Advancing Industrial Growth through Strategic Diversification

Dangers are tilted to the downside. In case of an extended conflict, the present influence on the region will be compoundedthrough raised energy and food rates, decreasing trade, tourist and remittances, increased financial pressures, and displacement. "The existing crisis is a plain pointer of the work ahead for the area: not only to weather shocks, however to reconstruct more resistant economies with stronger macroeconomic basics, innovate and enhance governance, invest in infrastructure, and enhance employment-creating sectors," stated.

With peace and the best action, nations can develop the organizations, capabilities and competitive sectors that produce opportunities for individuals." With this long-term vision in mind, the report takes a close take a look at the area's potential for industrial policy government actions to increase strategic business activity as a motorist of financial development and job production.

ANSR July GCC PRs 50DR+

Governments in the area have adopted commercial policy at a high rate in the last decade, frequently through sovereign wealth funds and state-owned enterprises, but the outcomes have been blended. The report highlights the critical need for strong organizations and careful targeting of policies. "As countries face the heavy toll of today dispute, it is very important to likewise not forget the work needed for lasting peace and prosperity," stated.

Why Industrial Diversification Will Transform Arabian Markets

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial forecast for the region prepared directly for the financing profession. 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, tourism and financier sentiment to slowly normalise as war interruptions go away.

ANSR July GCC PRs 50DR+

The interim arrangement between the US and Iran is a substantial action towards reaching a full-blown deal. A complete return to normality in the Strait of Hormuz will likely take time, but the risk of a recession-inducing oil price spike has actually decreased. Global GDP is expected to grow by 2.4% this year, 0.2 ppt less than we predicted 3 months back, and 3.1% in 2027.

We anticipate a 4.1% contraction in Middle East GDP this year (versus forecasted 3.6% growth before the war), greater than the decrease in the first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stick out as the hardest struck, owing to their inability to avoid the disruption to regional shipping, war-driven facilities damage and tourist losses.

Our 2026 outlook for the GCC is weaker than three months back, 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 broaden this year.

The economic damage incurred in the last couple of months is significant. Saudi GDP information for Q1 showed development slowed to 3% y/y, with non-oil activities broadening by 2.9%, the weakest pace since 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.

Key Industrial Shifts for 2026

Aside from Oman, all GCC producers as well as Iran and Iraq have suffered substantial oil and gas production losses because the start of the dispute. Might data 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 assisted avoid an even larger plunge in output.

ANSR July GCC PRs 50DR+

We anticipate GCC oil sector output to agreement by 14.5% this year, which will mark the steepest decline in several decades. We then anticipate a 23.5% rebound next year, driven largely by normalisation from a significantly depressed base. On the other hand, oil prices have been volatile, easing below $85 per barrel as the interim arrangement was announced.

In the medium term, we expect oil costs to be a little lower than our pre-war baseline, as the UAE's departure from OPEC+ permits a gradual increase in its output towards the 5mn barrel daily production target when trade normalises. Versus this backdrop, the UAE will accelerate the construction of a brand-new West-East pipeline that must double the capacity of export through Fujairah.

The May PMI studies reported output development reaching its greatest level in 3 months, driven mainly by enhanced domestic demand. However, they stay below long-run averages, with weak export orders and price pressures from greater product and transportation expenses are a common style. Overall, we anticipate a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% development pre-war) and a steady recovery over the rest of the decade.