How Industrial Diversification Can Transform GCC Markets

Home prices have come under pressure after a period of strong development, with current data from the Dubai Land Department revealing a drop in home loan deals and cash sales. We believe the risk of an enduring migrant outflow and an extreme downturn in the genuine estate sector is low.

As a lasting US-Iran offer takes shape, the fallout from the conflict has actually tightened regional monetary conditions, exposing vulnerabilities through capital outflows, wider bond spreads, and weaker financier sentiment. Many GCC sovereigns bring relatively little debt and funding dangers are for that reason limited in the UAE, the reserve bank's liquidity management has actually minimized immediate concerns.

That said, Bahrain has actually had the ability to count on support from neighbours, consisting of Saudi Arabia and the UAE, and it successfully raised $1bn from an oversubscribed sovereign bond sale this month, marking the first offering from the region since the war started. High-frequency financial information highlight the strain on local public financial resources from the dispute.

ANSR July GCC PRs 50DR+

Positioning Middle East Portfolios for 2026 Shifts

In Saudi Arabia, the budget deficit more than doubled to SAR125.7 bn, or about 9% of GDP in Q1, driven by a decrease in oil earnings and a surge in costs, particularly on subsidies, reflecting contingency investments connected to the regional environment and an acceleration of Vision 2030 spending. In Qatar, the crisis brought oil and gas income to a halt, swelling the deficit spending to the biggest considering that 2017.

GCC inflation dynamics remain uneven, with food costs the primary source of upward pressure and inflation in this classification conditioning in Kuwait, Oman and Qatar. By contrast, food inflation remains fairly controlled in Saudi Arabia, most likely showing the mitigating effect of its larger domestic food production base and greater supply-chain strength.

We continue to see rate pressures as largely temporal rather than indicative of a continual inflationary cycle. Appropriately, we expect average inflation to relieve to 2.1% y/y in 2027 as short-lived supply-side pressures dissipate. With near-term inflation elevated and transit through the Strait most likely set to resume gradually, we expect the United States Federal Reserve to keep rates of interest on hold till December, and local rate policies to do the same.

We expect Iran's GDP to diminish by 10.8% this year (we forecast a 9.4% contraction 3 months ago). Oil production and exports, which supply important revenue and FX inflows, have actually been curtailed by the US marine blockade, while non-oil activity has actually been severely hit. In Iraq, oil exports have collapsed to a trickle and we're forecasting GDP to contract by around 22% this year, with a sharp 33% rebound in 2027 as oil exports normalise.

By contrast, Syria continues to reintegrate into the global economy after more than a decade of civil war. We anticipate GDP development to average 9.6% over 2026-2027, supported by renewed financial investment, especially in banking and energy, financial reforms, and the progressive resuming of regional trade links.

Navigating Capital Diversification in a 2026 Economy

The World Bank has slashed its 2026 development forecast for Middle East economies, stating overall GDP growth in the region is anticipated to slow from an approximated 3.6% in January to 1.8% for 2026. The closure of the strategic Strait of Hormuz, and destruction of energy and public facilities, had disrupted markets, increased monetary volatility, and deteriorated the 2026 development outlook, the World Bank Group said in its Economic Update for the Middle East, North Africa, Afghanistan and Pakistan.

The April 2026 World Bank's Macro Hardship Outlook forecasts that the area's aggregate (leaving out the Iran) GDP development will decelerate to 1.8 percent in 2026, below 4.0 percent estimated for 2025. The 2026 projection has actually been devalued by 2.4 portion points because the January projections, showing the adverse effects of the ongoing dispute.

Saudi Arabia: Forecast was devalued by 1.2 portion points because January. Development is now anticipated to slow from 4.3% in 2025 to 3.1% in 2026, keeping in mind that Saudi Arabia's outlook stays the greatest among Gulf economies. United Arab Emirates: Growth forecast for the UAE has actually fallen by 2.7 percentage points since January.

Qatar: Significantly, development forecast for the Qatari economy has seen a sharp decrease of 11.0 percentage points since January. The economy is now anticipated to tape a contraction of 5.7%, down from an estimated growth of 5.3%, due to extreme obstruction to liquefied gas supplies. Qatar is a key player in the international energy market, with an international market share of liquefied natural gas (LNG) supplies varying between 20% and 21%.

Kuwait relies entirely (100%) on the Strait of Hormuz to export its petroleum and derivatives. Closing the strait would suggest a total shutdown of the nation's monetary lifeline, right away halting earnings inflows to the state budget plan. Bahrain: Development forecast for Bahrain's economy has actually declined by 1.8 percentage points considering that January.