Driving Economic Success through Global Diversification

Risks are tilted to the disadvantage. In case of an extended conflict, the existing effects on the area will be compoundedthrough raised energy and food rates, decreasing trade, tourist and remittances, increased financial pressures, and displacement. "The present crisis is a stark reminder of the work ahead for the region: not just to weather shocks, however to restore more resilient economies with more powerful macroeconomic basics, innovate and enhance governance, invest in facilities, and boost employment-creating sectors," said.

With peace and the right action, countries can build the institutions, abilities and competitive sectors that develop chances for individuals." With this long-lasting vision in mind, the report takes a close look at the region's potential for industrial policy government actions to increase tactical company activity as a driver of financial development and job creation.

ANSR July GCC PRs 50DR+

Federal governments in the area have actually embraced industrial policy at a high rate in the last years, often through sovereign wealth funds and state-owned enterprises, however the outcomes have been blended. The report highlights the vital need for strong institutions and careful targeting of policies. "As nations deal with the heavy toll of today dispute, it is important to likewise not lose sight of the work needed for long-lasting peace and success," stated.

Analyzing Regional Market Potential in 2026

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic projection for the region prepared straight for the finance occupation. The GCC economy deals with a significant contraction this year pending details of the US-Iran agreement to end the war. We expect energy flows, tourist 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 considerable step towards reaching a full-blown deal. A complete return to normality in the Strait of Hormuz will likely require time, but the danger of a recession-inducing oil price spike has decreased. International GDP is expected to grow by 2.4% this year, 0.2 ppt less than we projected 3 months ago, and 3.1% in 2027.

We anticipate a 4.1% contraction in Middle East GDP this year (versus projected 3.6% expansion before the war), higher than the decline 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 avoid the disturbance to local shipping, war-driven infrastructure damage and tourist 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% decrease projected previously. We expect Oman and Saudi Arabia to be the least adversely affected by the fallout from the dispute, with both economies continuing to expand this year.

The economic damage sustained in the last few months is substantial. Saudi GDP data for Q1 showed development slowed to 3% y/y, with non-oil activities expanding by 2.9%, the weakest pace because 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 interruption hit late in the quarter.

Future Investment Climate of Arabia

Aside from Oman, all GCC manufacturers in addition to Iran and Iraq have suffered comprehensive oil and gas production losses considering that the start of the dispute. Might data show local production almost halved from pre-war levels, with the decrease 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 prevent an even larger plunge in output.

ANSR July GCC PRs 50DR+

Nonetheless, we forecast GCC oil sector output to contract by 14.5% this year, which will mark the steepest decline in a number of decades. We then anticipate a 23.5% rebound next year, driven mostly by normalisation from a badly depressed base. Meanwhile, oil rates have been unstable, reducing listed below $85 per barrel as the interim arrangement was announced.

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 for a gradual boost in its output towards the 5mn barrel each day production target as soon as trade normalises. Versus this backdrop, the UAE will accelerate the building and construction of a brand-new West-East pipeline that should double the capability of export through Fujairah.

The May PMI surveys reported output growth reaching its greatest 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 material and transport expenses are a typical style. 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 recovery over the rest of the decade.