Positioning Middle East Investments for 2026 Shifts

Dangers are slanted to the downside. In case of an extended conflict, the present effect on the region will be compoundedthrough raised energy and food costs, decreasing trade, tourist and remittances, increased fiscal pressures, and displacement. "The existing crisis is a stark suggestion of the work ahead for the area: not only to weather shocks, however to rebuild more durable economies with stronger macroeconomic fundamentals, innovate and improve governance, invest in infrastructure, and boost employment-creating sectors," stated.

With peace and the right action, nations can build the organizations, abilities and competitive sectors that create chances for people." With this long-term vision in mind, the report takes a close appearance at the region's potential for industrial policy federal government actions to increase tactical company activity as a driver of financial development and job creation.

ANSR July GCC PRs 50DR+

Governments in the area have actually adopted industrial policy at a high rate in the last years, often through sovereign wealth funds and state-owned enterprises, but the outcomes have been mixed. The report highlights the critical need for strong institutions and careful targeting of policies. "As nations deal with the heavy toll of today conflict, it is very important to also not lose sight of the work needed for long-lasting peace and prosperity," stated.

Upcoming Regional Market Projections

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic projection for the region prepared straight for the finance occupation. The GCC economy faces a significant contraction this year pending information of the US-Iran arrangement to end the war. We anticipate energy circulations, tourist and financier sentiment to gradually normalise as war disturbances decrease.

ANSR July GCC PRs 50DR+

The interim contract in between the United States and Iran is a substantial action towards reaching a full-blown offer. A full return to normality in the Strait of Hormuz will likely require time, however the threat of a recession-inducing oil cost spike has declined. Global GDP is anticipated to grow by 2.4% this year, 0.2 ppt less than we projected 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 decline in the very first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stand apart as the hardest hit, owing to their inability to prevent the interruption to local shipping, war-driven facilities damage and tourist losses.

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

The economic damage incurred in the last few months is substantial. Saudi GDP data for Q1 showed growth slowed to 3% y/y, with non-oil activities expanding by 2.9%, the weakest rate since 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 hit late in the quarter.

Key International Investment Avenues for the GCC Region

Aside from Oman, all GCC manufacturers as well as Iran and Iraq have suffered extensive oil and gas production losses considering that the start of the conflict. Might information show local production almost cut in half 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 helped prevent an even larger plunge in output.

ANSR July GCC PRs 50DR+

We forecast GCC oil sector output to agreement by 14.5% this year, which will mark the steepest decrease in numerous years. We then expect a 23.5% rebound next year, driven mostly by normalisation from a significantly depressed base. On the other hand, oil rates have actually been unpredictable, easing listed below $85 per barrel as the interim arrangement was revealed.

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

The May PMI surveys reported output development reaching its greatest level in 3 months, driven largely by improved domestic demand. Nevertheless, they remain listed below long-run averages, with weak export orders and cost pressures from higher material and transport costs are a common style. Overall, we anticipate a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% growth pre-war) and a steady healing over the remainder of the decade.