RIYADH — October 6, 2026. The World Bank on Tuesday delivered a stark verdict on the Middle East’s economy, forecasting that the Middle East, North Africa, Afghanistan and Pakistan region will contract by 2.1 per cent in 2026 as the Iran war chokes off energy supplies through the Strait of Hormuz.
The downgrade marks the bank’s latest cut to the regional outlook since the conflict began in February. Economists had already lowered their 2026 forecast from 3.6 per cent in January to 2.1 per cent growth in April — but the new projection flips the region into outright contraction, following 3.3 per cent growth in 2025.
The closure of the Strait of Hormuz has hit oil-exporting Gulf states hardest, the bank said, reversing the historical pattern in which earlier energy shocks tended to benefit them.
Gulf economies to shrink 4.3 per cent
The six Gulf Co-operation Council states are projected to contract by an average of 4.3 per cent for 2026, a further 5.7 percentage-point downgrade from the April forecast. Saudi Arabia is expected to shrink by 2 per cent and the United Arab Emirates by 1.6 per cent, after growth of 4.6 and 6.2 per cent respectively in 2025.
Qatar faces its weakest economic performance in five decades, the bank reported, with output forecast to fall by 20.9 per cent after average monthly gas production dropped by about 67 per cent between March and July due to damage sustained at its sites. Kuwait’s economy is projected to contract by 14.6 per cent, and Oman — the only Gulf state expected to keep growing — is forecast to manage 3.1 per cent.
Iraq, which relies on oil for about 90 per cent of government revenue, is forecast to contract by 12.4 per cent, 3.8 percentage points worse than the April forecast. Iran’s economy is expected to shrink by 7.7 per cent.
Importers hold up better
“This conflict is very painful and it has concentrated the losses of the conflict in our region, while the global economy and other regions are upgrading their forecasts, and we are downgrading significantly,” Roberta Gatti, the World Bank’s chief economist for the Menaap region, told reporters.
Oil importers are weathering the storm far better. Their growth is expected to rise to 4.3 per cent this year from 3.9 per cent in 2025, with Egypt forecast to grow by 5.1 per cent. Global growth, meanwhile, is projected to slow to 2.5 per cent this year, the bank said in June.
A 2027 rebound if the guns fall silent
The bank’s projections assume that energy and trade flows gradually recover through 2027 if active conflicts subside by the end of 2026. Under that scenario, Gulf economies could rebound sharply — with growth of more than 10 per cent projected for 2027, driven by restored hydrocarbon production, reopened maritime trade routes and a bounce-back in tourism and domestic commercial activity.
Analysts cautioned that the recovery hinges on the restoration of the Strait of Hormuz and the Red Sea shipping lanes. Port monitors report that as of late September, just three tankers a day were passing through Hormuz on a seven-day rolling average — a fraction of pre-war traffic.
