Navigating Capital Diversification for a Global Economy

Dangers are tilted to the downside. In case of a prolonged conflict, the current influence on the area will be compoundedthrough elevated energy and food costs, decreasing trade, tourist and remittances, increased financial pressures, and displacement. "The present crisis is a stark suggestion of the work ahead for the area: not only to weather shocks, however to reconstruct more resistant economies with more powerful macroeconomic basics, innovate and enhance governance, invest in infrastructure, and improve employment-creating sectors," stated.

With peace and the best action, nations can build the organizations, abilities and competitive sectors that develop opportunities for individuals." With this long-term vision in mind, the report takes a close take a look at the region's potential for commercial policy government actions to increase strategic business activity as a motorist of financial development and task creation.

ANSR July GCC PRs 50DR+

Governments in the area have embraced industrial policy at a high rate in the last years, typically through sovereign wealth funds and state-owned enterprises, but the results have been mixed. The report highlights the vital requirement for strong institutions and cautious targeting of policies. "As nations deal with the heavy toll of today dispute, it is necessary to also not forget the work needed for long-lasting peace and success," stated.

How Industrial Diversification Can Transform Arabian Markets

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial projection for the region prepared straight for the finance occupation. The GCC economy deals with a significant contraction this year pending information of the US-Iran agreement to end the war. We expect energy flows, tourism and financier sentiment to slowly normalise as war disruptions decrease.

ANSR July GCC PRs 50DR+

The interim contract between the US and Iran is a significant step towards reaching a full-blown deal. A full go back to normality in the Strait of Hormuz will likely take some time, but the risk of a recession-inducing oil cost spike has actually decreased. Global GDP is expected to grow by 2.4% this year, 0.2 ppt less than we projected 3 months back, and 3.1% in 2027.

We forecast a 4.1% contraction in Middle East GDP this year (versus projected 3.6% expansion before the war), higher than the decline in the first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stand out as the hardest struck, owing to their failure to avoid the disturbance to regional shipping, war-driven infrastructure damage and tourist losses.

Our 2026 outlook for the GCC is weaker than three months earlier, with GDP projection to agreement by 2.4% compared to a 0.2% decline forecasted previously. We anticipate Oman and Saudi Arabia to be the least negatively affected by the fallout from the conflict, with both economies continuing to broaden this year.

The economic damage incurred in the last couple of months is considerable. Saudi GDP data for Q1 showed growth slowed to 3% y/y, with non-oil activities expanding by 2.9%, the weakest speed because the Covid pandemic. On a seasonally adjusted basis, GDP contracted 1.2% q/q, driven by a 6.8% fall in oil activities as the Strait of Hormuz interruption struck late in the quarter.

Evaluating GCC Investment Potential in 2026

Aside from Oman, all GCC producers as well as Iran and Iraq have actually suffered substantial oil and gas production losses since the start of the conflict. Might data show regional production nearly 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 assisted prevent an even bigger plunge in output.

ANSR July GCC PRs 50DR+

Nonetheless, we forecast GCC oil sector output to contract by 14.5% this year, which will mark the steepest decline in several years. We then expect a 23.5% rebound next year, driven mostly by normalisation from a severely depressed base. Oil prices have been unpredictable, relieving listed below $85 per barrel as the interim agreement was announced.

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

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