Key Economic Expansion in the Future

Dangers are tilted to the downside. In the occasion of an extended dispute, the existing effect on the region will be compoundedthrough elevated energy and food prices, declining trade, tourist and remittances, increased financial pressures, and displacement. "The present crisis is a stark pointer of the work ahead for the area: not just to weather shocks, however to rebuild more durable economies with stronger macroeconomic fundamentals, innovate and enhance governance, buy infrastructure, and boost employment-creating sectors," stated.

With peace and the best action, countries can develop the institutions, abilities and competitive sectors that develop opportunities for people." With this long-term vision in mind, the report takes a close take a look at the area's capacity for industrial policy government actions to increase strategic organization activity as a motorist of financial development and job development.

ANSR July GCC PRs 50DR+

Governments in the area have actually adopted industrial policy at a high rate in the last years, typically through sovereign wealth funds and state-owned enterprises, however the results have been mixed. The report highlights the crucial need for strong institutions and careful targeting of policies. "As nations face the heavy toll of today dispute, it is essential to also not lose sight of the work required for long-lasting peace and success," said.

Essential Economic Diversification in the Future

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic projection for the area prepared straight for the finance occupation. The GCC economy deals with a significant contraction this year pending details of the US-Iran arrangement to end the war. We expect energy circulations, tourist and investor belief to slowly normalise as war disturbances go away.

ANSR July GCC PRs 50DR+

The interim arrangement between the US and Iran is a substantial step towards reaching a full-blown offer. A full go back to normality in the Strait of Hormuz will likely require time, but the threat of a recession-inducing oil rate spike has decreased. Global GDP is anticipated to grow by 2.4% this year, 0.2 ppt less than we predicted three months back, and 3.1% in 2027.

We forecast a 4.1% contraction in Middle East GDP this year (versus projected 3.6% expansion before the war), greater than the decrease in the very first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stand apart as the hardest hit, owing to their failure to prevent the interruption to regional shipping, war-driven infrastructure damage and tourism losses.

Our 2026 outlook for the GCC is weaker than three months back, with GDP projection to contract by 2.4% compared to a 0.2% decrease projected previously. We anticipate Oman and Saudi Arabia to be the least negatively affected by the fallout from the dispute, with both economies continuing to expand this year.

The financial damage incurred in the last couple of months is significant. Saudi GDP data for Q1 showed development slowed to 3% y/y, with non-oil activities expanding by 2.9%, the weakest rate given that 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 disturbance hit late in the quarter.

Securing Regional Portfolios for 2026 Trends

Aside from Oman, all GCC manufacturers in addition to Iran and Iraq have actually suffered comprehensive oil and gas production losses since the start of the conflict. Might data reveal local production nearly halved 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 actually helped avoid an even larger plunge in output.

ANSR July GCC PRs 50DR+

However, we forecast GCC oil sector output to agreement by 14.5% this year, which will mark the steepest decline in several years. We then anticipate a 23.5% rebound next year, driven largely by normalisation from a significantly depressed base. Meanwhile, oil rates have been unpredictable, relieving below $85 per barrel as the interim arrangement was announced.

In the medium term, we expect oil rates to be a little lower than our pre-war baseline, as the UAE's departure from OPEC+ permits a gradual increase in its output towards the 5mn barrel daily production target when trade normalises. Against this background, the UAE will speed up the building of a new West-East pipeline that should double the capacity of export through Fujairah.

The May PMI studies reported output growth reaching its strongest level in three months, driven mainly by enhanced domestic demand. They remain below long-run averages, with weak export orders and cost pressures from greater material and transport costs are a typical style. In general, we anticipate a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% development pre-war) and a steady healing over the rest of the decade.