Advancing Non-Oil Success through Strategic Diversification

Dangers are tilted to the disadvantage. In the occasion of a prolonged dispute, the existing effect on the region will be compoundedthrough raised energy and food costs, decreasing trade, tourist and remittances, increased fiscal pressures, and displacement. "The existing crisis is a stark pointer of the work ahead for the region: not only to weather shocks, however to restore more durable economies with stronger macroeconomic fundamentals, innovate and enhance governance, buy facilities, and improve employment-creating sectors," stated.

With peace and the best action, nations can build the institutions, abilities and competitive sectors that develop opportunities for individuals." With this long-lasting vision in mind, the report takes a close take a look at the region's potential for industrial policy federal government actions to increase tactical business activity as a chauffeur of economic development and task creation.

ANSR July GCC PRs 50DR+

Governments in the area have embraced industrial policy at a high rate in the last decade, often through sovereign wealth funds and state-owned business, however the results have actually been blended. The report highlights the crucial requirement for strong institutions and mindful targeting of policies. "As countries face the heavy toll of the present conflict, it is very important to also not lose sight of the work required for lasting peace and prosperity," said.

Advancing Industrial Success through Global Diversification

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic projection for the region prepared directly for the finance occupation. The GCC economy deals with a marked contraction this year pending details of the US-Iran contract to end the war. We expect energy circulations, tourism 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 significant action towards reaching a full-blown deal. A complete go back to normality in the Strait of Hormuz will likely require time, however the threat 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 projected three months back, and 3.1% in 2027.

We anticipate a 4.1% contraction in Middle East GDP this year (versus forecasted 3.6% growth before the war), greater than the decline in the first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stand out as the hardest struck, owing to their failure to prevent the disruption to regional shipping, war-driven infrastructure damage and tourism losses.

Our 2026 outlook for the GCC is weaker than three months earlier, with GDP projection to contract by 2.4% compared to a 0.2% decline projected previously. 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 few months is considerable. Saudi GDP data for Q1 showed growth slowed to 3% y/y, with non-oil activities expanding by 2.9%, the weakest pace since 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 disturbance struck late in the quarter.

Positioning GCC Portfolios for 2026 Shifts

Aside from Oman, all GCC manufacturers in addition to Iran and Iraq have actually suffered substantial oil and gas production losses given that the start of the conflict. May information reveal regional production almost halved from pre-war levels, with the decline 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 prevent an even larger 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 decline in a number of years. We then expect a 23.5% rebound next year, driven largely by normalisation from a seriously depressed base. Oil prices have actually been volatile, reducing below $85 per barrel as the interim agreement was revealed.

In the medium term, we anticipate oil costs to be a little lower than our pre-war standard, as the UAE's departure from OPEC+ permits a gradual increase in its output towards the 5mn barrel per day production target once trade normalises. Against this backdrop, the UAE will speed up the building of a brand-new West-East pipeline that need to double the capacity of export through Fujairah.

The May PMI studies reported output development reaching its greatest level in 3 months, driven largely by improved domestic demand. Nevertheless, they remain listed below long-run averages, with weak export orders and rate pressures from higher material and transport expenses are a typical style. Overall, we expect a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% development pre-war) and a progressive healing over the remainder of the years.