Essential Economic Diversification in the Future

Threats are tilted to the disadvantage. In the occasion of an extended conflict, the existing influence on the region will be compoundedthrough elevated energy and food prices, declining trade, tourist and remittances, increased fiscal pressures, and displacement. "The present crisis is a stark pointer of the work ahead for the region: not only to weather shocks, however to reconstruct more resilient economies with more powerful macroeconomic fundamentals, innovate and improve governance, buy infrastructure, and enhance employment-creating sectors," said.

With peace and the best action, countries can construct the organizations, capabilities and competitive sectors that develop opportunities for people." With this long-lasting vision in mind, the report takes a close look at the area's capacity for commercial policy federal government actions to increase tactical company activity as a chauffeur of financial growth and job production.

ANSR July GCC PRs 50DR+

Governments in the area have adopted commercial policy at a high rate in the last decade, frequently through sovereign wealth funds and state-owned enterprises, however the outcomes have actually been blended. The report highlights the vital need for strong institutions and cautious targeting of policies. "As countries deal with the heavy toll of today conflict, it is essential to likewise not lose sight of the work required for long-lasting peace and success," said.

Why Economic Diversification Will Shape Arabian Markets

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial forecast for the region prepared straight for the financing occupation. The GCC economy faces a significant contraction this year pending information of the US-Iran contract to end the war. We expect energy circulations, tourism and financier belief to gradually normalise as war disruptions diminish.

ANSR July GCC PRs 50DR+

The interim agreement between the US and Iran is a substantial action towards reaching a full-blown offer. A complete return to normality in the Strait of Hormuz will likely require time, but the danger of a recession-inducing oil cost spike has actually declined. Worldwide GDP is anticipated to grow by 2.4% this year, 0.2 ppt less than we projected 3 months back, and 3.1% in 2027.

We forecast a 4.1% contraction in Middle East GDP this year (versus predicted 3.6% expansion before the war), greater than the decline in the very first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stand out as the hardest hit, owing to their failure to avoid the disruption to regional shipping, war-driven facilities damage and tourist losses.

Our 2026 outlook for the GCC is weaker than three months earlier, with GDP forecast to agreement by 2.4% compared to a 0.2% decline forecasted formerly. We expect Oman and Saudi Arabia to be the least adversely affected by the fallout from the conflict, with both economies continuing to expand this year.

The financial damage incurred in the last couple of months is considerable. Saudi GDP information for Q1 revealed development slowed to 3% y/y, with non-oil activities expanding by 2.9%, the weakest pace since the Covid pandemic. On a seasonally changed basis, GDP contracted 1.2% q/q, driven by a 6.8% fall in oil activities as the Strait of Hormuz disruption struck late in the quarter.

Essential Industrial Shifts in 2026

Aside from Oman, all GCC manufacturers along with Iran and Iraq have suffered comprehensive oil and gas production losses because the start of the conflict. May information show regional production nearly cut in half from pre-war levels, with the decline deepening relative to March and April. Rerouting efforts, including by Saudi Arabia through the East-West Pipeline and the UAE through the Habshan-Fujairah pipeline, have assisted avoid an even bigger plunge in output.

ANSR July GCC PRs 50DR+

We forecast GCC oil sector output to agreement by 14.5% this year, which will mark the steepest decline in several years. We then expect a 23.5% rebound next year, driven mainly by normalisation from a severely depressed base. Meanwhile, oil prices have been unpredictable, relieving below $85 per barrel as the interim contract was revealed.

In the medium term, we expect oil rates to be somewhat lower than our pre-war standard, as the UAE's departure from OPEC+ allows for a steady boost in its output towards the 5mn barrel per day production target as soon as trade normalises. Against this backdrop, the UAE will speed up the building and construction of a new West-East pipeline that ought to double the capability of export through Fujairah.

The May PMI studies reported output growth reaching its strongest level in three months, driven mainly by improved domestic demand. They remain below long-run averages, with weak export orders and cost pressures from greater material and transport costs are a common theme. Overall, we expect a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% growth pre-war) and a progressive recovery over the remainder of the years.