The International Monetary Fund has sharply downgraded its growth outlook for the Middle East and Central Asia, projecting the regional economy will contract by 0.3% in 2026 as the war disrupts shipping, oil production and trade.
The forecast marks a steep reversal from the IMF’s projection of 1.9% growth made six months earlier in its April World Economic Outlook report.
The fund attributed the downgrade partly to a longer-than-expected closure of the Strait of Hormuz, a critical waterway for global energy shipments. The conflict, which began in late February with US-Israeli strikes on Iran, has severely disrupted maritime traffic, with Tehran seeking to control passage through the strait and repeatedly attacking ships.
The United States has also imposed a counter-blockade on Iranian ports and increasingly escorted allied vessels through the waterway.
Saudi Arabia’s gross domestic product is projected to contract by 3.3% in 2026 before rebounding to 7.9% growth in 2027, according to the IMF. The forecast was issued before a series of deadly attacks on Riyadh airport that began last week.
The IMF said Saudi Arabia was among the region’s least affected economies because of its more diversified export routes. The kingdom has used its East-West oil pipeline to transport crude to the Red Sea coast, bypassing the Strait of Hormuz.
However, the pipeline was temporarily shut in September after strikes blamed on Iran-backed groups in Iraq. Yemen’s Houthi movement has also repeatedly targeted Saudi oil infrastructure and tankers in the Red Sea since fighting in Yemen reignited in July.
The UAE is forecast to see its economy contract by 3.9% this year, reflecting its exposure to disruptions around the Strait of Hormuz and the wider regional conflict.
Iraq, Kuwait, Qatar and Bahrain face the steepest economic setbacks, with the IMF projecting double-digit contractions in 2026 following damage to oil installations and disruptions to production, exports and logistics.
The fund expects these economies to record double-digit expansions in 2027 as output, exports and supply chains normalise.
Oman is the only Gulf country projected to maintain positive growth this year, at 2.4%.
Iran’s economy is forecast to shrink by 7.6% in 2026 as the war, blockade and US sanctions intensify economic pressure.
The IMF said other Arab economies were expected to remain relatively resilient despite energy and food price shocks.
The regional outlook for 2027 hinges heavily on the expected reopening of the Strait of Hormuz and the normalisation of shipping and energy production.
