Trump's tariff overhaul: A seismic shift for GCC oil sector

Khaleej Times

03-04-2025

President Donald Trump's declaration of 'Liberation Day' on April 2 has sent shockwaves through global markets, marking a dramatic escalation in trade hostilities with sweeping reciprocal tariffs.
The move, which upends decades of trade norms, has placed the GCC economies— the UAE, Saudi Arabia, Qatar, Kuwait, Bahrain, and Oman—in a precarious position. With oil and gas exports accounting for 40-60 per cent of their GDP, the GCC now faces a destabilising economic landscape, strained US relations, and an accelerated pivot toward alternative markets, particularly China.
The immediate fallout was evident in energy markets. Brent crude futures plunged by as much as 3.2 per cent to $72.98 a barrel, while US WTI crude dropped 3.4 per cent to $69.70 — the sharpest single-day decline in weeks. The sell-off reflects investor fears that Trump's tariffs, including a baseline 10 per cent levy on most imports and higher duties on select nations, could trigger a global trade war, stifling economic growth and curbing oil demand.
Although the White House exempted oil and gas imports from the new tariffs, the broader implications for Gulf exporters remain severe. 'The US is a key market for Gulf oil and LNG. Even if crude isn't directly targeted, higher costs on petrochemicals and aluminum will squeeze margins,' said Joseph Webster of the Atlantic Council's Global Energy Center.
The GCC's reliance on hydrocarbon exports makes it uniquely vulnerable. Saudi Arabia, the region's largest economy, ships roughly 10 per cent of its crude to the US, while Qatar has become a major LNG supplier to American buyers. Any disruption to these flows could force Gulf producers to either absorb higher costs or seek alternative markets—a difficult proposition given Asia's already saturated demand.
Beyond oil, the GCC's trade-heavy economies are ill-prepared for a prolonged protectionist wave. The UAE and Bahrain, for instance, depend heavily on re-exports through hubs like Dubai's Jebel Ali port. A global supply chain slowdown could cripple these logistics networks, while Saudi Arabia's Vision 2030 diversification plans may stall if foreign investors retreat amid uncertainty.
'The GCC's small, open economies can't escape this,' said Valentina Pasquali, an analyst at AGBI. 'Trump's chainsaw to international commerce cuts deep here.'
The tariffs also risk eroding the decades-old US-GCC alliance, traditionally anchored by oil-for-security arrangements. Trump's aggressive trade stance — coupled with his hardline policies on Iran — puts Washington at odds with Gulf leaders seeking stable economic partnerships.
'Trump's 'reciprocity trumps all' approach undermines traditional trade norms,' said Barbara C. Matthews, a trade specialist at the Atlantic Council.
Ellen Wald of the Arab Center Washington DC noted: 'Gulf states have long balanced relations with the US and China, but these tariffs could push them further into Beijing's orbit.'
Indeed, China's tariff-free trade deals and insatiable appetite for Gulf oil make it an attractive alternative. Saudi Aramco and Adnic have already deepened investments in Chinese refineries — a trend likely to accelerate if US market access tightens.
While some nations, like Canada, have threatened counter-tariffs, Gulf states lack similar leverage. 'Oil is fungible—cutting off the US would just redirect flows to Asia, but at lower prices due to oversupply,' Webster said.
The International Energy Agency (IEA) warns that persistent trade tensions could create a 1.5 million barrel-per-day surplus by late 2025, forcing Opec+ into another round of production cuts. Such a scenario would further strain Gulf budgets still recovering from the pandemic-driven oil crash.
As GCC stock indices dipped slightly on April 3 — Saudi Arabia's Tasi fell 0.3 per cent, Qatar's QSI eased 0.1 per cent — the mood was one of cautious recalibration. Trump's 'Liberation Day' may symbolise US economic sovereignty, but for the Gulf, it presents a harsh new reality: an oil-dependent model under siege, alliances in flux, and a pressing need to accelerate diversification.
Analysts said in the coming months, Gulf leaders will face a defining choice — whether to navigate the turbulence of Trump's trade war or hasten their pivot eastward. 'One thing is certain: the rules of global trade are being rewritten, and the GCC must adapt — or risk being left behind.'