Global Capital Prospects within the Middle East

Threats are slanted to the downside. In case of an extended conflict, the present effect on the region will be compoundedthrough elevated energy and food costs, declining trade, tourist and remittances, increased fiscal pressures, and displacement. "The present crisis is a stark reminder of the work ahead for the area: not only to weather shocks, but to restore more durable economies with more powerful macroeconomic basics, innovate and improve governance, purchase infrastructure, and boost employment-creating sectors," said.

With peace and the right action, nations can develop the institutions, abilities and competitive sectors that develop chances for individuals." With this long-term vision in mind, the report takes a close take a look at the area's potential for industrial policy government actions to increase strategic company activity as a motorist of financial growth and task creation.

ANSR July GCC PRs 50DR+

Governments in the region have adopted industrial policy at a high rate in the last decade, frequently through sovereign wealth funds and state-owned business, but the outcomes have 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 conflict, it is crucial to also not forget the work required for long-lasting peace and success," said.

Essential Capital Diversification in the Future

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic projection for the area prepared directly for the financing profession. The GCC economy deals with a marked contraction this year pending details of the US-Iran agreement to end the war. We anticipate energy flows, tourist and financier belief to gradually normalise as war disturbances subside.

ANSR July GCC PRs 50DR+

The interim contract between the United States and Iran is a significant action towards reaching a full-blown deal. A full return to normality in the Strait of Hormuz will likely require time, but the threat of a recession-inducing oil price spike has actually declined. International GDP is anticipated to grow by 2.4% this year, 0.2 ppt less than we projected three months back, and 3.1% in 2027.

We forecast a 4.1% contraction in Middle East GDP this year (versus forecasted 3.6% growth before the war), higher than the decrease in the first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stand apart as the hardest struck, owing to their inability to prevent the disturbance to local shipping, war-driven facilities damage and tourist losses.

Our 2026 outlook for the GCC is weaker than three months ago, 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 impacted by the fallout from the conflict, with both economies continuing to broaden this year.

The economic damage sustained in the last couple of months is significant. Saudi GDP information for Q1 revealed development slowed to 3% y/y, with non-oil activities broadening 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 interruption struck late in the quarter.

Why Economic Shifts Can Shape GCC Markets

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 reveal regional production almost halved from pre-war levels, with the decrease 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+

We anticipate GCC oil sector output to contract by 14.5% this year, which will mark the steepest decline in several years. We then anticipate a 23.5% rebound next year, driven mainly by normalisation from a badly depressed base. Oil prices have actually been unpredictable, reducing below $85 per barrel as the interim arrangement was announced.

In the medium term, we expect oil rates to be a little lower than our pre-war baseline, as the UAE's departure from OPEC+ permits a progressive increase in its output towards the 5mn barrel each day production target once trade normalises. Versus this background, the UAE will speed up the construction of a brand-new West-East pipeline that ought to double the capacity of export through Fujairah.

The May PMI studies reported output growth reaching its strongest level in 3 months, driven largely by enhanced domestic need. They remain below long-run averages, with weak export orders and price pressures from greater product and transport costs are a common theme. In general, we anticipate a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% growth pre-war) and a steady recovery over the rest of the years.