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Dangers are slanted to the downside. In the occasion of a prolonged dispute, the present effect on the region will be compoundedthrough elevated energy and food rates, declining trade, tourism and remittances, increased fiscal pressures, and displacement. "The current crisis is a stark tip of the work ahead for the area: not only to weather shocks, however to rebuild more resistant economies with stronger macroeconomic basics, innovate and improve governance, buy infrastructure, and increase employment-creating sectors," stated.

With peace and the best action, nations can build the organizations, abilities and competitive sectors that create chances for people." With this long-term vision in mind, the report takes a close take a look at the region's potential for industrial policy government actions to increase strategic business activity as a motorist of economic growth and task development.

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Federal governments in the area have actually adopted industrial policy at a high rate in the last years, typically through sovereign wealth funds and state-owned enterprises, however the outcomes have been blended. The report highlights the vital need for strong organizations and mindful targeting of policies. "As nations face the heavy toll of the present dispute, it is very important to also not forget the work needed for long-lasting peace and success," said.

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Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial forecast for the region prepared directly for the financing occupation. The GCC economy faces a significant contraction this year pending details of the US-Iran arrangement to end the war. We anticipate energy flows, tourism and financier belief to gradually normalise as war disturbances diminish.

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The interim contract in between the United States and Iran is a substantial step towards reaching a full-blown offer. A full return to normality in the Strait of Hormuz will likely require time, however the risk of a recession-inducing oil price spike has declined. Worldwide GDP is anticipated to grow by 2.4% this year, 0.2 ppt less than we predicted three months back, and 3.1% in 2027.

We forecast a 4.1% contraction in Middle East GDP this year (versus projected 3.6% growth before the war), higher than the decrease in the first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stand out as the hardest hit, owing to their inability to prevent the disruption to regional shipping, war-driven infrastructure damage and tourist losses.

Our 2026 outlook for the GCC is weaker than 3 months back, with GDP forecast to agreement by 2.4% compared to a 0.2% decrease predicted previously. We anticipate Oman and Saudi Arabia to be the least negatively impacted by the fallout from the dispute, with both economies continuing to expand this year.

The financial damage incurred in the last few months is significant. Saudi GDP information for Q1 revealed growth slowed to 3% y/y, with non-oil activities broadening by 2.9%, the weakest rate because the Covid pandemic. On a seasonally adjusted basis, GDP contracted 1.2% q/q, driven by a 6.8% fall in oil activities as the Strait of Hormuz disturbance hit late in the quarter.

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Aside from Oman, all GCC producers along with Iran and Iraq have suffered extensive oil and gas production losses given that the start of the conflict. Might data show regional production almost cut in half from pre-war levels, with the decline deepening relative to March and April. Rerouting efforts, consisting of by Saudi Arabia through the East-West Pipeline and the UAE through the Habshan-Fujairah pipeline, have helped avoid an even larger plunge in output.

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Nonetheless, we forecast GCC oil sector output to agreement by 14.5% this year, which will mark the steepest decline in numerous years. We then expect a 23.5% rebound next year, driven largely by normalisation from a badly depressed base. Meanwhile, oil rates have been unpredictable, relieving listed below $85 per barrel as the interim contract was announced.

In the medium term, we expect oil costs to be somewhat lower than our pre-war baseline, as the UAE's departure from OPEC+ permits for a steady boost in its output towards the 5mn barrel each day production target as soon as trade normalises. Versus this background, the UAE will accelerate the construction of a brand-new West-East pipeline that must double the capability of export through Fujairah.

The May PMI surveys reported output growth reaching its strongest level in three months, driven largely by improved domestic demand. They stay listed below long-run averages, with weak export orders and rate pressures from greater material and transport costs are a typical style. In general, we anticipate a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% development pre-war) and a steady healing over the remainder of the decade.