Accelerating Non-Oil Success through Global Diversification

Risks are slanted to the drawback. In case of an extended 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 current crisis is a plain pointer of the work ahead for the region: not just to weather shocks, however to rebuild more resilient economies with stronger macroeconomic fundamentals, innovate and improve governance, invest in infrastructure, and improve employment-creating sectors," said.

With peace and the right action, nations can construct the organizations, abilities and competitive sectors that develop chances for individuals." With this long-term vision in mind, the report takes a close take a look at the area's capacity for commercial policy federal government actions to increase strategic business activity as a driver of economic development and job production.

ANSR July GCC PRs 50DR+

Federal governments in the area have actually embraced industrial policy at a high rate in the last decade, frequently through sovereign wealth funds and state-owned business, however the outcomes have been mixed. The report highlights the important requirement for strong organizations and careful targeting of policies. "As countries deal with the heavy toll of today dispute, it is essential to also not lose sight of the work needed for long-lasting peace and prosperity," said.

Accelerating Non-Oil Growth via Strategic Diversification

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial projection for the region prepared directly for the finance occupation. The GCC economy deals with a significant contraction this year pending information of the US-Iran contract to end the war. We anticipate energy flows, tourist and financier sentiment to slowly normalise as war disruptions diminish.

ANSR July GCC PRs 50DR+

The interim contract between the US and Iran is a substantial action towards reaching a full-blown offer. A full return to normality in the Strait of Hormuz will likely require time, but the risk of a recession-inducing oil rate spike has declined. 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 anticipate a 4.1% contraction in Middle East GDP this year (versus forecasted 3.6% growth before the war), higher than the decline 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 avoid the disruption to regional shipping, war-driven infrastructure damage and tourist losses.

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

The economic damage incurred in the last couple of months is considerable. Saudi GDP data for Q1 revealed development slowed to 3% y/y, with non-oil activities broadening by 2.9%, the weakest pace considering 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 disruption struck late in the quarter.

Why Industrial Diversification Can Shape Arabian Markets

Aside from Oman, all GCC producers in addition to Iran and Iraq have suffered comprehensive oil and gas production losses given that the start of the dispute. May data reveal regional production nearly 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 actually assisted prevent an even bigger plunge in output.

ANSR July GCC PRs 50DR+

Nevertheless, we forecast GCC oil sector output to agreement by 14.5% this year, which will mark the steepest decrease in numerous years. We then anticipate a 23.5% rebound next year, driven largely by normalisation from a badly depressed base. On the other hand, oil rates have been unstable, reducing listed below $85 per barrel as the interim contract was announced.

In the medium term, we anticipate oil rates to be slightly lower than our pre-war standard, as the UAE's departure from OPEC+ permits a steady boost in its output towards the 5mn barrel each day production target as soon as trade normalises. Versus this backdrop, the UAE will accelerate the building and construction of a new West-East pipeline that ought to double the capacity of export through Fujairah.

The May PMI surveys reported output development reaching its strongest level in three months, driven largely by improved domestic demand. They stay below long-run averages, with weak export orders and rate pressures from higher material and transport costs are a common theme. In general, we anticipate a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% growth pre-war) and a steady healing over the rest of the years.