World Bank Sees Gulf Economies Shrinking 4.3% in 2026

A projected 2.1% economic contraction across the Middle East, North Africa, Afghanistan and Pakistan region in 2026 hides a far sharper squeeze in the Gulf, where the World Bank expects the six Gulf Cooperation Council states to shrink by an average of 4.3%, according to a report released on Tuesday.

The forecast marks one of the steepest regional downturns the lender has projected in years. The damage is unevenly distributed even within the GCC. Qatar faces the deepest contraction, with GDP forecast to fall 20.9% in 2026, followed by Kuwait at 14.6%. At the other end of the scale, the United Arab Emirates and Saudi Arabia are projected to contract by 1.6% and 2.0% respectively, making them the least affected members of the bloc.

Qatar’s outlook, its weakest growth forecast in decades, is closely tied to the closure of the Strait of Hormuz. Average monthly natural gas production there fell by roughly 67% between March and July 2026 compared with the same period a year earlier. Across the Gulf collectively, oil output has dropped from around 26 million barrels per day before the disruption to around 16 million bpd in March, according to the World Bank.

The supply shock has fed directly into prices. Qatar’s food inflation exceeded 12% year-on-year as of June, even as overall inflation held at about 2%. In Bahrain and Oman, food inflation surpassed 7% while headline inflation stood near 3%.

Beyond the Gulf, the report points to steep declines in Iraq and Iran, where GDP is forecast to fall by 12.4% and 7.7% respectively. Both countries are operating at only 55% to 70% of their estimated oil production capacity. Iran’s inflation has surged from around 32% in mid-2024 to 89% in August 2026, according to World Bank figures. Lebanon has also felt the conflict’s economic impact, with inflation easing from its early-war spike but still standing above 15%. Gasoline prices there have risen by at least 40% and diesel by more than 80%, while fuel prices in the West Bank and Gaza have climbed by over 40%.

By contrast, oil-importing economies have proved more resilient. Regional growth among importers is expected to reach 4.3% in 2026, up from 3.9% in 2025. Yet countries such as Egypt, Jordan, Morocco, Pakistan and Tunisia remain exposed to the fallout. They face higher inflation as oil and other commodity prices rise, reduced fiscal room, potentially lower remittances from Gulf economies, and higher borrowing costs, driven in part by rising insurance risk premiums as the conflict continues.

The report also sketches a recovery scenario. Excluding Iran, World Bank Group macroeconomic models project that if the conflict ends this year, regional economies would rebound sharply to 7.8% growth in 2027, driven by a recovery in hydrocarbon production, the normalization of trade routes, and base effects.

Globally, the shock has been largely absorbed. Pipelines in Saudi Arabia and the UAE bypassed the disruption and brought an additional 2.8 million bpd to world markets, the World Bank noted, while Brazil, Kazakhstan, Venezuela and the United States continued exporting. Inventories helped cover shortfalls, and global demand fell by an estimated 5.8 million bpd compared with pre-conflict levels.

One further risk looms beyond the conflict itself. The World Bank warned that El Niño could threaten food security across the region, where families already face risks from declining humanitarian aid funding. Alongside Pakistan and Afghanistan, which are directly exposed through changing monsoon conditions and heat stress, the bank flagged Egypt, Iraq and Tunisia as requiring close monitoring given existing water stress. Whether the projected 2027 rebound materializes may depend as much on weather patterns as on the pace of recovery in Gulf hydrocarbon output.