Future-Proofing GCC Portfolios for 2026 Shifts

Dangers are tilted to the disadvantage. In the event of an extended conflict, the existing effect on the region will be compoundedthrough elevated energy and food rates, decreasing trade, tourist and remittances, increased fiscal pressures, and displacement. "The current crisis is a stark reminder of the work ahead for the region: not just to weather shocks, however to restore more resilient economies with more powerful macroeconomic fundamentals, innovate and enhance governance, purchase infrastructure, and increase employment-creating sectors," said.

With peace and the best action, countries can construct the institutions, capabilities and competitive sectors that create chances for people." With this long-lasting vision in mind, the report takes a close take a look at the region's capacity for industrial policy federal government actions to increase tactical business activity as a driver of financial development and job production.

ANSR July GCC PRs 50DR+

Federal governments in the region have actually embraced commercial policy at a high rate in the last years, often through sovereign wealth funds and state-owned business, however the outcomes have been blended. The report highlights the vital need for strong institutions and cautious targeting of policies. "As nations face the heavy toll of the present dispute, it is very important to likewise not lose sight of the work needed for long-lasting peace and prosperity," said.

2026 Regional Economic Forecasts

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial projection for the region prepared straight for the finance profession. The GCC economy faces a significant contraction this year pending details of the US-Iran contract to end the war. We anticipate energy circulations, tourist and financier sentiment to slowly normalise as war disruptions subside.

ANSR July GCC PRs 50DR+

The interim agreement between the US and Iran is a considerable action towards reaching a full-blown deal. A full go back to normality in the Strait of Hormuz will likely take time, however the threat of a recession-inducing oil rate spike has actually declined. International GDP is anticipated to grow by 2.4% this year, 0.2 ppt less than we projected three months ago, and 3.1% in 2027.

We anticipate a 4.1% contraction in Middle East GDP this year (versus projected 3.6% growth 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 inability 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 back, with GDP forecast to agreement by 2.4% compared to a 0.2% decline projected formerly. We anticipate Oman and Saudi Arabia to be the least adversely 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 considerable. Saudi GDP data for Q1 revealed growth slowed to 3% y/y, with non-oil activities broadening by 2.9%, the weakest speed given 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 interruption hit late in the quarter.

Why Economic Diversification Can Shape GCC Markets

Aside from Oman, all GCC manufacturers along with Iran and Iraq have actually suffered comprehensive oil and gas production losses because the start of the dispute. May information show local production almost 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+

Nevertheless, 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 mainly by normalisation from a seriously depressed base. Oil costs have actually been volatile, reducing below $85 per barrel as the interim contract was revealed.

In the medium term, we anticipate oil costs to be somewhat lower than our pre-war baseline, as the UAE's departure from OPEC+ permits for a progressive increase in its output towards the 5mn barrel per day production target once trade normalises. Versus this background, the UAE will speed up the building of a new West-East pipeline that should double the capacity of export through Fujairah.

The May PMI studies reported output growth reaching its greatest level in 3 months, driven mainly by improved domestic need. They remain below long-run averages, with weak export orders and price pressures from higher product and transport costs are a typical theme. In general, 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 remainder of the decade.