Key Economic Diversification in the Future

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

With peace and the ideal action, countries can develop the organizations, abilities and competitive sectors that produce opportunities for individuals." With this long-lasting vision in mind, the report takes a close appearance at the area's capacity for industrial policy government actions to increase tactical organization activity as a motorist of economic growth and task creation.

ANSR July GCC PRs 50DR+

Federal governments in the area have adopted commercial 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 critical requirement for strong organizations and mindful targeting of policies. "As nations face the heavy toll of today conflict, it is crucial to likewise not lose sight of the work needed for long-lasting peace and prosperity," said.

Analyzing Regional Investment Resilience in 2026

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial forecast for the region prepared straight for the finance profession. The GCC economy deals with a significant contraction this year pending information of the US-Iran agreement to end the war. We expect 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 step towards reaching a full-blown offer. A complete go back to normality in the Strait of Hormuz will likely take time, but the danger of a recession-inducing oil price spike has 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 forecast a 4.1% contraction in Middle East GDP this year (versus forecasted 3.6% growth before the war), higher than the decrease in the first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stand apart as the hardest struck, owing to their inability to prevent the interruption to local shipping, war-driven infrastructure damage and tourist losses.

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

The financial damage sustained in the last couple of months is substantial. Saudi GDP information for Q1 revealed growth slowed to 3% y/y, with non-oil activities expanding by 2.9%, the weakest pace 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 struck late in the quarter.

Key Industrial Expansion for the Future

Aside from Oman, all GCC manufacturers in addition to Iran and Iraq have actually suffered extensive oil and gas production losses since the start of the dispute. May information show regional production nearly cut in half from pre-war levels, with the decline 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 prevent an even bigger plunge in output.

ANSR July GCC PRs 50DR+

However, we anticipate GCC oil sector output to contract by 14.5% this year, which will mark the steepest decline in a number of years. We then anticipate a 23.5% rebound next year, driven largely by normalisation from a seriously depressed base. Meanwhile, oil rates have actually been volatile, easing listed below $85 per barrel as the interim contract was announced.

In the medium term, we expect oil rates to be somewhat lower than our pre-war baseline, as the UAE's departure from OPEC+ permits for a steady increase in its output towards the 5mn barrel daily 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 need to double the capacity of export through Fujairah.

The May PMI studies reported output development reaching its greatest level in 3 months, driven largely by improved domestic demand. Nevertheless, they remain below long-run averages, with weak export orders and price pressures from greater material and transportation expenses are a common theme. Overall, we anticipate a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% development pre-war) and a progressive healing over the remainder of the decade.