MENA at the Crossroads

Neutrality Between the United States and China May Come Under Pressure 

While the immediate effects of sweeping U.S. tariffs will fall hardest on major exporters such as China and the European Union (EU), the Middle East and North Africa (MENA) region will not be untouched. The impacts may be delayed and mostly indirect, but they will test the region's resilience in the year ahead. 

At first glance, most MENA economies appear insulated. The United States is not a major trading partner for much of the region. On average, only around 5% of MENA exports go to the United States, and much of this consists of oil and gas, which are typically exempt from tariff measures. In the Gulf, direct exposure is even lower. The United Arab Emirates and Saudi Arabia, for instance, send just 2% to 4% of their exports to the United States, most of it in hydrocarbons that avoid tariff coverage. Based on these figures, the region seems unlikely to face immediate disruption. 

But that view is deceptive. Trade policies of this scale rarely stay contained. Global protectionism disrupts supply chains, shifts investment flows, and generates market uncertainty that ripples well beyond the countries directly involved. MENA economies, especially those that rely heavily on hydrocarbons and global capital, are acutely sensitive to these second-order effects. 

Energy Prices and Trade Diversion 

Oil markets are especially vulnerable. A sustained trade dispute between major economies could weigh on global growth expectations, pushing energy prices lower. 

This risk is no longer theoretical: the International Monetary Fund's May update downgraded regional growth to 2.6%, in part due to these spillovers. For Gulf states, this creates immediate fiscal strain. Saudi Arabia, which is at the centre of the region's economic transformation efforts, relies heavily on oil export revenue to fund capital projects and maintain macroeconomic stability. A drop in prices complicates budget execution, slows project delivery, and increases pressure on public finances. The impact on smaller, more vulnerable economies such as Bahrain or Oman would be even more pronounced. 

Compounding these challenges is the growing instability in the Gulf. The June escalation between Israel and Iran has driven Brent crude prices above USD 80 per barrel. Nearly a fifth of global oil passes through the Strait of Hormuz, and any disruption would send shockwaves through global supply chains. Oil exporters may benefit from higher revenues in the short term, but heightened volatility complicates fiscal planning and project financing. Oil importers, on the other hand, face greater inflation, trade imbalances, and rising subsidy burdens. 

Trade diversion is also a risk. When large markets such as the United States raise tariffs, exporters look for alternative markets for certain goods. Regions with open trade regimes and few restrictions, like the Gulf Cooperation Council, can be obvious targets. According to Simon Evenett, this won't happen across the board. Products including cars and electronics, for example, are unlikely to see significant diversions into Gulf markets. Instead, the main risk is in sectors where Chinese producers have excess supply and tight margins, such as steel and aluminum. For Gulf markets, this means local industries in these areas could still face price pressure and tougher competition from inexpensive imports. 

This practice, known as dumping, is not new. The region experienced it in 2017 when Chinese steel, blocked from the United States and the EU, found its way into Gulf markets and undercut local producers. There is a risk of history repeating itself, this time across a broader range of sectors. Moody's has already flagged that MENA's exposure to U.S. tariffs remains mostly indirect, tied to broader market volatility and global trade disruptions. 

Some Countries Will Be Hit Harder Than Others 

While exposure across MENA is limited, certain countries in the region are more exposed. Jordan, for example, sends more than a quarter of its exports to the United States, with apparel and garments making up the majority. New tariffs could undercut the competitive edge Jordanian producers hold, reducing orders and putting employment in export-dependent sectors at risk. 

On the other end of the spectrum, Türkiye may find some upside. U.S. tariffs on EU and Chinese goods could make Turkish products, such as textiles, more competitive in the American market. Textiles and machinery together already account for more than 15% of Türkiye's sales to U.S. buyers, so any advantage counts. Since Turkish textiles face only a 10% tariff while Chinese and EU producers deal with steeper rates, Turkish manufacturers could gain an edge. Combined with the potential to deepen EU ties, Türkiye might manage to position itself more favourably, at least in the near term. 

Morocco, as a net importer, could benefit from lower global prices for key imports such as machinery and manufactured goods if trade tensions lead to excess supply from China and Europe being redirected at discounted rates. However, this could be counter-balanced if these same trade tensions depress global demand for Moroccan exports including phosphates and fertilizers. 

At the same time, domestic inflationary pressures are mounting. The U.S. Federal Reserve held interest rates steady in June but flagged persistent inflation driven in part by protectionist measures. For MENA economies, many of which peg their currencies to the U.S. dollar, this means tighter monetary policy space and higher import costs, adding pressure on consumers and budgets alike. 

Opportunities From the Disruption 

Yet this period of disruption could also bring opportunity. The Gulf's geography has long positioned it as a critical global trade hub, dating back to the ancient Silk Road, where goods, culture, and capital flowed between Asia, Africa, and Europe. That legacy continues to shape its positioning today. As trade routes begin to shift again, the region's strategic location is once more a strength. 

President Donald Trump's visit to Saudi Arabia, Qatar, and the UAE in May 2025 was a reminder of the region's growing strategic importance in the context of U.S. economic diplomacy. While no major trade agreements were signed, the visit included investment pledges and talk of deepening bilateral partnerships. For Gulf states, this reinforces a trend toward transactional, bilateral deals, potentially outside multilateral frameworks, and raises questions about long-term alignment as U.S.-China competition intensifies. There is growing potential to deepen interregional trade, enhance links with emerging markets in sub-Saharan Africa and South Asia, and expand trade relations with India. These shifts not only open new markets for Gulf exporters but also offer avenues for greater resilience. 

Additionally, trade is no longer just about goods. The region is increasingly investing in digital infrastructure, logistics, and alternative payment systems that can reduce reliance on traditional financial channels. These developments could help mitigate external shocks and allow for more autonomous economic positioning. 

MENA's Inflection Point 

Taken together, these dynamics suggest a region that will not feel a strong initial shock from U.S. tariffs. MENA's exposure lies not in direct trade volumes, but in the fragility of the global environment that sustains its economies. The Gulf Cooperation Council sits in a shaky position. It has so far maintained a careful balance, growing ties with both Washington and Beijing while steering clear of hard alignment. But as the global trading system becomes more fractured and regional tensions escalate, that non-alignment may come under increasing pressure. 

MENA's exposure lies not in direct trade volumes, but in the fragility of the global environment that sustains its economies.

 

Whether that balance can hold is now an open question. As trade becomes weaponized and security concerns increasingly shape economic policy, MENA's longstanding strategy of non-alignment will be harder to maintain. However, the region is not merely exposed—it is strategically positioned. If political leaders can respond with agility, deepen regional ties, and invest in more autonomous economic tools, MENA could emerge from this period not just resilient, but more globally relevant than ever. 

This article is an updated version of a piece originally published by OMFIF and is republished by the International Institute for Sustainable Development with the organization's permission. 

Yara Aziz is a Senior Economist at OMFIF's Economic and Monetary Policy Institute.