Around 8% of Gulf countries’ GDP at risk of extreme heat, water stress by 2050: S&P report

Compared to other regions, the GCC showed the third-largest GDP at risk. The Gulf region’s economic geography makes it highly exposed to these climate hazards, as most GDP is generated in cities, hydrocarbon facilities, and free trade zones located in hot, arid regions with limited water resources.

Most GCC governments have significant financial resources to continue investing in adaptation and resilience efforts to reduce physical climate risks. However, the report warns that related costs are uncertain and could increase substantially over time.

The new S&P report finds that water stress from rising temperatures and demand is already above globally recommended sustainability thresholds across GCC nations. Extreme heat is also becoming more severe, with the average number of days exceeding very hot 95^th percentile temperatures projected to increase by 50 percent under a moderate emissions scenario.

While countries have invested heavily in desalination plants and air conditioning to boost resilience, continued adaptation will be critical. S&P estimates related costs are uncertain but will likely rise substantially as climate hazards intensify further. More permanent impacts on infrastructure and long-term declines in economic productivity are also risks.

Most GCC sovereigns maintain strong fiscal positions that can help fund new resilience projects. However, continued dependence on hydrocarbon revenues leaves budgets exposed to volatility. Transitioning to renewable energy sources and further economic diversification will be important to adapting to a changing climate.

The report concludes physical climate risks will be an increasingly important factor in S&P’s credit analysis of the region over the long term without clearer pathways to manage exposure. Ongoing investments and policy planning will be monitored.