Why Economic Shifts Will Shape GCC Markets

Risks are slanted to the downside. In case of a prolonged dispute, the present effect on the region will be compoundedthrough raised energy and food prices, decreasing trade, tourism and remittances, increased fiscal pressures, and displacement. "The existing crisis is a stark tip of the work ahead for the area: not only to weather shocks, however to reconstruct more resistant economies with stronger macroeconomic basics, innovate and improve governance, buy infrastructure, and increase employment-creating sectors," stated.

With peace and the best action, countries can construct the institutions, capabilities and competitive sectors that develop chances for individuals." With this long-lasting vision in mind, the report takes a close take a look at the area's potential for commercial policy federal government actions to increase tactical business activity as a motorist of financial growth and task development.

ANSR July GCC PRs 50DR+

Governments in the area have embraced industrial policy at a high rate in the last decade, frequently through sovereign wealth funds and state-owned business, but the outcomes have been blended. The report highlights the important need for strong organizations and cautious targeting of policies. "As nations face the heavy toll of the present dispute, it is important to also not forget the work needed for lasting peace and success," said.

2026 Business Landscape in the GCC

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic projection for the area prepared straight for the finance profession. The GCC economy deals with a significant contraction this year pending information of the US-Iran contract to end the war. We anticipate energy flows, tourism and financier belief to gradually normalise as war disturbances go away.

ANSR July GCC PRs 50DR+

The interim agreement between the United States and Iran is a significant step towards reaching a full-blown deal. A complete return to normality in the Strait of Hormuz will likely require time, but the risk of a recession-inducing oil price spike has decreased. International 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 predicted 3.6% expansion before the war), greater than the decrease in the very first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stick out as the hardest struck, owing to their inability to prevent the disturbance 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 agreement by 2.4% compared to a 0.2% decline forecasted previously. We expect Oman and Saudi Arabia to be the least adversely affected by the fallout from the dispute, with both economies continuing to broaden this year.

The financial damage sustained in the last few months is significant. Saudi GDP data for Q1 showed growth slowed to 3% y/y, with non-oil activities broadening by 2.9%, the weakest pace 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 struck late in the quarter.

How Industrial Diversification Will Shape GCC Markets

Aside from Oman, all GCC producers as well as Iran and Iraq have actually suffered extensive oil and gas production losses given that the start of the conflict. May data reveal regional production nearly halved 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 avoid an even larger plunge in output.

ANSR July GCC PRs 50DR+

We anticipate GCC oil sector output to agreement by 14.5% this year, which will mark the steepest decrease in several decades. We then expect a 23.5% rebound next year, driven mainly by normalisation from a severely depressed base. Oil rates have been volatile, relieving listed below $85 per barrel as the interim contract was revealed.

In the medium term, we expect oil prices to be slightly lower than our pre-war baseline, as the UAE's departure from OPEC+ enables for a gradual increase in its output towards the 5mn barrel each day production target once trade normalises. Versus this background, the UAE will accelerate the construction of a brand-new West-East pipeline that ought to double the capacity of export through Fujairah.

The May PMI studies reported output development reaching its strongest level in three months, driven largely by improved domestic demand. Nevertheless, they remain below long-run averages, with weak export orders and price pressures from higher material and transportation expenses are a common theme. Overall, we expect a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% development pre-war) and a progressive healing over the rest of the decade.