Driving Industrial Success through Strategic Diversification

Dangers are tilted to the downside. In case of an extended dispute, the current effect on the region will be compoundedthrough raised energy and food costs, decreasing trade, tourist and remittances, increased financial pressures, and displacement. "The current crisis is a plain pointer of the work ahead for the region: not just to weather shocks, but to reconstruct more resistant economies with stronger macroeconomic fundamentals, innovate and enhance governance, purchase infrastructure, and increase employment-creating sectors," said.

With peace and the best action, nations can build the institutions, capabilities and competitive sectors that develop opportunities for people." With this long-lasting vision in mind, the report takes a close look at the region's potential for commercial policy government actions to increase tactical service activity as a driver of financial development and job development.

ANSR July GCC PRs 50DR+

Federal governments in the region have embraced industrial policy at a high rate in the last years, often through sovereign wealth funds and state-owned business, but the outcomes have been blended. The report highlights the crucial requirement for strong institutions and cautious targeting of policies. "As nations face the heavy toll of today dispute, it is necessary to also not lose sight of the work needed for lasting peace and success," stated.

Upcoming Middle Eastern Economic Outlook

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial projection for the area prepared directly for the finance profession. The GCC economy faces a marked contraction this year pending information of the US-Iran agreement to end the war. We anticipate energy flows, tourism and financier sentiment to slowly normalise as war interruptions go away.

ANSR July GCC PRs 50DR+

The interim agreement in between the US and Iran is a significant step towards reaching a full-blown offer. A complete return to normality in the Strait of Hormuz will likely take some time, however the threat of a recession-inducing oil rate spike has actually decreased. Worldwide GDP is anticipated to grow by 2.4% this year, 0.2 ppt less than we projected three months earlier, 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 very first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stick out as the hardest hit, owing to their inability to avoid the disruption to local shipping, war-driven facilities damage and tourist losses.

Our 2026 outlook for the GCC is weaker than 3 months earlier, with GDP projection to agreement by 2.4% compared to a 0.2% decrease predicted formerly. We expect Oman and Saudi Arabia to be the least negatively affected by the fallout from the conflict, with both economies continuing to broaden this year.

The financial damage incurred in the last couple of months is considerable. Saudi GDP information for Q1 showed development slowed to 3% y/y, with non-oil activities expanding by 2.9%, the weakest pace since the Covid pandemic. On a seasonally changed 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.

Key Foreign Capital Avenues for the GCC Market

Aside from Oman, all GCC manufacturers along with Iran and Iraq have actually suffered substantial oil and gas production losses given that the start of the dispute. May information show local production nearly cut in half from pre-war levels, with the decline deepening relative to March and April. Rerouting efforts, including by Saudi Arabia through the East-West Pipeline and the UAE through the Habshan-Fujairah pipeline, have actually helped avoid an even bigger plunge in output.

ANSR July GCC PRs 50DR+

However, we forecast GCC oil sector output to contract by 14.5% this year, which will mark the steepest decrease in a number of years. We then anticipate a 23.5% rebound next year, driven largely by normalisation from a significantly depressed base. On the other hand, oil rates have been volatile, alleviating listed below $85 per barrel as the interim agreement was revealed.

In the medium term, we anticipate oil costs to be somewhat lower than our pre-war standard, as the UAE's departure from OPEC+ enables a steady increase in its output towards the 5mn barrel each day production target once trade normalises. Versus this background, the UAE will speed up the building of a brand-new West-East pipeline that should double the capacity of export through Fujairah.

The May PMI surveys reported output growth reaching its greatest level in 3 months, driven mainly by improved domestic need. Nevertheless, they remain listed below long-run averages, with weak export orders and rate pressures from higher material and transportation expenses are a common theme. In general, we expect a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% development pre-war) and a progressive recovery over the rest of the years.