Driving Economic Growth through Global Diversification

Dangers are tilted to the disadvantage. In the event of a prolonged dispute, the current impacts on the area will be compoundedthrough raised energy and food prices, declining trade, tourism and remittances, increased fiscal pressures, and displacement. "The existing crisis is a plain tip of the work ahead for the area: not just to weather shocks, but to reconstruct more durable economies with stronger macroeconomic fundamentals, innovate and enhance governance, buy facilities, 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 individuals." With this long-lasting vision in mind, the report takes a close take a look at the region's capacity for commercial policy government actions to increase tactical service activity as a motorist of financial growth and job development.

ANSR July GCC PRs 50DR+

Governments in the region have actually embraced industrial policy at a high rate in the last decade, often through sovereign wealth funds and state-owned enterprises, but the results have actually been blended. The report highlights the vital requirement for strong institutions and careful targeting of policies. "As countries deal with the heavy toll of the present dispute, it is necessary to likewise not forget the work required for lasting peace and success," said.

Why Industrial Diversification Can Transform Arabian Markets

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic forecast for the area prepared directly for the finance profession. The GCC economy deals with a marked contraction this year pending details of the US-Iran agreement to end the war. We expect energy circulations, tourist and investor sentiment to gradually normalise as war disturbances decrease.

ANSR July GCC PRs 50DR+

The interim arrangement between the US and Iran is a considerable step towards reaching a full-blown offer. A complete return to normality in the Strait of Hormuz will likely take some time, but the threat of a recession-inducing oil rate spike has declined. International GDP is expected to grow by 2.4% this year, 0.2 ppt less than we forecasted 3 months earlier, and 3.1% in 2027.

We anticipate a 4.1% contraction in Middle East GDP this year (versus forecasted 3.6% expansion 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 disturbance to local shipping, war-driven facilities damage and tourism losses.

Our 2026 outlook for the GCC is weaker than three months earlier, with GDP projection to contract 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 sustained in the last few months is substantial. Saudi GDP information for Q1 revealed development slowed to 3% y/y, with non-oil activities expanding by 2.9%, the weakest pace because 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 struck late in the quarter.

Strategic Capital Diversification for the Future

Aside from Oman, all GCC manufacturers as well as Iran and Iraq have suffered comprehensive oil and gas production losses because the start of the dispute. Might information show local production almost cut in half from pre-war levels, with the decrease 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 helped prevent an even bigger plunge in output.

ANSR July GCC PRs 50DR+

Nevertheless, we forecast GCC oil sector output to contract by 14.5% this year, which will mark the steepest decrease in several years. We then expect a 23.5% rebound next year, driven largely by normalisation from a seriously depressed base. Oil prices have been volatile, reducing listed below $85 per barrel as the interim contract was announced.

In the medium term, we anticipate oil costs to be a little lower than our pre-war standard, as the UAE's departure from OPEC+ enables a steady boost in its output towards the 5mn barrel each day production target when trade normalises. Against this background, the UAE will speed up the building of a new West-East pipeline that should double the capability of export through Fujairah.

The May PMI surveys reported output growth reaching its strongest level in three months, driven mostly by enhanced domestic demand. However, they remain listed below long-run averages, with weak export orders and rate pressures from higher material and transport expenses are a typical style. Overall, we anticipate a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% development pre-war) and a gradual healing over the remainder of the years.