Why Industrial Diversification Can Transform Arabian Markets

Dangers are slanted to the downside. In case of an extended conflict, the current influence on the area will be compoundedthrough elevated energy and food rates, decreasing trade, tourist and remittances, increased financial pressures, and displacement. "The existing crisis is a stark suggestion of the work ahead for the region: not only to weather shocks, but to rebuild more resilient economies with more powerful macroeconomic fundamentals, innovate and enhance governance, purchase infrastructure, and boost employment-creating sectors," stated.

With peace and the best action, nations can construct the institutions, capabilities and competitive sectors that develop chances for people." With this long-term vision in mind, the report takes a close take a look at the region's capacity for commercial policy government actions to increase strategic service activity as a chauffeur of economic growth and job production.

ANSR July GCC PRs 50DR+

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

Middle East Equity Trading Trends in 2026

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic projection for the area prepared straight for the financing profession. The GCC economy faces a significant contraction this year pending details of the US-Iran agreement to end the war. We expect energy circulations, tourism and financier sentiment to slowly normalise as war interruptions subside.

ANSR July GCC PRs 50DR+

The interim arrangement in between the US and Iran is a substantial action towards reaching a full-blown offer. A complete return to normality in the Strait of Hormuz will likely require time, however the risk of a recession-inducing oil cost spike has declined. Global GDP is anticipated to grow by 2.4% this year, 0.2 ppt less than we forecasted 3 months back, and 3.1% in 2027.

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

Our 2026 outlook for the GCC is weaker than three months back, with GDP forecast to contract 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 expand this year.

The financial damage incurred in the last couple of months is considerable. Saudi GDP information for Q1 revealed development slowed to 3% y/y, with non-oil activities broadening by 2.9%, the weakest pace given that 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 interruption hit late in the quarter.

2026 GCC Economic Projections

Aside from Oman, all GCC manufacturers as well as Iran and Iraq have suffered comprehensive oil and gas production losses since the start of the conflict. May data show local production nearly halved 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 actually 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 decline in several years. We then expect a 23.5% rebound next year, driven mostly by normalisation from a severely depressed base. On the other hand, oil prices have been unpredictable, reducing below $85 per barrel as the interim arrangement 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 a steady increase in its output towards the 5mn barrel per day production target once trade normalises. Versus this backdrop, the UAE will accelerate the construction of a new West-East pipeline that must double the capability of export through Fujairah.

The May PMI studies reported output development reaching its strongest level in three months, driven largely by enhanced domestic need. Nevertheless, they stay below long-run averages, with weak export orders and cost pressures from higher material and transport costs are a common style. Overall, we anticipate a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% development pre-war) and a progressive healing over the rest of the years.