Key Economic Diversification for the Future

Threats are slanted to the downside. In the event of an extended dispute, the current impacts on the region will be compoundedthrough raised energy and food prices, declining trade, tourism and remittances, increased financial pressures, and displacement. "The existing crisis is a plain reminder of the work ahead for the region: not only to weather shocks, however to rebuild more durable economies with more powerful macroeconomic principles, innovate and enhance governance, buy infrastructure, and enhance employment-creating sectors," said.

With peace and the best action, countries can develop the institutions, abilities and competitive sectors that create opportunities for people." 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 strategic company activity as a motorist of economic growth and job development.

ANSR July GCC PRs 50DR+

Governments in the area have actually adopted commercial policy at a high rate in the last decade, often through sovereign wealth funds and state-owned business, but the results have been mixed. The report highlights the critical requirement for strong institutions and cautious targeting of policies. "As nations face the heavy toll of the present conflict, it is essential to likewise not forget the work needed for lasting peace and success," said.

Critical Stock Capital Insights for Regional Investors

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial projection for the region prepared straight for the financing occupation. The GCC economy deals with a marked contraction this year pending information of the US-Iran agreement to end the war. We anticipate energy circulations, tourism and financier sentiment to gradually normalise as war interruptions diminish.

ANSR July GCC PRs 50DR+

The interim arrangement in between the US and Iran is a significant step towards reaching a full-blown deal. A full return to normality in the Strait of Hormuz will likely require time, however the threat of a recession-inducing oil rate spike has decreased. International GDP is anticipated to grow by 2.4% this year, 0.2 ppt less than we predicted three 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 decrease in the first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stand out as the hardest struck, owing to their failure to avoid the interruption to regional shipping, war-driven infrastructure damage and tourist losses.

Our 2026 outlook for the GCC is weaker than 3 months earlier, with GDP forecast to contract by 2.4% compared to a 0.2% decline projected previously. We anticipate 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 incurred in the last few months is considerable. Saudi GDP information for Q1 showed development slowed to 3% y/y, with non-oil activities broadening by 2.9%, the weakest rate 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 interruption hit late in the quarter.

Positioning Regional Portfolios for 2026 Shifts

Aside from Oman, all GCC producers along with Iran and Iraq have actually suffered comprehensive oil and gas production losses considering that the start of the conflict. Might information show local production nearly halved from pre-war levels, with the decline 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 actually helped prevent an even bigger 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 numerous years. We then expect a 23.5% rebound next year, driven mainly by normalisation from a seriously depressed base. Meanwhile, oil costs have actually been volatile, easing below $85 per barrel as the interim contract was announced.

In the medium term, we anticipate oil prices to be a little lower than our pre-war standard, as the UAE's departure from OPEC+ enables a progressive boost in its output towards the 5mn barrel each day production target as soon as trade normalises. Against this background, the UAE will speed up the building and construction of a new West-East pipeline that need to 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. However, they remain listed below long-run averages, with weak export orders and rate pressures from greater product and transportation costs are a common theme. In general, we anticipate a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% growth pre-war) and a steady recovery over the remainder of the years.