The World Bank projects Middle East economies will contract by 2.1 per cent in 2026 as the Iran war constrains energy supplies and the Strait of Hormuz closure cuts exports, government revenue and output. The forecast had already dropped from 3.6 per cent in January to 2.1 per cent in April. The costs extend beyond oil terminals: tourism, aviation, logistics and financial markets have all suffered, the bank said.
“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,” said Roberta Gatti, Menaap chief economist at the World Bank. The figures describe economies tied to energy production and export routes. Ordinary people face the consequences when war disrupts those systems.
The export chokepoint
Gulf Co-operation Council economies are projected to contract by an average of 4.3 per cent in 2026, a 5.7 percentage-point reduction from April. Lower export volumes linked to the Strait’s closure are cutting output and government revenue. The UAE and Saudi Arabia are forecast to shift from growth of 4.6 per cent and 6.2 per cent in 2025 to contractions of 1.6 per cent and 2.0 per cent in 2026.
Qatar faces its weakest economic performance in five decades. It will move from 1.8 per cent growth in 2025 to a 20.9 per cent contraction this year. Average monthly gas production fell by about 67 per cent between March and July after damage at its sites. Kuwait’s economy is projected to contract by 14.6 per cent, an 8.2 percentage-point downward revision from April.
Gulf oil production fell from a prewar average of 26 million barrels a day to about 16 million in March, the World Bank said. The IMF’s PortWatch monitor recorded just three tankers passing through the strait in the seven-day moving average ending September 27. “It’s a volume story. It’s a quantity story for us. It’s a price story for the world,” Gatti said.
Oman, less reliant on the Strait of Hormuz, is the only GCC member projected to grow this year, at 3.1 per cent. Iraq’s economy is projected to contract by 12.4 per cent after its growth outlook fell by 3.8 percentage points since April. The country, Opec’s second-largest producer, depends on oil for about 90 per cent of government revenue. Iran’s economy is expected to shrink by 7.7 per cent.
Routes around the damage
The World Bank’s projections rest on one assumption: the Strait of Hormuz will gradually reopen beginning December 31. Under that scenario, the bank projects economic activity in 2027 will rebound by 8 per cent in the UAE, 6.1 per cent in Saudi Arabia, 25 per cent in Qatar and 20.5 per cent in Kuwait. The GCC as a whole is projected to grow by 8.6 per cent.
The UAE has pursued a “Zero Hormuz” strategy to diversify supply chains. Saudi Arabia has turned to its East-West Pipeline to transport oil to Yanbu Port on the Red Sea. The Abu Dhabi Crude Oil Pipeline can move the emirate’s onshore crude from Habshan to a terminal and export port in Fujairah, bypassing the strait. Saudi Aramco chief Amin Nasser credited the East-West Pipeline with keeping oil prices at about $100 a barrel and warned it could take up to two years to refill global inventories depleted under emergency measures. He spoke at an energy conference in London on Monday.
Uneven recovery, deepening hardship
Oil-importing countries are expected to fare better, in what Gatti called a “reversal of fortunes” compared with the 2022 energy shock after Russia’s invasion of Ukraine. The World Bank expects Egypt’s economic activity to grow by 5.1 per cent, after 4.4 per cent growth last year. It raised its 2026 forecast for Morocco to 4.4 per cent and for Pakistan to 3.7 per cent. Jordan’s projection stayed at 2.7 per cent, while Tunisia’s forecast fell to 2.3 per cent growth.
Renewed hostilities between Israel and Hezbollah are reversing Lebanon’s recovery, from 4.2 per cent growth in 2025 to a projected 6.4 per cent contraction this year. The World Bank lowered growth forecasts for Afghanistan and Yemen to 3 per cent and 1 per cent, respectively, while it expects Syria’s economy to grow between 8 and 10 per cent.
In the West Bank and Gaza, growth is projected to slow from 4.3 per cent in 2025 to 1.5 per cent this year; the area’s poverty rate remains an estimated 41.9 per cent. Gaza’s economy remains in “near-total collapse” despite the October 2025 ceasefire, the report said, citing flare-ups in tensions, continued restrictions and stalled reconstruction. “There were ongoing fragilities and now we see less humanitarian aid. We see a need to keep the attention,” Gatti said. Reduced aid adds to the economic costs of fragility, she said.
The report also describes artificial intelligence as a possible productivity gain, saying it could boost productivity in up to 20 per cent of regional jobs. Gatti said effective use requires regulation and ethical regulation, alongside political will and vision. The forecast records the region’s economic exposure. Its figures show how quickly war and blocked routes can turn that exposure into lost output and public revenue.