Gaza’s economy remains in “near-total collapse” despite the October 2025 ceasefire, the World Bank said Tuesday. Flare-ups in tensions, continued restrictions and stalled reconstruction are blocking any recovery. The finding forms part of a broader grim assessment: the bank now expects the Middle East’s economy to contract by 2.1 per cent this year as the Iran war constrains energy supplies.
For Palestinians, the numbers carry particular weight. Growth in the West Bank and Gaza is projected to slow from 4.3 per cent in 2025 to 1.5 per cent this year, a downward revision of 3 percentage points from April. The poverty rate remains at an estimated 41.9 per cent. People were already struggling before the region’s latest shock arrived.
The Humanitarian Picture
The report points to a compounding problem: aid is shrinking even as need persists. “There were ongoing fragilities and now we see less humanitarian aid. We see a need to keep the attention,” said Roberta Gatti, Menaap chief economist at the World Bank. She warned that reduced aid adds to the economic costs of fragility, and that sustained attention and investment matter if the consequences aren’t to reach future generations.
It’s a blunt message from an institution not given to alarmism. The ceasefire has held in name for a year; one year will have elapsed by October 2026, yet the economic conditions that follow war haven’t lifted. Reconstruction hasn’t moved. Restrictions haven’t eased.
A Region Paying the Price
The seven-month Iran war began on February 28, and the closure of the Strait of Hormuz initially choked off much of the region’s energy supplies. Tourism, aviation and logistics took hits, while financial markets absorbed fresh uncertainty. The bank had already cut its forecast from 3.6 per cent in January to 2.1 per cent in April.
“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,” Gatti said.
The Gulf has taken the sharpest blow. Gulf Co-operation Council economies are projected to contract by an average of 4.3 per cent in 2026. Qatar faces its weakest economic performance in five decades: a 20.9 per cent contraction after 1.8 per cent growth in 2025. Damage at its sites drove average monthly gas production down by about 67 per cent between March and July. Kuwait is projected to shrink by 14.6 per cent. The UAE and Saudi Arabia, which grew by 4.6 per cent and 6.2 per cent in 2025, are forecast to contract by 1.6 per cent and 2.0 per cent.
Gulf oil production fell from a prewar average of 26 million barrels a day to about 16 million in March. The IMF’s PortWatch monitor recorded just three tankers passing through the strait in the seven-day moving average ending September 27.
Other Fragile States
Conflict has stacked on conflict elsewhere. 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. Iraq, which depends on oil for about 90 per cent of government revenue, is projected to shrink by 12.4 per cent. Iran’s own economy is expected to contract by 7.7 per cent. Forecasts for Afghanistan and Yemen were lowered to 3 per cent and 1 per cent growth.
Oil importers are faring better in what Gatti called a “reversal of fortunes” compared with the energy shock of 2022. Egypt is expected to grow by 5.1 per cent, Morocco by 4.4 per cent and Pakistan by 3.7 per cent. Syria’s economy is expected to grow between 8 and 10 per cent. Oman, less reliant on the Strait of Hormuz, is the only GCC member projected to grow, at 3.1 per cent.
Workarounds and Assumptions
The UAE has pursued a “Zero Hormuz” strategy, while Saudi Arabia has leaned on its East-West Pipeline to Yanbu Port on the Red Sea. Saudi Aramco chief Amin Nasser credited the pipeline with keeping oil prices at about $100 a barrel. He warned that refilling global inventories depleted under emergency measures could take up to two years. Brent crude traded at about $118 a barrel in March and May.
The bank’s rebound scenario assumes the strait gradually reopens beginning December 31. Under that assumption, the GCC grows by 8.6 per cent in 2027, with Qatar rebounding by 25 per cent and Kuwait by 20.5 per cent.
The report also flagged artificial intelligence as an opportunity that could boost productivity in up to 20 per cent of regional jobs. Gatti said some of what’s needed “might not require money, but they require political will and vision.”
Why This Matters: The forecast shows how a regional war multiplies suffering for people with the least cushion. Gulf states can reroute pipelines and borrow against reserves. Gaza can’t. Its collapse persists a year after a ceasefire, with aid falling, reconstruction stalled and poverty at 41.9 per cent. The bank’s rebound assumptions depend on diplomacy reopening the strait, but the report points to no comparable plan for Gaza’s recovery. Without sustained attention and investment, the economic damage the bank describes risks hardening into a lasting condition for future generations of Palestinians.