Key Capital Diversification in the Future

Threats are slanted to the downside. In case of an extended conflict, the existing influence on the region will be compoundedthrough raised energy and food costs, declining trade, tourist and remittances, increased financial pressures, and displacement. "The present crisis is a plain suggestion of the work ahead for the area: not only to weather shocks, however to rebuild more resistant economies with more powerful macroeconomic basics, innovate and enhance governance, invest in facilities, and boost employment-creating sectors," stated.

With peace and the ideal action, countries can build the institutions, capabilities and competitive sectors that produce opportunities for people." With this long-lasting vision in mind, the report takes a close appearance at the region's potential for industrial policy federal government actions to increase strategic company activity as a motorist of economic development and job production.

ANSR July GCC PRs 50DR+

Governments in the region have actually embraced industrial policy at a high rate in the last decade, frequently through sovereign wealth funds and state-owned enterprises, however the outcomes have been mixed. The report highlights the crucial need for strong institutions and cautious targeting of policies. "As countries face the heavy toll of the present conflict, it is necessary to also not forget the work required for long-lasting peace and prosperity," stated.

Key Economic Expansion for the Future

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic projection for the area prepared straight for the finance occupation. 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, tourism and investor sentiment to gradually normalise as war interruptions diminish.

ANSR July GCC PRs 50DR+

The interim arrangement in between the US and Iran is a considerable action towards reaching a full-blown deal. A full return to normality in the Strait of Hormuz will likely require time, but the risk of a recession-inducing oil price spike has actually declined. International GDP is expected to grow by 2.4% this year, 0.2 ppt less than we predicted three months ago, and 3.1% in 2027.

We forecast a 4.1% contraction in Middle East GDP this year (versus predicted 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 failure to avoid the interruption to regional shipping, war-driven infrastructure damage and tourism losses.

Our 2026 outlook for the GCC is weaker than three months back, with GDP forecast to contract by 2.4% compared to a 0.2% decrease projected formerly. We anticipate 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 economic damage sustained in the last few months is significant. Saudi GDP information for Q1 showed growth slowed to 3% y/y, with non-oil activities broadening by 2.9%, the weakest pace considering 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.

Key International Capital Avenues in the GCC Region

Aside from Oman, all GCC producers as well as Iran and Iraq have suffered extensive oil and gas production losses considering that the start of the dispute. May information show regional 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 actually assisted prevent an even bigger plunge in output.

ANSR July GCC PRs 50DR+

Nevertheless, we forecast GCC oil sector output to contract by 14.5% this year, which will mark the steepest decrease in several years. We then anticipate a 23.5% rebound next year, driven mainly by normalisation from a severely depressed base. On the other hand, oil rates have actually been volatile, reducing below $85 per barrel as the interim agreement was revealed.

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

The May PMI studies reported output development reaching its strongest level in 3 months, driven mostly by enhanced domestic demand. However, they stay below long-run averages, with weak export orders and price pressures from greater material and transport 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 gradual healing over the rest of the decade.