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Dangers are tilted to the drawback. In case of an extended conflict, the present influence on the region will be compoundedthrough elevated energy and food prices, declining trade, tourist and remittances, increased financial pressures, and displacement. "The current crisis is a stark reminder of the work ahead for the region: not just to weather shocks, but to reconstruct more durable economies with stronger macroeconomic basics, innovate and improve governance, buy facilities, and boost employment-creating sectors," said.

With peace and the ideal action, nations can construct 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 commercial policy government actions to increase strategic business activity as a chauffeur of financial growth and task production.

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Federal governments in the region have actually embraced commercial policy at a high rate in the last decade, typically through sovereign wealth funds and state-owned enterprises, but the results have actually been blended. The report highlights the critical requirement for strong organizations and cautious targeting of policies. "As nations deal with the heavy toll of the present dispute, it is very important to likewise not forget the work required for lasting peace and success," stated.

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Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial projection for the region prepared directly for the finance profession. The GCC economy deals with a significant contraction this year pending details of the US-Iran contract to end the war. We anticipate energy flows, tourism and financier sentiment to gradually normalise as war interruptions go away.

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The interim contract between the United States and Iran is a considerable action towards reaching a full-blown offer. A full return to normality in the Strait of Hormuz will likely require time, but the risk of a recession-inducing oil price spike has actually declined. Worldwide GDP is anticipated 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 projected 3.6% expansion before the war), greater than the decrease in the very first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stand out as the hardest struck, owing to their failure to prevent the disturbance to regional shipping, war-driven facilities 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% decrease forecasted previously. We expect Oman and Saudi Arabia to be the least negatively impacted by the fallout from the dispute, with both economies continuing to expand this year.

The financial damage sustained in the last few months is substantial. Saudi GDP information for Q1 revealed growth slowed to 3% y/y, with non-oil activities expanding by 2.9%, the weakest pace considering that 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 disruption hit late in the quarter.

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Aside from Oman, all GCC producers along with Iran and Iraq have actually suffered substantial oil and gas production losses because the start of the dispute. May data show local production nearly cut in half 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 avoid an even bigger plunge in output.

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Nevertheless, we forecast 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. On the other hand, oil prices have actually been unpredictable, easing below $85 per barrel as the interim arrangement was announced.

In the medium term, we anticipate oil costs to be slightly lower than our pre-war baseline, as the UAE's departure from OPEC+ permits a gradual increase in its output towards the 5mn barrel each day production target when trade normalises. Against this backdrop, the UAE will speed up the building and construction of a brand-new West-East pipeline that must double the capability of export through Fujairah.

The May PMI studies reported output growth reaching its strongest level in 3 months, driven mainly by improved domestic demand. However, they remain listed below long-run averages, with weak export orders and price pressures from greater product and transportation expenses are a typical 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 progressive recovery over the remainder of the years.