The World Bank forecasts that Middle East economies will contract by 2.1 per cent in 2026 as the Iran war and closure of the Strait of Hormuz constrain energy supplies and cut output. The bank had already lowered its regional forecast from 3.6 per cent in January to 2.1 per cent in April.
The conflict has disrupted energy exports and hit tourism, aviation and logistics, while adding uncertainty to financial markets, the World Bank said in its latest Economic Update for the Middle East, North Africa, Afghanistan and Pakistan. “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. “It’s a painful story.”
Hormuz Closure Hits Oil and Gas Exports
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 production and government revenue. The UAE and Saudi Arabia, which grew by 4.6 per cent and 6.2 per cent, respectively, in 2025, are forecast to contract by 1.6 per cent and 2.0 per cent this year.
Qatar faces its weakest economic performance in five decades, according to the report. Its economy is forecast to move from 1.8 per cent growth in 2025 to a 20.9 per cent contraction in 2026. Damage at its sites drove average monthly gas production down by about 67 per cent between March and July. Kuwait’s economy is projected to contract by 14.6 per cent, an 8.2 percentage-point downward revision from April.
Gulf oil production dropped 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 of Hormuz 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. “That’s what we see.”
Countries Prepare Routes Around the Strait
Oman, less reliant on the Strait of Hormuz, is the only GCC member projected to grow this year, at 3.1 per cent. The UAE has pursued a “Zero Hormuz” strategy to diversify supply chains. Saudi Arabia has relied on its East-West Pipeline to transport oil to Yanbu Port on the Red Sea, while the Abu Dhabi Crude Oil Pipeline can carry onshore crude from Habshan to an export port in Fujairah, bypassing the strait.
The World Bank’s forecast assumes the Strait of Hormuz will gradually reopen beginning December 31. Under that scenario, it projects 2027 growth of 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. “It isn’t a small shift.”
Conflict Reverses Recovery Elsewhere
Since April, Iraq’s growth outlook has been cut by 3.8 percentage points, and the economy is projected to contract by 12.4 per cent. Iraq, Opec’s second-largest producer, depends on oil for about 90 per cent of government revenue. Iran’s economy is also expected to shrink by 7.7 per cent in 2026.
Renewed hostilities between Israel and Hezbollah are reversing Lebanon’s recovery, the World Bank said. Lebanon’s economy is forecast to shift from 4.2 per cent growth in 2025 to a 6.4 per cent contraction this year. Gaza’s economy remains in “near-total collapse” despite the October 2025 ceasefire. Flare-ups in tensions, continued restrictions and stalled reconstruction are preventing recovery, the report said.