World Bank Predicts Middle East GDP Contraction Amid Iran War Disruptions

The World Bank has significantly downgraded its economic forecast for the Middle East, predicting a 2.1% contraction in GDP for 2026 due to the ongoing Iran war. This revision marks the latest in a series of downgrades, with previous forecasts dropping from 3.6% in January to 2.1% in April. The conflict has disrupted energy supplies, particularly through the closure of the Strait of Hormuz, leading to widespread economic setbacks in tourism, aviation, logistics, and financial markets.

Gulf Cooperation Council (GCC) economies are expected to shrink by 4.3% this year, a steep decline from earlier projections. The UAE and Saudi Arabia, which had growth rates of 4.6% and 6.2% respectively in 2025, are now forecast to contract by -1.6% and -2.0% in 2026. Qatar faces its weakest economic performance in five decades, with a projected contraction of -20.9%, driven by a 67% drop in gas production due to war-related damage. Kuwait’s economy is also expected to shrink by 14.6%, a sharp revision from April’s forecast.

The war has severely impacted oil exporters, with oil production in the Gulf dropping from 26 million barrels a day pre-war to about 16 million in March. The closure of the Strait of Hormuz has forced countries like the UAE and Saudi Arabia to rely on alternative routes, such as the Abu Dhabi Crude Oil Pipeline and the East-West Pipeline, to bypass the strait. Despite these efforts, oil prices have remained volatile, trading around $100 a barrel.

The World Bank’s report assumes the Strait of Hormuz will gradually reopen by December 31, with a projected economic rebound in 2027. Under this scenario, the UAE and Saudi Arabia are expected to grow by 8% and 6.1% respectively, while Qatar and Kuwait could see growth of 25% and 20.5%. The bank also highlighted the potential of artificial intelligence to boost productivity in the region by up to 20%, urging developing countries to adopt AI to avoid falling behind economically.