The World Bank expects economic growth in the Middle East to slow to 1.8 per cent this year as a result of the Iran war, warning the fallout can result in long-term “scarring”.
The figure is far lower than the estimated 4 per cent growth recorded in 2025, the Washington-based body said in its regional economic update on Wednesday.
Real gross domestic product in the six-nation Gulf will grow by 1.3 per cent in 2026, down from a 4.4 per cent expansion last year, the World Bank said.
Qatar and Kuwait – where attacks on energy sites caused a significant disruption globally – could face a contraction this year, with the bank forecasting their economies to shrink by 5.7 per cent and 6.4 per cent, respectively, down from previous growth forecasts of 5.3 per cent and 2.6 per cent.
The economy of Saudi Arabia, the Arab world's biggest, is now projected to grow 3.1 per cent in 2026, down from 4.3 per cent. Growth for the UAE, the second largest, is now down to an estimated 2.4 per cent from 5.1 per cent. Bahrain and Oman are forecast to grow 1.3 per cent and 2.4 per cent, down from 3.1 per cent and 3.6 per cent, respectively.
Attacks by the US and Israel on Iran, which began on February 28, led to Tehran retaliating with strikes on US assets and energy infrastructure across the Gulf.
A two-week ceasefire announced by the US and Iran on Wednesday led to a surge in regional markets.
Tehran has also agreed to open the Strait of Hormuz, the waterway through which a fifth of the world's oil vessels pass, after effectively blocking it since the start of the war. The 39-day closure, along with air strikes on energy infrastructure, led to a surge in oil and gas prices, with global ramifications.
Gulf economies have been affected because of the effect on maritime trade and the damage to civilian infrastructure, analysts at the World Bank wrote.
They cautioned that a broader set of economies face “indirect but potentially significant spillovers”, including inflation pressures, declining tourism and remittance incomes, and weakened investor confidence.
“Scarring can outlast the conflict itself,” the World Bank said. “In directly affected economies, damage to infrastructure, the erosion of human capital, lower investor confidence and negative touristic perception can be slow to recover, compromising future growth.
“The conflict arrives at a moment of pre-existing vulnerability, marked by dependence on workers’ remittances from the Arabian Gulf, especially in fragile economies, or by fiscal positions ill-suited to sustain elevated public debt in an environment of heightened risk aversion.”
Oil prices surged during the war, with Brent, the benchmark for two thirds of the world’s oil, hitting nearly $120 a barrel last month. While prices fell sharply on Wednesday – Brent was down nearly 15 per cent at $92.97 a barrel at 10.52am UAE time – the impact has already been felt in many economies globally.
Societies in net oil-importing nations, especially in Asia, have been hit especially hard.
The World Bank said “inflationary consequences” will ripple outward globally if energy prices remain elevated, and the pressure is already more pronounced in Europe and Asia than in the US, being a net oil exporter and self-sufficient in natural gas.
In contrast, a higher bill for oil importers can widen current account deficits and feed into production costs, which often are passed on to consumers, the report said. The inflationary pressures may force central banks to keep interest rates higher for longer than markets had expected.
“The severity and persistence of these effects will depend critically on the duration and intensity of the conflict,” the World Bank said. “But if there is one certainty now, it is uncertainty itself.”
