Why Economic Shifts Will Transform Arabian Markets

Dangers are slanted to the downside. In case of an extended conflict, the present effects on the area will be compoundedthrough elevated energy and food costs, declining trade, tourist and remittances, increased fiscal pressures, and displacement. "The present crisis is a stark suggestion of the work ahead for the area: not only to weather shocks, but to restore more resilient economies with more powerful macroeconomic fundamentals, innovate and improve governance, buy facilities, and improve employment-creating sectors," stated.

With peace and the best action, countries can construct the institutions, capabilities and competitive sectors that create opportunities for people." With this long-lasting vision in mind, the report takes a close look at the area's potential for commercial policy government actions to increase tactical organization activity as a driver of economic growth and job production.

ANSR July GCC PRs 50DR+

Governments in the area have embraced industrial policy at a high rate in the last years, frequently through sovereign wealth funds and state-owned enterprises, however the outcomes have actually been mixed. The report highlights the important need for strong institutions and careful targeting of policies. "As nations deal with the heavy toll of the present dispute, it is essential to likewise not forget the work needed for lasting peace and prosperity," stated.

Assessing Regional Market Resilience in 2026

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

ANSR July GCC PRs 50DR+

The interim agreement between the US and Iran is a significant action towards reaching a full-blown offer. A full return to normality in the Strait of Hormuz will likely take time, however the risk of a recession-inducing oil price spike has actually decreased. Worldwide GDP is anticipated to grow by 2.4% this year, 0.2 ppt less than we forecasted three months ago, and 3.1% in 2027.

We anticipate a 4.1% contraction in Middle East GDP this year (versus forecasted 3.6% expansion before the war), higher than the decrease in the very 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 local shipping, war-driven facilities damage and tourist losses.

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

The economic damage sustained in the last couple of months is significant. Saudi GDP data for Q1 revealed growth slowed to 3% y/y, with non-oil activities expanding by 2.9%, the weakest speed 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 disruption hit late in the quarter.

The Future Business Climate in the GCC

Aside from Oman, all GCC manufacturers along with Iran and Iraq have suffered comprehensive oil and gas production losses given that the start of the dispute. May data show local production nearly 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 actually helped avoid 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 decrease in several years. We then expect a 23.5% rebound next year, driven mainly by normalisation from a significantly depressed base. Oil rates have been unstable, alleviating below $85 per barrel as the interim arrangement was announced.

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

The May PMI surveys reported output development reaching its strongest level in 3 months, driven mostly by enhanced domestic need. They stay below long-run averages, with weak export orders and cost pressures from greater product and transport costs are a typical style. Overall, we expect a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% growth pre-war) and a steady healing over the remainder of the decade.