewables, and digital infrastructure, the challenge will be to maintain access to a diverse set of technology partners. Being drawn into exclusive digital blocs could hinder their diversification strategies. Striking a balance in this rapidly evolving landscape will be crucial for the region’s future growth.
Moving Beyond Connectivity
While the global trade system may continue to move away from the open, rules-based framework that characterised the past, the GCC is in a position to adapt and thrive. The region’s strategic location, infrastructure investments, and growing industrial ambitions can allow it to not only maintain its role as a connector of global flows but also shape those flows. Turning fragmentation into an opportunity could enable the region to build long-term resilience.
The global economy is learning from past disruptions, such as tariff hikes, energy volatility, and supply chain bottlenecks. While these risks have highlighted the dangers of over-reliance on any one partner or region, they also present opportunities for the GCC. The key challenge now is for the region to move beyond being a passive player and become an active force in the changing global trade landscape. The Gulf’s strategic positioning and ambitions in sectors like AI and digital infrastructure could make it a crucial participant in shaping the future of global production and trade.
