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Threats are tilted to the drawback. In the occasion of an extended conflict, the current influence on the region will be compoundedthrough raised energy and food prices, declining trade, tourism and remittances, increased financial pressures, and displacement. "The present crisis is a stark pointer of the work ahead for the area: not only to weather shocks, but to restore more resistant economies with stronger macroeconomic basics, innovate and enhance governance, buy facilities, and improve employment-creating sectors," said.

With peace and the best action, nations can build the organizations, abilities and competitive sectors that develop opportunities for individuals." With this long-term vision in mind, the report takes a close look at the region's capacity for industrial policy government actions to increase tactical company activity as a driver of financial development and task creation.

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Governments in the region have embraced commercial policy at a high rate in the last years, often through sovereign wealth funds and state-owned enterprises, but the results have been blended. The report highlights the crucial need for strong institutions and cautious targeting of policies. "As countries face the heavy toll of the present dispute, it is necessary to likewise not lose sight of the work needed for long-lasting peace and prosperity," said.

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Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic 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 flows, tourism and financier belief to slowly normalise as war disturbances go away.

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The interim arrangement between the US and Iran is a substantial action towards reaching a full-blown deal. A complete return to normality in the Strait of Hormuz will likely take some time, but the risk of a recession-inducing oil cost spike has decreased. Global GDP is expected to grow by 2.4% this year, 0.2 ppt less than we predicted three months ago, and 3.1% in 2027.

We anticipate a 4.1% contraction in Middle East GDP this year (versus projected 3.6% expansion 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 prevent the interruption to regional shipping, war-driven facilities damage and tourism losses.

Our 2026 outlook for the GCC is weaker than 3 months ago, with GDP projection to agreement by 2.4% compared to a 0.2% decrease predicted previously. We anticipate Oman and Saudi Arabia to be the least adversely impacted by the fallout from the dispute, with both economies continuing to broaden this year.

The financial damage sustained in the last few months is significant. Saudi GDP information for Q1 revealed growth slowed to 3% y/y, with non-oil activities broadening by 2.9%, the weakest speed 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 struck late in the quarter.

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Aside from Oman, all GCC manufacturers in addition to Iran and Iraq have suffered extensive oil and gas production losses since the start of the conflict. May data reveal local production almost 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 larger plunge in output.

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However, we forecast GCC oil sector output to agreement by 14.5% this year, which will mark the steepest decrease in numerous decades. We then anticipate a 23.5% rebound next year, driven largely by normalisation from a seriously depressed base. Oil rates have actually been unstable, relieving below $85 per barrel as the interim agreement was announced.

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

The May PMI studies reported output development reaching its strongest level in 3 months, driven mostly by improved domestic need. Nevertheless, they stay listed below long-run averages, with weak export orders and price 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% development pre-war) and a steady recovery over the remainder of the years.