The Iran war is having an uneven impact on economies within the Middle East and the Gulf, although many are expected to recover by next year if the conflict ends soon.
While the long-term outlook is shrouded in uncertainty, discussions in Washington during the International Monetary Fund and World Bank's spring meetings this week point to what is being described as an “asymmetric shock”.
Still, in its World Economic Outlook published this week, the IMF gave downgrades for every country within the region.
And a separate report from the fund this week projected growth across the Middle East, North Africa, Afghanistan and Pakistan region to slow to 1.4 per cent this year, down 2.3 percentage points from its previous forecast.
Some countries will feel the impact more strongly. Iraq's economy is expected to contract by 6.8 per cent this year, before rebounding to 11.3 per cent growth in 2027. Egypt, on the other hand, is expected to record 4.2 per cent GDP growth this year, rising to 4.8 per cent in 2027.
For the Gulf, the sentiment has been one of resiliency – that it will be able to withstand the shock and come out the other side. And, of course, every forecast comes with the caveat on the duration and scale of the conflict. Nevertheless, some countries within the bloc are better positioned to recover from the economic fallout than others.
“Some of the GCC are more impacted,” Saudi Finance Minister Mohammed Al Jadaan said during a moderated discussion on the global economy.
Bahrain
- GDP growth forecast for 2026: -0.5%
- Revision from previous forecast: -0.5%
- GDP growth forecast for 2027: +4.5%
- Key sites damaged: Bapco Energies, Sitra refinery
Bahrain faces perhaps the dimmest outlook among its peers.
Bahrain is one of five economies in the Middle East forecast to see a recession this year, owing to its reliance on the Strait of Hormuz to export energy.
Even before the war, Fitch downgraded Bahrain's credit rating even deeper into junk territory owing to concerns over the country's high debt-to-GDP ratio, large fiscal deficits and low levels of foreign exchange reserves. Those warnings followed one issued by the IMF in early February, when it said Bahrain must “urgently” cut spending or raise its taxes to get its debt under control.
What they're saying: “The greater economic damage they are expected to experience primarily reflects their heavy reliance on the Strait of Hormuz for the transit of traded goods, and the higher incidence of infrastructure damage from attacks” – IMF
Kuwait
- GDP growth forecast for 2026: -0.6%
- Revision from previous forecast: -4.5%
- GDP growth forecast for 2027: 2.8%
- Key sites damaged: Mina Al-Ahmadi and Mina Abdullah refineries, Shuwaikh complex
The latest energy shock is renewing memories of Iraq's invasion and subsequent occupation of Kuwait in 1990, which dealt severe economic consequences.
Kuwait, for whom oil export sales contribute to about 90 per cent of the country's government revenue, has reduced crude oil production and refining due to Iranian attacks and the effective closure of the Strait of Hormuz.
The country has been undergoing reforms in recent years to address anti-money laundering (AML) and counter-terrorist financing (CFT) frameworks. Kuwait, which has faced political gridlock in the past, has also proposed other reforms including a mortgage law that could help drive growth in the country's banking sector.
What they're saying: “With the suspension of Parliament two years ago, they will begin to bring forward some reforms: issuing debt, getting close to a mortgage law, a lot of projects that have been stored for many years" – Justin Alexander, director of Khalij Economics and a non-resident fellow at the Baker Institute
Oman
- GDP growth forecast for 2026: +3.5%
- Revision from previous forecast: -0.5%
- GDP growth forecast for 2027: +3.4%
- Key sites damaged: Port of Salalah, Duqm Port
Oman is well positioned to withstand the economic impact of the Iran war, partly because its sea access lays outside the Strait of Hormuz.
The sultanate has undergone a series of reforms to strengthen its public finances in recent years as part of its Vision 2040 plan.
What they're saying: “Oman is the net winner of all this, and it's good for them, because they need it, and they deserve it” – Miguel Azevedo, vice chair of investment banking for Citigroup's Middle East and North Africa division
Qatar
- GDP growth forecast for 2026: -8.6%
- Revision from previous forecast: -14.7%
- GDP growth forecast for 2027: +8.6%
- Key sites damaged: Ras Laffan Industrial City
The attacks on the Ras Laffan complex have put a significant strain on Qatar, which is one of the world leaders in liquefied natural gas exports. It could take up to five years to rebuild the facility.
Qatar has also halted the export of helium. Speaking during an IMF event this week, Qatar's Finance Minister Ali bin Ahmed Al Kuwari said the country accounts for 30 per cent of helium exports.
The revision for its 2026 forecast is largely reflecting the significant damage Qatar suffered, although the IMF provisionally believes it will rebound next year depending on the conflict's duration.
Despite the outlook, Qatar is among a number of Gulf countries that remain committed to boosting investments. The Qatar Investment Authority was among key Gulf sovereign wealth funds that made about $25 billion in new investments in the first quarter of this year, Semafor reported, citing Global SWF data.
What they're saying: “Full-fledged impact is coming in one or two months. You’ll see [a] huge economic impact as a result of this war” – Mr Al Kuwari
Saudi Arabia
- GDP growth forecast for 2026: +3.1%
- Revision from previous forecast: -1.4%
- GDP growth forecast for 2027: +4.5%
- Key sites damaged: Ras Tanura, Samref, Satorp, East-West pipeline
Saudi Arabia's infrastructure was hit by attacks, but the kingdom said this week that it had restored full pumping capacity through the East–West pipeline, returning about 700,000 barrels per day lost to Iranian attacks.
Mr Al Jadaan this week defended the kingdom's investment in the pipeline as an example of Saudi Arabia's resilience.
Separately, a new spotlight was also placed on the kingdom's investment strategy this week. The Public Investment Fund – Saudi Arabia's sovereign wealth fund – unveiled a new five-year plan focusing on a $925 billion fund for domestic investments.
The kingdom is also moving at full speed towards its artificial intelligence buildout and in its mining strategy. Meanwhile, attracting foreign investment will also remain a key theme for Saudi Arabia's diversification ambitions.
What they're saying: “A lot of people were criticising Saudi Arabia for wasting money [on the East-West pipeline] over the last 40 years ... That asset is providing a lifeline for the global economy through exporting 5 billion barrels a day when it was not used” Mr Al Jadaan said.
UAE
- GDP growth forecast for 2026: +3.1%
- Revision from previous forecast: -1.9%
- GDP growth forecast for 2027: +5.3%
- Key sites damaged: Jebel Ali Port, Shah gas plant, Habshan plant
Along with Oman and Saudi Arabia, the UAE is projected to mitigate some of the economic effects from the Iran war because it is still sending some of its energy exports to markets through the Fujairah port amid the Hormuz closure.
The Central Bank of the UAE in March also stepped in to support banking sector stability through a resilience package that would provide lenders with access to liquidity and provide them flexibility to use capital buffers.
The UAE has also remained steadfast in its $1.4 trillion investment pledge with the US, which is becoming a growing partner in its ambitions to become a global leader in AI.
Because of its strategic positioning, analysts anticipate the UAE and the broader Gulf region will continue to be key destinations for foreign investment.
What they're saying: “I will be continually interested to see some of the different trade relationships that the UAE in particular has been doing" – Rachel Ziemba, founder of Ziemba Insights
