The guns in the Middle East may have slowed, but the war against Iran that began several weeks ago has not ended, with Israel continuing its attacks on Lebanon.  The uneasy pause in the US–Israel war on Iran has brought neither clarity nor stability. Threats continue in different ways. Negotiations remain delicate with Islamabad mediating between stroppy contestations. The Strait of Hormuz still stands as a pressure point. The region thus experiences both escalation and restraint. This uncertainty has already begun to change the Gulf in ways that go far beyond the battlefield. 

While global attention remains focussed on oil prices and supply chains, the real story is unfolding inside the GCC economies. Saudi Arabia, the United Arab Emirates, Qatar and others have already suffered losses worth several billion dollars within the first month. This, however, goes beyond revenue. To be sure, most GCC countries face the loss of confidence. The Gulf’s biggest asset has always been stability. That image is now shivered. It is difficult, as of now, to predict how long it will take, for these countries, to recover. 

The disruption of the Strait of Hormuz has exposed the region’s vulnerability. Nearly 20% of global oil passes through this narrow route, but traffic has fallen to less than 10% of normal levels for several weeks. Production cuts of 10 million barrels per day have followed. This has hit exports, logistics, and supply chains across the region. 

Saudi Arabia has faced the largest immediate losses. Oil output dropped from 10.4 million barrels per day to 8 million, costing more than $8 billion in one month. Total losses have reached about $10 billion when logistics and insurance costs are added. The UAE has lost around $6 billion, largely from aviation and trade disruptions. Qatar faces deeper long-term damage, with 17–20% of LNG capacity affected, leading to projected losses of $20 billion over three to five years. 

The economic outlook is equally worrying. According to Oxford Economics, GCC growth for 2026 has been downgraded sharply to -0.2%, pushing the region toward recession. Countries like Qatar, Kuwait, Bahrain, and the UAE are more vulnerable because they depend heavily on the Strait of Hormuz. Saudi Arabia and Oman are relatively less exposed due to alternative export routes. 

Governments are now adjusting priorities. Spending is being redirected toward defence, infrastructure repair, and security. Large projects are slowing. Even before the war, Saudi Arabia had scaled back parts of NEOM. Now, project delays will deepen. Construction, tourism, and aviation will take the first hit. These sectors depend heavily on migrant labour. 

The Gulf model was built on oil, trade, and migrant labour. This war is testing all three pillars at once. The consequences will not remain within the Gulf. They will travel outward, carried by workers, capital, and uncertainty. 

The worst impact of the war will be felt in lives. The Gulf hosts more than 30 million migrant workers, making it one of the largest labour corridors in the world. Indians form one of the largest groups with more than 90 million, with over 3.4 million in the UAE and 2.6 million in Saudi Arabia. 

These workers are the backbone of the Gulf economy. In some countries, foreigners make up over 50% of the population, rising to 87–88% in the UAE and Qatar. Of the 31 million migrants, about 63% (19.2 million) are South Asians. Nearly 90% of them work in low- and semi-skilled jobs, especially in construction. 

These are the most vulnerable workers. When projects slow, they lose jobs first. When wages are delayed, they have no safety net. When conflict rises, they cannot easily leave. They remain trapped between fear and necessity. 

The construction sector is already under pressure. Project delays and funding cuts will lead to layoffs. Past crises show what comes next. During the 2008 financial crisis and COVID-19 pandemic, more than 1 million migrants returned home, including 700,000 Indians. A similar pattern may follow now. 

Early signs are visible. India has already reported that over 3.5 lakh migrants returned within weeks of the conflict. This number may rise if the war continues. 

The consequences extend beyond individuals. Remittances are a lifeline for South Asia. India received $118 billion in remittances, with 38% from the Gulf. In Kerala, remittances account for 23.2% of Net State Domestic Product and are 1.7 times state revenue receipts. 

This means any shock in the Gulf becomes a social crisis at home. Job losses reduce income. Returning workers increase pressure on local economies. At the same time, rising oil prices increase inflation. This creates a double burden. 

Migration patterns will also change. As scholars like Françoise De Bel-Air argue, the war will not end migration but restructure it. Some workers will return. Some will remain stranded. Skilled workers may move to other countries. But low-income migrants will face restricted mobility. 

The labour market will become more unequal. Strategic sectors such as energy, logistics, and healthcare will retain workers. But construction, retail, and services will contract. This will create a divide between “essential” and “expendable” labour. 

For millions of families, this is more than an economic shift. It is a question of survival. The Gulf dream is not over. But it is no longer secure. 

Localisation, Policy Shifts, and India’s Choices

The war is also accelerating a change in rules in the Gulf – the move toward localisation. Governments are treating this as policy. 

The most striking example is the new law in Dubai. Companies working with the government must now employ one Emirati for every foreign worker (1:1 ratio). This is a major shift from the earlier requirement of 10% Emirati employment. The transition will be gradual, with 1% increases every six months, but the direction is clear. 

This change reflects a wider trend across the Gulf. Kuwait has long aimed to reduce foreigners from 70% to 30% of its population and proposed a 15% cap per nationality, which could have affected 800,000 Indians. Saudi Arabia is pushing localisation through programmes targeting over 340,000 jobs. 

These policies are driven by both economics and security. The war has forced governments to rethink labour dependence. Repairing infrastructure and maintaining stability require more controlled labour systems. Migrant labour is now seen as both necessary and risky. 

Nonetheless, migration will not disappear. The Gulf still depends on foreign labour for key sectors. What will change is its nature and structure. Migration will become more selective. Skilled workers will be retained. Low-skilled workers will face tighter controls. 

For countries like India, this creates difficult choices. India is closely tied to the Gulf through labour, remittances, and energy. A slowdown in migration will affect employment, foreign exchange, and domestic demand.  Policy responses must, therefore, be practical. India will need to, prepare for return migration and reintegration; diversify migration destinations beyond the Gulf; invest in skill development to match changing demand and strengthen social protection for migrant families. 

The Gulf is also changing its security strategy. There is growing interest in seeking new strategic partnerships, including expanding military partnerships beyond the United States. This indicates a more uncertain regional order.  

In the long run, the Gulf will remain important for South Asia, particularly India. But the relationship will be different. It will be more uncertain, more selective, and more strategic. 

© Eurasia Review