Small state economies face a distinct set of structural disadvantages that larger nations can deal with more easily. These include small domestic markets, low economies of scale, and high fixed costs in both the public and private sectors. Critically, small states have much more relative vulnerability than larger states because they have less strategic depth, a narrower margin of error, and a lack of surplus resources such as financing, technology or human capital, to cushion against shocks.
The threats that can exploit these vulnerabilities are wide-ranging: natural disasters, climate change, war, and financial shocks are only some of the crises that can be disproportionately damaging to a small state’s economy and society. At the same time, for almost all small states, economic achievement, rather than military or diplomatic power, is the primary mechanism for overcoming structural vulnerability, consolidating security and growing prosperity at home and influence abroad.
This is evident across a number of small European states including Switzerland and Liechtenstein (finance), Sweden (manufacturing), Ireland (technology), Norway (energy), and Denmark (shipping and logistics). This means that small states not only face a set of economic choices in the industrial space about what to invest in, which partnerships to build, and where and how to locate industries in-country, that impact significantly on competitiveness, resilience, diversification, and private sector growth.
It also makes industrial policy part of the strategic architecture of a small state that revolves around four interconnected pillars. The first is the deployment of capital over the longer-term to build industrial capacity that outlasts any single government or economic cycle. The second is building partnerships with foreign firms, governments, and institutions designed to accelerate capability-building beyond what domestic resources alone can achieve. The third is policy pragmatism, flexible policymaking that adapts industrial strategy to shifting geopolitical and economic realities. The final pillar is interdependence, alignment with strategic partners to develop investment networks, technology ecosystems, and political and security partnerships, not merely to gain capital or know-how, but to embed the state in webs of mutual interest.
In the Gulf context, prior to the 2026 conflict, industrialisation took different forms and was set down in national plans with specific sectoral priorities. In Qatar, the National Manufacturing Strategy 2024–30 prioritised chemicals and low-carbon metals, positioning Qatar’s industrial base to align with global decarbonisation trends. In Oman, Industrial Strategy 2040 capitalised on the sultanate’s strategic location outside the Strait of Hormuz and along key maritime trade routes by prioritising free zones and logistics at major ports, notably Sohar, Salalah, and Duqm.
In Kuwait, the National Industrial Strategy 2035 launched by the Public Authority for Industry focused on petrochemicals, specialised chemicals, and food processing, all sectors anchored in Kuwait’s existing hydrocarbon infrastructure and domestic consumption needs. These strategies reflected each state’s distinct geography, resources, and economic vision. They served as a way to achieve higher-value industrial activity, and to attract foreign investment and technology while building-up resilience, security and influence. This has all been stress-tested extensively since the outbreak of the 2026 conflict between the US, Israel and Iran as the assumptions underpinning Gulf security, notably supply chain resilience, have been challenged widely.
Speaking recently, Qatar’s Prime Minister and Minister of Foreign Affairs, HE Sheikh Mohammed bin Abdulrahman bin Jassim al-Thani, described the events as an "earthquake”. The economic data, including World Bank macro forecasts, bear out this characterisation. But setting aside the energy sector, a stand-alone topic, we can see a number of immediate ways in which the conflict has reshaped Gulf industrial policy.
The first is the implementation of emergency stockpiling, price controls and rising support for the private sector, including Kuwait’s US$100m Emergency Response Fund and Bahrain’s wage support programs for private-sector workers and SMEs. More long-term responses include a doubling down on investment into pre-existing domestic sectors of diversification. Qatar’s recently announced Doha Investment Platform is a good example of this and includes US$38.5bn in new infrastructure projects and an estimated US$22.5bn in real estate and hospitality over the next five years.
Economic interdependence between complementary businesses in different Gulf states during the conflict contributed to resilience as those countries unable to access raw materials or their usual transit routes looked to neighbours for assistance and support to overcome supply chains problems. But the same structures also created new vulnerabilities as Gulf states became targets precisely because of their geographic location and relative resilience in the face of the closure of the Strait of Hormuz.
A second structural lesson emerged around industrial concentration. Before the conflict, industrial projects across the Gulf region were clustered is hubs. During the conflict, such concentration made critical infrastructure easier to target. This has raised the possibility that in the future there will be a move away from concentration toward separating key sites and building in more redundancy. A linked development is the emergence of new forms of industrial collaboration in the military sphere. One example, Qatar’s 10-year defence agreement with Ukraine covering co-production, joint investment, and technology partnerships.
When we speak of industrialisation policy in small states we are speaking of government support for strategic industries and structural transformation that can counterbalance size-related vulnerabilities. As such, industrialisation in small states is not only an economic development tool. It is also a core instrument of national security at the centre of strategic planning. If deployed correctly it can protect national identity and independence, build resilience, and make an important contribution to security and prosperity.
- The writer is professor of International Politics and director of the Small States and Energy Studies Programs at Georgetown Univeristy in Qatar@RoryDavidMiller