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Threats are tilted to the drawback. In case of a prolonged dispute, the existing effects on the area will be compoundedthrough elevated energy and food prices, decreasing trade, tourist and remittances, increased fiscal pressures, and displacement. "The present crisis is a stark pointer of the work ahead for the area: not just to weather shocks, however to rebuild more resilient economies with stronger macroeconomic fundamentals, innovate and enhance governance, purchase infrastructure, and boost employment-creating sectors," said.

With peace and the best action, countries can construct the organizations, capabilities and competitive sectors that create opportunities for people." With this long-term vision in mind, the report takes a close take a look at the region's potential for industrial policy federal government actions to increase strategic business activity as a motorist of financial development and task creation.

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Governments in the region have embraced industrial policy at a high rate in the last years, frequently through sovereign wealth funds and state-owned business, however the outcomes have actually been blended. The report highlights the vital need for strong institutions and careful targeting of policies. "As nations face the heavy toll of the present conflict, it is crucial to also not lose sight of the work needed for long-lasting peace and prosperity," said.

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

ANSR July GCC PRs 50DR+

The interim arrangement in between the US and Iran is a substantial action towards reaching a full-blown offer. A full go back to normality in the Strait of Hormuz will likely take some time, but the danger of a recession-inducing oil cost spike has declined. Global GDP is expected 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 very first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stand apart as the hardest struck, owing to their failure to avoid the disruption to local shipping, war-driven facilities 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% decline forecasted formerly. We expect Oman and Saudi Arabia to be the least adversely impacted by the fallout from the dispute, with both economies continuing to broaden this year.

The financial damage sustained in the last couple of months is substantial. Saudi GDP data for Q1 showed growth 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 interruption struck late in the quarter.

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Aside from Oman, all GCC producers in addition to Iran and Iraq have actually suffered substantial oil and gas production losses since the start of the conflict. May information reveal 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 avoid an even larger plunge in output.

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We anticipate GCC oil sector output to agreement by 14.5% this year, which will mark the steepest decline in numerous decades. We then expect a 23.5% rebound next year, driven mostly by normalisation from a significantly depressed base. Oil rates have been unstable, easing listed below $85 per barrel as the interim contract was revealed.

In the medium term, we expect oil rates to be somewhat 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 as soon as trade normalises. Against this background, the UAE will accelerate the building of a new West-East pipeline that must double the capability of export through Fujairah.

The May PMI studies reported output development reaching its strongest level in 3 months, driven largely by improved domestic demand. They stay listed below long-run averages, with weak export orders and rate pressures from higher product 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 recovery over the rest of the years.