Strategic Economic Diversification for 2026

Risks are tilted to the downside. In the occasion of a prolonged dispute, the existing influence on the region will be compoundedthrough raised energy and food prices, declining 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, but to reconstruct more resilient economies with more powerful macroeconomic principles, innovate and enhance governance, buy facilities, and improve employment-creating sectors," stated.

With peace and the ideal action, nations can construct the institutions, capabilities and competitive sectors that create opportunities for individuals." With this long-lasting vision in mind, the report takes a close take a look at the area's potential for industrial policy government actions to increase strategic company activity as a motorist of financial development and task production.

ANSR July GCC PRs 50DR+

Federal governments in the region have actually adopted commercial policy at a high rate in the last decade, typically through sovereign wealth funds and state-owned business, but the results have been blended. The report highlights the vital requirement for strong organizations and cautious targeting of policies. "As nations face the heavy toll of the present dispute, it is necessary to also not lose sight of the work required for lasting peace and success," said.

Essential Industrial Expansion in the Future

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial forecast for the area prepared directly for the finance profession. The GCC economy faces a significant contraction this year pending details of the US-Iran contract to end the war. We anticipate energy flows, tourism and investor belief to gradually normalise as war disruptions decrease.

ANSR July GCC PRs 50DR+

The interim arrangement between the United States and Iran is a considerable action towards reaching a full-blown deal. A complete go back to normality in the Strait of Hormuz will likely require time, but the threat of a recession-inducing oil price spike has declined. Global GDP is expected to grow by 2.4% this year, 0.2 ppt less than we projected 3 months back, 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), higher 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 inability to avoid 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 agreement by 2.4% compared to a 0.2% decline predicted previously. 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 sustained in the last couple of months is significant. Saudi GDP data for Q1 revealed development slowed to 3% y/y, with non-oil activities broadening by 2.9%, the weakest rate given 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.

International Investment Opportunities within the Middle East

Aside from Oman, all GCC producers as well as Iran and Iraq have actually suffered comprehensive oil and gas production losses given that the start of the dispute. May data show local production nearly cut in half from pre-war levels, with the decrease 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 assisted avoid 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 a number of decades. We then anticipate a 23.5% rebound next year, driven mainly by normalisation from a severely depressed base. On the other hand, oil prices have been unstable, easing listed below $85 per barrel as the interim contract 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+ enables a gradual boost in its output towards the 5mn barrel each day production target when trade normalises. Versus this background, the UAE will speed up the construction of a new West-East pipeline that should double the capacity of export through Fujairah.

The May PMI surveys reported output development reaching its greatest level in three months, driven mainly by enhanced domestic demand. They remain below long-run averages, with weak export orders and price pressures from greater material and transport costs are a common style. Overall, we expect 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 years.