How Economic Diversification Will Shape GCC Markets

Threats are slanted to the disadvantage. In the occasion of an extended dispute, the existing effect on the area will be compoundedthrough elevated energy and food costs, decreasing trade, tourist and remittances, increased fiscal pressures, and displacement. "The existing crisis is a plain suggestion of the work ahead for the region: not just to weather shocks, however to reconstruct more resistant economies with more powerful macroeconomic fundamentals, innovate and improve governance, purchase infrastructure, and increase employment-creating sectors," stated.

With peace and the best action, countries can build the institutions, capabilities and competitive sectors that develop chances for people." With this long-lasting vision in mind, the report takes a close look at the region's capacity for industrial policy government actions to increase tactical organization activity as a motorist of financial development and job production.

ANSR July GCC PRs 50DR+

Federal governments in the region have adopted commercial policy at a high rate in the last years, often through sovereign wealth funds and state-owned enterprises, but the results have been blended. The report highlights the vital need for strong organizations and cautious targeting of policies. "As countries deal with the heavy toll of the present dispute, it is important to also not forget the work required for lasting peace and success," said.

Key International Capital Prospects in the GCC Market

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic projection for the area prepared straight for the financing occupation. The GCC economy faces a significant contraction this year pending details of the US-Iran arrangement to end the war. We anticipate energy flows, tourist and investor belief to slowly normalise as war disruptions decrease.

ANSR July GCC PRs 50DR+

The interim contract in between the US and Iran is a significant action towards reaching a full-blown offer. A complete go back to normality in the Strait of Hormuz will likely take some time, but the threat of a recession-inducing oil price spike has declined. International GDP is anticipated to grow by 2.4% this year, 0.2 ppt less than we projected 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 decrease in the first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stand apart as the hardest hit, owing to their inability to prevent the disruption to regional shipping, war-driven facilities damage and tourism losses.

Our 2026 outlook for the GCC is weaker than 3 months earlier, with GDP forecast to agreement by 2.4% compared to a 0.2% decline forecasted previously. We expect Oman and Saudi Arabia to be the least negatively affected by the fallout from the dispute, with both economies continuing to expand this year.

The financial damage sustained in the last couple of months is substantial. Saudi GDP information 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 changed basis, GDP contracted 1.2% q/q, driven by a 6.8% fall in oil activities as the Strait of Hormuz interruption struck late in the quarter.

Strategic Capital Expansion for 2026

Aside from Oman, all GCC producers along with Iran and Iraq have actually suffered extensive oil and gas production losses because the start of the conflict. May data show regional production almost cut in half 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 bigger 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 a number of decades. We then expect a 23.5% rebound next year, driven mostly by normalisation from a severely depressed base. Oil costs have actually been volatile, relieving listed below $85 per barrel as the interim contract was revealed.

In the medium term, we anticipate oil costs to be somewhat lower than our pre-war standard, as the UAE's departure from OPEC+ permits a progressive increase in its output towards the 5mn barrel per day production target once trade normalises. Versus this background, the UAE will accelerate the building and construction of a new West-East pipeline that must double the capability of export through Fujairah.

The May PMI surveys reported output growth reaching its greatest level in three months, driven mainly by enhanced domestic need. They stay below long-run averages, with weak export orders and cost pressures from greater product and transport expenses are a common style. In general, we expect 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.