Key International Capital Avenues for the GCC Market

Risks are tilted to the downside. In case of a prolonged conflict, the current influence on the area will be compoundedthrough raised energy and food costs, decreasing trade, tourism and remittances, increased fiscal pressures, and displacement. "The present crisis is a stark pointer of the work ahead for the area: not only to weather shocks, however to rebuild more durable economies with stronger macroeconomic principles, innovate and improve governance, buy facilities, and improve employment-creating sectors," said.

With peace and the right action, nations can build the institutions, abilities and competitive sectors that create opportunities for people." With this long-term vision in mind, the report takes a close look at the region's potential for industrial policy federal government actions to increase strategic business activity as a driver of economic growth and job production.

ANSR July GCC PRs 50DR+

Federal governments in the region have actually adopted industrial policy at a high rate in the last years, often through sovereign wealth funds and state-owned business, but the outcomes have actually been blended. The report highlights the vital requirement for strong institutions and cautious targeting of policies. "As countries face the heavy toll of today dispute, it is necessary to likewise not forget the work required for lasting peace and success," stated.

Key International Capital Avenues for the GCC Region

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic projection for the region prepared straight for the financing profession. The GCC economy faces a marked contraction this year pending details of the US-Iran arrangement to end the war. We anticipate energy flows, tourism and financier sentiment to gradually normalise as war disruptions go away.

ANSR July GCC PRs 50DR+

The interim agreement in between the United States and Iran is a considerable step towards reaching a full-blown offer. A complete return to normality in the Strait of Hormuz will likely require time, however the danger of a recession-inducing oil cost spike has actually declined. Global GDP is expected to grow by 2.4% this year, 0.2 ppt less than we predicted 3 months back, and 3.1% in 2027.

We anticipate a 4.1% contraction in Middle East GDP this year (versus predicted 3.6% growth before the war), higher than the decline in the first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stick out as the hardest hit, owing to their failure to prevent the interruption to local shipping, war-driven facilities damage and tourism losses.

Our 2026 outlook for the GCC is weaker than 3 months back, with GDP projection to contract by 2.4% compared to a 0.2% decrease forecasted formerly. We anticipate Oman and Saudi Arabia to be the least negatively impacted by the fallout from the conflict, with both economies continuing to broaden this year.

The financial damage incurred in the last few months is substantial. Saudi GDP information for Q1 showed development slowed to 3% y/y, with non-oil activities broadening by 2.9%, the weakest speed because the Covid pandemic. On a seasonally adjusted 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.

Why Industrial Diversification Can Transform GCC Markets

Aside from Oman, all GCC manufacturers in addition to Iran and Iraq have suffered substantial oil and gas production losses since the start of the dispute. May data show local production almost halved from pre-war levels, with the decrease deepening relative to March and April. Rerouting efforts, consisting of by Saudi Arabia through the East-West Pipeline and the UAE through the Habshan-Fujairah pipeline, have helped avoid an even bigger plunge in output.

ANSR July GCC PRs 50DR+

Nonetheless, we forecast GCC oil sector output to agreement by 14.5% this year, which will mark the steepest decline in a number of decades. We then anticipate a 23.5% rebound next year, driven mostly by normalisation from a badly depressed base. Meanwhile, oil costs have actually been unstable, easing below $85 per barrel as the interim contract was announced.

In the medium term, we expect oil costs to be slightly lower than our pre-war standard, as the UAE's departure from OPEC+ enables a steady increase in its output towards the 5mn barrel each day production target once trade normalises. Versus this backdrop, the UAE will speed up the building and construction of a brand-new West-East pipeline that should double the capability of export through Fujairah.

The May PMI studies reported output growth reaching its strongest level in 3 months, driven mainly by enhanced domestic need. They stay listed below long-run averages, with weak export orders and rate pressures from higher product and transport costs are a typical style. Overall, we anticipate a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% development pre-war) and a gradual recovery over the rest of the decade.