How Industrial Shifts Will Transform Arabian Markets

Dangers are slanted to the downside. In case of a prolonged conflict, the current effect on the region will be compoundedthrough elevated energy and food prices, decreasing trade, tourist and remittances, increased fiscal pressures, and displacement. "The existing crisis is a plain tip of the work ahead for the region: not only to weather shocks, however to rebuild more resilient economies with more powerful macroeconomic basics, innovate and enhance governance, invest in infrastructure, and improve employment-creating sectors," said.

With peace and the right action, nations can construct the organizations, abilities and competitive sectors that create opportunities for people." With this long-lasting vision in mind, the report takes a close appearance at the region's capacity for commercial policy federal government actions to increase strategic company activity as a chauffeur of financial growth and task production.

ANSR July GCC PRs 50DR+

Governments in the region have actually adopted industrial policy at a high rate in the last years, typically through sovereign wealth funds and state-owned enterprises, but the outcomes have actually been blended. The report highlights the critical need for strong institutions and mindful targeting of policies. "As countries face the heavy toll of today dispute, it is essential to also not forget the work required for lasting peace and success," said.

Future Regional Economic Forecasts

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial forecast for the region prepared straight for the financing profession. The GCC economy deals with a significant contraction this year pending information of the US-Iran agreement to end the war. We anticipate energy flows, tourism and financier belief to slowly normalise as war disruptions subside.

ANSR July GCC PRs 50DR+

The interim arrangement in between the US and Iran is a significant action towards reaching a full-blown deal. A complete return to normality in the Strait of Hormuz will likely take time, but the risk of a recession-inducing oil price spike has decreased. Global GDP is anticipated 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 predicted 3.6% expansion before the war), greater than the decrease in the very first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stick out as the hardest struck, owing to their inability to prevent the disturbance to regional shipping, war-driven infrastructure damage and tourist losses.

Our 2026 outlook for the GCC is weaker than three months back, with GDP projection to contract by 2.4% compared to a 0.2% decline forecasted formerly. We anticipate Oman and Saudi Arabia to be the least negatively affected by the fallout from the dispute, with both economies continuing to broaden this year.

The economic damage incurred in the last couple of months is considerable. Saudi GDP information for Q1 revealed development slowed to 3% y/y, with non-oil activities broadening by 2.9%, the weakest rate because 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 disruption hit late in the quarter.

Positioning Middle East Investments against 2026 Trends

Aside from Oman, all GCC producers in addition to Iran and Iraq have actually suffered comprehensive oil and gas production losses given that the start of the dispute. May data show 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 assisted prevent an even larger plunge in output.

ANSR July GCC PRs 50DR+

We anticipate GCC oil sector output to contract by 14.5% this year, which will mark the steepest decrease in several years. We then expect a 23.5% rebound next year, driven mostly by normalisation from a seriously depressed base. Oil rates have been volatile, reducing 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 baseline, 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 and construction of a brand-new West-East pipeline that must double the capacity of export through Fujairah.

The May PMI surveys reported output development reaching its strongest level in three months, driven largely by enhanced domestic demand. However, they stay listed below long-run averages, with weak export orders and price pressures from greater product and transportation expenses are a typical theme. In general, we anticipate a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% growth pre-war) and a steady healing over the rest of the decade.