Positioning Regional Portfolios against 2026 Trends

Risks are tilted to the drawback. In the event of a prolonged dispute, the existing influence on the area will be compoundedthrough elevated energy and food prices, decreasing trade, tourist and remittances, increased financial pressures, and displacement. "The current crisis is a plain pointer of the work ahead for the area: not just to weather shocks, but to restore more resistant economies with stronger macroeconomic basics, innovate and enhance governance, buy infrastructure, and boost employment-creating sectors," stated.

With peace and the right action, nations can develop the institutions, abilities and competitive sectors that create opportunities for people." With this long-term vision in mind, the report takes a close take a look at the region's potential for industrial policy federal government actions to increase tactical organization activity as a chauffeur of financial growth and task development.

ANSR July GCC PRs 50DR+

Federal governments in the area have adopted industrial policy at a high rate in the last years, often through sovereign wealth funds and state-owned business, but the results have been mixed. The report highlights the critical requirement for strong institutions and cautious targeting of policies. "As nations deal with the heavy toll of the present conflict, it is very important to also not forget the work required for lasting peace and success," said.

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Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial forecast for the region prepared directly for the financing occupation. The GCC economy deals with a significant contraction this year pending information of the US-Iran agreement to end the war. We anticipate energy circulations, tourist and financier belief to gradually normalise as war interruptions diminish.

ANSR July GCC PRs 50DR+

The interim arrangement in between the United States and Iran is a considerable step towards reaching a full-blown offer. A complete go back to normality in the Strait of Hormuz will likely take some time, but the threat of a recession-inducing oil cost spike has actually declined. International GDP is expected 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% expansion before the war), higher than the decline in the very first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stand out as the hardest hit, owing to their failure to prevent the disturbance to regional shipping, war-driven infrastructure damage and tourist losses.

Our 2026 outlook for the GCC is weaker than 3 months ago, with GDP projection to agreement by 2.4% compared to a 0.2% decrease predicted previously. We expect Oman and Saudi Arabia to be the least negatively impacted by the fallout from the dispute, with both economies continuing to expand this year.

The economic damage incurred in the last couple of months is substantial. Saudi GDP data for Q1 showed development slowed to 3% y/y, with non-oil activities broadening by 2.9%, the weakest rate given that 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 disturbance struck late in the quarter.

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Aside from Oman, all GCC producers in addition to Iran and Iraq have actually suffered extensive oil and gas production losses because the start of the conflict. May information reveal regional production almost 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 actually helped avoid an even bigger plunge in output.

ANSR July GCC PRs 50DR+

We forecast GCC oil sector output to contract by 14.5% this year, which will mark the steepest decline in numerous years. We then expect a 23.5% rebound next year, driven largely by normalisation from a badly depressed base. Oil prices have been unstable, relieving listed 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 baseline, as the UAE's departure from OPEC+ permits a gradual boost in its output towards the 5mn barrel each day production target as soon as trade normalises. Versus this backdrop, the UAE will accelerate the construction of a 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 improved domestic need. However, they stay listed below long-run averages, with weak export orders and cost pressures from higher material and transportation expenses are a common theme. In general, 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 remainder of the years.