Navigating Geopolitical Crosscurrents: Why UAE and Saudi Non-Oil Sectors Offer Resilient Growth Opportunities

Amid escalating tensions between Israel and Iran, the Gulf region faces a precarious geopolitical landscape. Yet, beneath the surface, two economic powerhouses—UAE and Saudi Arabia—are defying the odds. Their non-oil sectors are emerging as bastions of resilience, fueled by domestic demand, strategic investments, and divergent growth trajectories. For investors seeking stability in volatile times, these markets present compelling opportunities.

UAE: Services Sector Steadfast Amid External Headwinds

The UAE's non-oil private sector, led by its services sector, has defied expectations in Q2 2025. The UAE Services Sector PMI averaged 52.4 in Q2—its highest quarterly reading since Q3 2019—despite a slight dip to 52.2 in June. Domestic demand has acted as a stabilizer, offsetting weaker international activity linked to regional tensions.

Key drivers include:
- Domestic Consumption Boom: Strong employment growth (first rise since January 2025) and rising consumer confidence are fueling services activity, from hospitality to retail.
- Optimism and Investment: Firms reported a 12-month high in future output expectations, reflecting confidence in infrastructure projects like Expo 2020's legacy and Dubai's tourism expansion.
- IMF Backing: The IMF forecasts UAE's non-oil GDP growth to hit 4.6% in 2025, supported by robust private consumption and a tourism rebound.

Yet challenges linger. Input costs rose sharply due to raw material shortages and longer delivery times, a reminder of global supply chain fragility. Investors should prioritize companies with pricing power or exposure to sectors insulated from geopolitical shocks, such as healthcare or education.

Saudi Arabia: Construction Surge Fuels Diversification

While UAE's services sector hums along, Saudi Arabia is betting big on construction and infrastructure. The Saudi non-oil PMI held steady at 56.4 in June, driven by a six-month high in new orders and hiring surges. Employment growth hit its fastest pace since November 2019, signaling a labor market heating up in tandem with Vision 2030's mega-projects.

The construction boom is underpinned by:
- Vision 2030 Ambitions: Projects like NEOM ($500 billion), the Red Sea Project ($1.7 trillion), and Riyadh's metro expansion are creating demand for steel, cement, and skilled labor.
- Export Momentum: Rising global demand for Saudi construction exports—such as pre-fab buildings or solar infrastructure—adds to growth.
- IMF-Backed Growth: The IMF projects Saudi's non-oil GDP to grow 4.4% in 2025, with construction and real estate driving 60% of this expansion.

However, risks persist. Regulatory bottlenecks and global inflationary pressures could delay project timelines. Still, the sector's 8.7% CAGR through 2030 (reaching $174.37 billion) makes it a long-term bet.

Sector-Specific Allocations: Where to Invest Now

For investors, the path forward is clear: sector specificity matters.

1. UAE Services Sector:
2. Target: Equity stakes in UAE-listed services firms or ETFs like the MSCI UAE IMI Index, which includes tourism, healthcare, and tech leaders.

3. Why Now? Domestic demand is decoupling from external volatility, and firms with pricing power can mitigate cost pressures.

4. Saudi Construction/Infrastructure:

5. Target: Infrastructure ETFs (e.g., Saudi Arabia Construction & Materials Index) or exposure to firms like Saudi Oger (roads) or Almabani General Contractors (NEOM projects).
6. Why Now? The pipeline of projects is unmatched, and global investors are underweight in Saudi non-oil equities.

Risks and Considerations

• Geopolitical Spillover: Direct conflict could disrupt supply chains or tourism. Monitor regional diplomatic developments.
• Monetary Policy: Higher interest rates in the U.S. may dampen Gulf liquidity, though both UAE and Saudi have strong fiscal buffers.
• Regulatory Delays: Saudi's construction sector faces bureaucratic hurdles—prioritize firms with government contracts or local partnerships.

Conclusion: A Strategic Play for Diversification

The UAE's services sector and Saudi's construction boom offer a rare blend of resilience and growth in a turbulent region. Backed by strong PMI data and IMF forecasts, these sectors are less exposed to oil price swings and geopolitical shocks than traditional energy plays.

Investors should consider allocating 5–10% of their emerging markets portfolio to UAE services equities or Saudi infrastructure ETFs, with a 3–5 year horizon. As the Gulf's economic diversification gains momentum, these sectors will remain pillars of growth—regardless of the headlines.

Stay disciplined, and let the data lead.