Strategic Economic Diversification for 2026

Risks are slanted to the downside. In case of a prolonged conflict, the present effects on the region will be compoundedthrough raised energy and food costs, decreasing trade, tourist and remittances, increased fiscal pressures, and displacement. "The present crisis is a plain reminder of the work ahead for the area: not just to weather shocks, but to reconstruct more resistant economies with stronger macroeconomic basics, innovate and improve governance, invest in facilities, and enhance employment-creating sectors," stated.

With peace and the best action, nations can construct the organizations, capabilities and competitive sectors that create opportunities for individuals." 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 growth and job development.

ANSR July GCC PRs 50DR+

Governments in the region have embraced industrial policy at a high rate in the last decade, frequently through sovereign wealth funds and state-owned business, but the results have actually been blended. The report highlights the crucial requirement for strong organizations and mindful targeting of policies. "As nations deal with the heavy toll of the present dispute, it is very important to likewise not forget the work required for lasting peace and success," said.

Accelerating Economic Success via Global Diversification

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial forecast for the area prepared straight for the finance profession. The GCC economy faces a marked contraction this year pending information of the US-Iran arrangement to end the war. We anticipate energy circulations, tourist and investor belief to gradually normalise as war interruptions diminish.

ANSR July GCC PRs 50DR+

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

We anticipate a 4.1% contraction in Middle East GDP this year (versus forecasted 3.6% growth before the war), higher than the decrease in the very first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stand apart as the hardest struck, owing to their inability to avoid the disruption to regional shipping, war-driven facilities damage and tourist losses.

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

The financial damage sustained in the last couple of months is substantial. Saudi GDP information for Q1 revealed growth slowed to 3% y/y, with non-oil activities expanding by 2.9%, the weakest pace considering that 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 disruption struck late in the quarter.

How Industrial Shifts Will Transform GCC Markets

Aside from Oman, all GCC producers in addition to Iran and Iraq have suffered comprehensive oil and gas production losses because the start of the dispute. May information show local production nearly cut in half from pre-war levels, with the decrease deepening relative to March and April. Rerouting efforts, consisting of 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 anticipate GCC oil sector output to contract by 14.5% this year, which will mark the steepest decline in numerous decades. We then anticipate a 23.5% rebound next year, driven largely by normalisation from a seriously depressed base. Meanwhile, oil costs have been unstable, reducing below $85 per barrel as the interim contract was revealed.

In the medium term, we expect oil rates to be a little lower than our pre-war standard, as the UAE's departure from OPEC+ permits a gradual increase in its output towards the 5mn barrel daily production target when trade normalises. Versus this background, the UAE will accelerate the building of a new West-East pipeline that ought to double the capacity of export through Fujairah.

The May PMI studies reported output growth reaching its strongest level in 3 months, driven mostly by improved domestic need. They stay listed below long-run averages, with weak export orders and cost pressures from higher product and transport expenses are a common theme. In general, we expect a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% growth pre-war) and a steady recovery over the remainder of the decade.