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Dangers are slanted to the drawback. In case of an extended conflict, the existing effect on the area will be compoundedthrough raised energy and food rates, declining trade, tourism and remittances, increased fiscal pressures, and displacement. "The existing crisis is a stark suggestion of the work ahead for the region: not only to weather shocks, but to reconstruct more durable economies with stronger macroeconomic basics, innovate and improve governance, invest in infrastructure, and increase employment-creating sectors," stated.

With peace and the best action, countries can build the institutions, capabilities and competitive sectors that produce chances for individuals." With this long-term vision in mind, the report takes a close take a look at the area's capacity for industrial policy government actions to increase strategic organization activity as a driver of economic development and task production.

ANSR July GCC PRs 50DR+

Governments in the region have adopted industrial policy at a high rate in the last decade, often through sovereign wealth funds and state-owned enterprises, but the outcomes have been blended. The report highlights the crucial requirement for strong organizations and mindful targeting of policies. "As countries face the heavy toll of today dispute, it is very important to likewise not lose sight of the work needed for long-lasting peace and prosperity," stated.

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Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial forecast for the area prepared straight for the financing occupation. The GCC economy deals with a significant contraction this year pending details of the US-Iran contract to end the war. We expect energy flows, tourist and investor sentiment to slowly normalise as war disruptions decrease.

ANSR July GCC PRs 50DR+

The interim contract between the US and Iran is a substantial action towards reaching a full-blown offer. A complete return to normality in the Strait of Hormuz will likely take time, however the threat of a recession-inducing oil cost spike has decreased. Worldwide GDP is expected to grow by 2.4% this year, 0.2 ppt less than we projected three months earlier, and 3.1% in 2027.

We anticipate a 4.1% contraction in Middle East GDP this year (versus projected 3.6% growth before the war), greater than the decrease in the very first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stand out as the hardest hit, owing to their failure to avoid 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 forecast to agreement by 2.4% compared to a 0.2% decline predicted formerly. We expect Oman and Saudi Arabia to be the least adversely impacted 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 substantial. Saudi GDP data for Q1 showed growth slowed to 3% y/y, with non-oil activities broadening 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 disruption struck late in the quarter.

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Aside from Oman, all GCC producers in addition to Iran and Iraq have suffered substantial oil and gas production losses considering that the start of the conflict. May data reveal local production almost halved 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 helped avoid an even larger plunge in output.

ANSR July GCC PRs 50DR+

We forecast GCC oil sector output to contract by 14.5% this year, which will mark the steepest decrease in numerous years. We then expect a 23.5% rebound next year, driven mostly by normalisation from a seriously depressed base. Oil prices have been volatile, alleviating below $85 per barrel as the interim agreement was revealed.

In the medium term, we expect oil costs to be slightly lower than our pre-war baseline, as the UAE's departure from OPEC+ enables a gradual boost in its output towards the 5mn barrel per day production target when trade normalises. Against this backdrop, the UAE will speed up the building and construction of a new West-East pipeline that ought to double the capability of export through Fujairah.

The May PMI studies reported output development reaching its strongest level in 3 months, driven mainly by improved domestic need. However, they stay below long-run averages, with weak export orders and rate pressures from higher material and transportation costs are a common style. In general, we anticipate a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% development pre-war) and a steady healing over the remainder of the decade.