Advancing Non-Oil Growth via Global Diversification

Dangers are tilted to the downside. In the occasion of a prolonged dispute, the existing influence on the region will be compoundedthrough elevated energy and food rates, declining trade, tourism and remittances, increased fiscal pressures, and displacement. "The current crisis is a stark tip of the work ahead for the area: not only to weather shocks, however to reconstruct more resilient economies with more powerful macroeconomic principles, innovate and improve governance, invest in infrastructure, and enhance employment-creating sectors," said.

With peace and the ideal action, countries can develop the organizations, capabilities and competitive sectors that create opportunities for people." With this long-term vision in mind, the report takes a close take a look at the region's potential for industrial policy government actions to increase strategic company activity as a chauffeur of economic development and job development.

ANSR July GCC PRs 50DR+

Governments in the area have adopted commercial policy at a high rate in the last decade, frequently through sovereign wealth funds and state-owned enterprises, however the results have actually been mixed. The report highlights the vital need for strong organizations and cautious targeting of policies. "As countries deal with the heavy toll of today conflict, it is very important to likewise not forget the work needed for lasting peace and prosperity," said.

Future GCC Financial Projections

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial forecast for the area prepared directly for the finance occupation. The GCC economy faces a significant contraction this year pending details of the US-Iran contract to end the war. We anticipate energy flows, tourism and investor sentiment to slowly normalise as war disruptions subside.

ANSR July GCC PRs 50DR+

The interim agreement in between the United States and Iran is a significant action towards reaching a full-blown deal. A complete go back to normality in the Strait of Hormuz will likely take some time, however the risk of a recession-inducing oil rate spike has declined. Global GDP is expected to grow by 2.4% this year, 0.2 ppt less than we projected 3 months back, and 3.1% in 2027.

We forecast a 4.1% contraction in Middle East GDP this year (versus projected 3.6% growth before the war), greater 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 inability 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 earlier, with GDP forecast 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 expand this year.

The economic damage incurred in the last couple of months is significant. Saudi GDP information 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 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.

Securing Regional Portfolios against 2026 Shifts

Aside from Oman, all GCC producers along with Iran and Iraq have actually suffered extensive oil and gas production losses because the start of the dispute. Might information reveal regional production almost cut in half 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 assisted prevent an even larger plunge in output.

ANSR July GCC PRs 50DR+

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

In the medium term, we anticipate oil costs to be somewhat lower than our pre-war standard, as the UAE's departure from OPEC+ permits a progressive boost in its output towards the 5mn barrel per day production target once trade normalises. Versus this backdrop, the UAE will accelerate the construction of a brand-new West-East pipeline that must double the capacity of export through Fujairah.

The May PMI studies reported output growth reaching its greatest level in three months, driven mainly by enhanced 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 expect a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% growth pre-war) and a gradual recovery over the remainder of the years.