• Progress on implementing the long-delayed Gulf Railway project has shown signs of accelerating in recent months, characterised by a flurry of bilateral agreements and the ramping up of infrastructure spending by Gulf Co‑operation Council (GCC) governments and foreign investors.

• These developments are being supported by improved fiscal headroom for the GCC due to a period of high global hydrocarbons prices, alongside a more stable outlook for intra‑GCC relations.

• However, the project remains vulnerable to multiple risks in 2024‑28, and we expect these to slow the pace of its implementation. They include a deteriorating fiscal outlook for GCC states as oil prices decline, the scope for a rise in regional political tensions and the logistical challenges presented by cross‑border rail construction in the Gulf.

The Gulf Railway project was originally launched in 2009 with the intention of connecting all six members of the GCC by rail, linking major urban centres in the region, including Riyadh in Saudi Arabia, Dubai in the UAE and Kuwait City. Development of the Gulf’s nascent rail infrastructure is envisioned as a means of supporting economic diversification efforts as all members of the GCC seek to reduce their reliance on hydrocarbons exports. It is hoped that a GCC‑wide rail network will support localisation of supply chains, boost intra‑regional trade and facilitate enhanced travel within the Gulf region, providing strong multiplier effects across several key non‑oil sectors, such as transport, logistics, tourism and manufacturing.

However, progress on implementing the project has been beset by multiple delays. The original completion date of 2018 was missed, largely as a result of the oil price slump in 2014‑16, which intensified fiscal strains across the GCC’s oil export-dependent economies. This was compounded by the emergence of deep political rifts within the bloc, which erupted in 2017 when the boycott of Qatar by the Arab Quartet (Saudi Arabia, the UAE, Bahrain and Egypt) began.

Progress galvanised in the near term by stronger economic outlook

The longer-term prospects for the completion of the project have improved markedly in recent years, driven by the renewed urgency for economic diversification following the onset of the coronavirus pandemic and by a surprisingly swift reconciliation process between the GCC neighbours in 2021. Further impetus has been provided since 2022, with fiscal revenue having surged owing to a sharp rise in global oil prices as the conflict in Ukraine disrupted global oil supplies. Although oil prices have receded from highs of more than US$100/barrel in mid‑2022, we expect the oil price environment to remain favourable in the medium term, with prices lingering at an average of close to US$80/b until 2025.

Political tensions within the Gulf meanwhile continue to recede, creating a more supportive environment for progress on cross‑border rail development, particularly as relations with Qatar, for the UAE and Saudi Arabia in particular, are mended. A broader rapprochement between the Gulf and Iran, which has been catalysed by the restoration of ties between Iran and Saudi Arabia in mid‑2023, and a recent calming of the conflict in neighbouring Yemen, have assuaged previous concerns regarding the potential for attacks on infrastructure in the Gulf. The nascent reconciliation could be derailed if geopolitical instability erupts again, but this remains outside our core forecast for 2024‑28, as we expect the de‑escalation efforts that have been occurring across the region to hold.

The improved fiscal headroom of GCC states since 2021 has promoted a flurry of agreements to resume work on the Gulf Railway project, comprised mostly of bilateral memorandum of understandings (MoUs) between local partners along routes that were originally envisaged in the Gulf Railway project. Qatar and Saudi Arabia pledged to resume work on a rail connection in January 2022, and Oman and the UAE have progressed in the implementation of a US$3bn project to connect Sohar Port in northern Oman to Al Ain and Abu Dhabi in the UAE after a bilateral meeting in October 2022. Regional rail development is likely to be spurred further in the longer term by the India-Middle East-Europe Economic Corridor, which was announced at the G20 Summit in New Delhi, India’s capital, on September 9th‑10th. Plans for the corridor envisage establishment of a maritime and rail transit link between India, the Middle East and Europe, with goods unloaded at UAE ports transported overland by rail from the UAE to Saudi Arabia and on to Jordan. The corridor is expected to accelerate plans to further integrate rail links between the two Gulf countries, with support from external partners. 

Longer-term outlook plagued by downside risks

However, beyond MoUs, the majority of investment and construction activity has been at the national level across the Gulf, reflecting a range of issues that are likely to disrupt the establishment of a pan‑GCC rail network in 2024‑28. Kuwait’s Public Authority for Roads and Land Transportation tendered a consultancy contract covering the first phase of a long‑planned national railway in January. Although this is eventually expected to connect Kuwait to the wider Gulf rail project, there has been no tangible progress in this regard in recent years. Similarly, the UAE has surged ahead with its domestic rail plans, which were reported to be 75% completed in early 2022, with the country now boasting the most comprehensive rail coverage in the Gulf.

Logistical difficulties in connecting the six members of the GCC by rail are pronounced. The region-wide railway network requires huge sums of capital, as the tracks span rugged and hostile terrain, necessitating instalment of safety measures, as well as signalling systems and several railway stations. The intra‑regional railway project also faces several regulatory hurdles, as the involved countries need to synchronise regulations and operating standards while maintaining open communication lines. At a GCC summit in December 2021 the organisation announced the establishment of the Gulf Railways Authority, instituting an important co‑ordination mechanism. The authority is tasked with assuring the railway’s integration by harmonising operating procedures and maintaining common standards across the six geographies. However, technical issues may arise owing to the involvement of a large number of contractors, which could cause misalignments and operational bottlenecks if co‑ordination mechanisms between these entities are not in place. Prior agreement of coherent construction methods, material use and safety benchmarks among contractors will ensure the railway’s successful integration.

Rail development to remain uneven across the GCC in 2024‑28

Tighter fiscal positions as oil prices fall more rapidly from 2025 will also force governments to prioritise budget allocations, including for the Gulf Railway, with other capital-intensive infrastructure schemes and economic diversification projects competing for resources. Declining state funding will therefore increase reliance on private investors, and GCC governments are likely to encourage private investments within a public-private partnership framework.

Success in providing state funding and attracting foreign investment will remain uneven across the GCC, further reinforcing the fragmentation of rail development across the Gulf. Saudi Arabia, the UAE and Qatar, the region’s strongest economic performers, which have more developed regulatory and business ecosystems than Kuwait, Bahrain and Oman, are likely to progress much faster with domestic rail network development in 2024‑28. Kuwait continues to suffer from chronic political gridlock as its restive parliament clashes with the government, constraining project implementation and deterring foreign investment. Similarly, investor sentiment towards Oman and Bahrain remains prone to waning, given the risk of social unrest as economic conditions in these countries worsen in 2024‑28. All these factors threaten to slow progress on the implementation of a region-wide rail project throughout the forecast period.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.