When the war began in Iran, it was hard to know when the conflict would end. That uncertainty has now somewhat eased. A deal has been made to end the conflict, and the first round of negotiations showed encouraging progress.

With the conflict winding down, analysts are rapidly shifting their focus— much as they did during the global financial crisis and the COVID-19 pandemic—to assess its economic consequences. Most importantly, focus is on the multibillion-dollar tourism industry.

The war’s knock-on effects have ripped through the tourism sector—the Gulf economies’ lifeline—putting at risk the region’s carefully constructed image as a high-end vacation hotspot after billions in investment in recent years.

PROLONGED RECOVERY

A report published by ICAEW and Oxford Economics projects inbound arrivals to the GCC will fall by around 30% in 2026, resulting in tens of millions fewer visitors and tens of billions of dollars in lost spending across the region.

Tourism, worth some $247.1 billion annually to the region, is expected to face a more prolonged recovery.

“The impact would be strong, particularly in sectors directly linked to visitor demand such as hospitality, aviation, retail, and entertainment. Tourism creates economic activity across multiple industries, which is why its contribution extends beyond visitor numbers alone,” says Nicolas Mayer, PwC Middle East Partner, Global Industry Leader Tourism.

Tourism is a cornerstone of the region’s economic diversification and growth strategy, but analysts say it is unlikely to be the sole determinant of economic performance across the GCC.

Mayer points out that the GCC’s economic landscape is more diversified than it was a decade ago. Continued investment across industry, infrastructure, technology, and financial services provides a broader foundation for growth.

“The region benefits from multiple growth drivers, including infrastructure, industry, technology, and investment,” says Mayer. “What makes tourism particularly important is its ability to influence a wide range of sectors simultaneously, from hospitality and aviation to retail, entertainment, and real estate.”

The GCC economy is diversified enough that recovery will not depend solely on tourism and travel, but Mohanad Nada, Head of GCC at Tumodo, says business travel remains one of the fastest indicators of confidence in the region.

“In the Gulf, aviation, hospitality, trade, MICE, and cross-border corporate activity are deeply interconnected. Once executive travel, regional projects, and investment flows normalize, the wider economy usually follows quickly,” adds Nada.

A rebound in travel will help set the pace of recovery and shape global perceptions of stability. However, even as the war ends, there are ongoing concerns about the sector.

“Traveler and investor confidence takes time to recover after a conflict ends,” says Bani Haddad, Founder & Co-CEO, Aleph Hospitality.

“In tourism, perception often takes longer to recover than operations on the ground,” says Mayer, adding that destinations may be fully open and functioning, yet traveler confidence can take time to return.”

GOVERNMENT SUPPORT TO THE SECTOR

Analysts say some steps governments could take to support the sector include tourism and airline stimulus programs, faster visa processing, coordinated regional travel communication, and support for major events and exhibitions to restore traveler confidence.

“The opportunity lies in the visitor experience itself,” says Mayer. “Hotels, airlines, attractions, and tourism operators all play a role in rebuilding confidence and strengthening destination reputation. Positive experiences are often the most effective way to encourage future demand.”

“Destinations that remain visible in key source markets and continue investing in visitor experience are typically best positioned to benefit when confidence returns.”

In the short term, Mayer says, the priority should be confidence. Governments can support demand through improved accessibility, airline partnerships, destination marketing, and major events that encourage travel and business activity. “Over the longer term, success depends on maintaining the fundamentals that make destinations competitive: safety, connectivity, quality infrastructure, and a strong visitor experience.”

Haddad says governments can support through coordinated safety messaging, targeted airline and visa incentives, and joint destination marketing. Long term, the focus should be on diversifying source markets, strengthening domestic and intra-GCC tourism, and investing in resilient infrastructure.

“The UAE, particularly Dubai, has demonstrated how proactive policies, open-skies approach and destination marketing can sustain demand and support a faster recovery,” adds Haddad.

The UAE government has introduced a combined $680 million in economic stimulus packages specifically designed to support the tourism, hospitality, and aviation sectors.

In May, Dubai approved a $400 million economic incentive package to support the city’s business and tourism sectors. The raft of measures includes suspending the nightly hotel tax, which is $5.45 in higher-tier hotels, and the 7% municipal tax added to hotel and restaurant bills.

“Dubai has built a distinguished model for adapting to change and turning challenges into opportunities,’ said Sheikh Hamdan bin Mohammed, Crown Prince of Dubai, Deputy Prime Minister and Minister of Defense.

Overall, the fund includes 33 initiatives relating to tourism, trade and logistics, real estate, construction, education, and arts and cultural activities. They will be implemented over a period of 3 to 12 months.

Nada says the region has learned that geopolitical risk can disrupt travel operations overnight, so both travelers and corporations will remain more cautious. “We expect companies to book earlier, diversify airline and route options, increase contingency budgets, prioritize flexible travel policies, invest more in traveler risk management, and duty of care.”

He adds that GCC governments are already moving in this direction through stronger regional connectivity, investment in aviation infrastructure, digital travel ecosystems, diversified tourism strategies, and large-scale business and entertainment destinations.

However, not all of the Gulf’s tourism story is one of decline. Saudi Arabia has so far weathered the fallout better than many of its regional peers, supported by strong domestic demand. According to reports, Red Sea resorts that had previously struggled to fill rooms are seeing increased bookings, mostly from Saudi residents seeking easier or safer breaks.

Hotel occupancy across the kingdom averaged 66.3% in the first quarter, according to JLL. Total tourist trips — both domestic and international — rose 8% year-on-year to 37.2 million, as domestic travel offset a 13% drop in inbound visitors, according to Saudi tourism ministry data.

Analysts say that while international visitor numbers remain under pressure across the GCC, ambitious tourism strategies and continued investment could help cushion the impact. As confidence returns, tourism is expected to play a key role in accelerating economic activities.

The most successful destinations, Mayer says, are those that view “tourism as part of a broader economic strategy, where investment, liveability, and destination development work together to support sustainable growth over time.”

As demand returns, Mayer adds, tourism can help “accelerate economic activity while supporting the broader ambition to attract investment, talent, and business into the region.”