Key Capital Shifts for 2026

Threats are tilted to the downside. In the event of an extended dispute, the current impacts on the area will be compoundedthrough raised energy and food prices, declining trade, tourism and remittances, increased financial pressures, and displacement. "The existing crisis is a plain pointer of the work ahead for the region: not only to weather shocks, however to restore more durable economies with more powerful macroeconomic basics, innovate and improve governance, invest in facilities, and increase employment-creating sectors," said.

With peace and the ideal action, nations can develop the institutions, abilities and competitive sectors that create opportunities for people." With this long-term vision in mind, the report takes a close take a look at the area's potential for industrial policy federal government actions to increase strategic business activity as a motorist of economic development and task creation.

ANSR July GCC PRs 50DR+

Federal governments in the region have actually adopted industrial policy at a high rate in the last years, typically through sovereign wealth funds and state-owned business, however the outcomes have actually been mixed. The report highlights the critical requirement for strong institutions and careful targeting of policies. "As nations deal with the heavy toll of today dispute, it is necessary to likewise not lose sight of the work required for lasting peace and success," said.

Accelerating Industrial Success through Strategic Diversification

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial forecast for the region prepared directly for the finance occupation. The GCC economy deals with a significant contraction this year pending information of the US-Iran contract to end the war. We anticipate energy flows, tourism and investor belief to gradually normalise as war interruptions subside.

ANSR July GCC PRs 50DR+

The interim contract between the US and Iran is a considerable step towards reaching a full-blown offer. A complete return to normality in the Strait of Hormuz will likely take some time, but the threat of a recession-inducing oil rate spike has actually declined. Global GDP is anticipated to grow by 2.4% this year, 0.2 ppt less than we predicted 3 months ago, and 3.1% in 2027.

We forecast a 4.1% contraction in Middle East GDP this year (versus projected 3.6% expansion 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 struck, owing to their inability to avoid the disturbance to local shipping, war-driven facilities damage and tourist losses.

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

The economic damage sustained in the last couple of months is considerable. Saudi GDP data for Q1 revealed growth slowed to 3% y/y, with non-oil activities broadening by 2.9%, the weakest pace given that 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 Investment Prospects in the GCC Region

Aside from Oman, all GCC manufacturers as well as Iran and Iraq have actually suffered substantial oil and gas production losses given that the start of the dispute. May information reveal local production almost halved 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 helped avoid an even larger plunge in output.

ANSR July GCC PRs 50DR+

Nonetheless, we anticipate GCC oil sector output to agreement 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 mostly by normalisation from a severely depressed base. On the other hand, oil rates have actually been unstable, relieving below $85 per barrel as the interim agreement was announced.

In the medium term, we expect oil costs to be slightly lower than our pre-war standard, as the UAE's departure from OPEC+ permits for a steady boost in its output towards the 5mn barrel daily production target once trade normalises. Against this background, the UAE will speed up the construction of a new West-East pipeline that must double the capacity of export through Fujairah.

The May PMI studies reported output development reaching its strongest level in three months, driven mainly by improved domestic demand. They stay listed below long-run averages, with weak export orders and rate pressures from greater material and transport expenses are a common theme. 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 rest of the years.