War Pressures Gulf Economies as IMF Forecasts Contraction

Houthi attacks have had a “limited” economic impact on Saudi Arabia so far, IMF regional director Jihad Azour told AFP, even as attacks on oil facilities and airports intensify and Yemen’s dormant civil war roars back into life. The IMF’s measure is economic: its regional report forecasts a contraction followed by a rebound, while military threats and stalled diplomacy continue.

The Cost of Escalation

Saudi Arabia, the world’s largest oil exporter, faces pressure on crude shipments from Iran’s blockade of the Strait of Hormuz and the Houthis’ declaration of a maritime blockade. Shipments still move, Azour said. He credited “strong internal demand and a robust public sector” for limiting the impact of Houthi attacks. The assessment gives the public sector a starring role in economic resilience, while the report also records oil facilities and airports among the targets.

The Saudi economy is still expected to contract by 3.3% in 2026. The IMF links that forecast to the effects of the U.S.-Israeli war with Iran, which began in February. According to the regional report released Thursday, every Gulf state except Oman has seen hydrocarbon production fall.

The region’s economy as a whole is expected to shrink by 4.8% in 2026, then grow by around 9.1% in 2027. Those figures come as geopolitical tensions continue and diplomacy between Washington and Tehran remains stalled. The forecasts don’t set a timetable for peace; they reflect projections made while military escalation remains possible.

Military Threats, Economic Forecasts

On Thursday, Iran’s Revolutionary Guards threatened to widen the conflict if the U.S. military continued escorting ships through the Strait of Hormuz. U.S. and other media have also reported that Washington and Israel are preparing a new wave of strikes on Iran, possibly after the American midterm elections on Nov. 3. The possibility of further strikes and the stated threat to widen the conflict sit alongside the forecast figures. Diplomacy is stalled. Military moves remain in view.

Azour warned that renewed fighting and further damage to infrastructure would raise the cost. “If fighting did resume and there was further damage to infrastructure, the cost will be higher,” he said. The IMF’s projections assume oil prices stay stable, above their pre-war level but well below what they’d reach if the region flared up or the conflict intensified, Azour said.

That assumption matters. The projected rebound depends on a forecast shaped by conditions that could change if fighting resumes or infrastructure takes more damage. Azour said attracting investment and talent would depend on stability. He added that “scars will remain for a few years” from the war, while saying “the fundamentals of the Saudi economy are strong.”

The report doesn’t discuss grassroots organizing, mutual aid, or the work of aid organizations; it focuses on regional output, production, shipments, and investment. Its warning is plain: further fighting could bring greater costs, and the economic outlook rests on stability that the article describes as uncertain.