Why Economic Diversification Can Transform GCC Markets

Dangers are tilted to the disadvantage. In case of an extended dispute, the existing effect on the region will be compoundedthrough elevated energy and food rates, decreasing trade, tourism and remittances, increased fiscal pressures, and displacement. "The existing crisis is a plain tip of the work ahead for the region: not only to weather shocks, however to reconstruct more resistant economies with stronger macroeconomic basics, innovate and improve governance, buy infrastructure, and increase employment-creating sectors," stated.

With peace and the ideal action, countries can develop the institutions, capabilities and competitive sectors that produce chances 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 government actions to increase strategic service activity as a driver of financial development and task creation.

ANSR July GCC PRs 50DR+

Governments in the region have adopted commercial policy at a high rate in the last years, typically through sovereign wealth funds and state-owned enterprises, however the outcomes have actually been blended. The report highlights the critical requirement for strong institutions and mindful targeting of policies. "As countries deal with the heavy toll of the present dispute, it is necessary to also not forget the work required for long-lasting peace and success," said.

Driving Economic Growth via Global Diversification

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic projection for the region 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 anticipate energy flows, tourism and financier belief to gradually normalise as war disturbances diminish.

ANSR July GCC PRs 50DR+

The interim contract between the United States and Iran is a significant step towards reaching a full-blown offer. A full return to normality in the Strait of Hormuz will likely take time, but the danger 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 predicted three months back, and 3.1% in 2027.

We anticipate a 4.1% contraction in Middle East GDP this year (versus predicted 3.6% growth before the war), higher than the decrease in the very first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stand out as the hardest hit, owing to their inability to avoid the disruption to local shipping, war-driven facilities damage and tourist losses.

Our 2026 outlook for the GCC is weaker than 3 months earlier, with GDP projection to contract by 2.4% compared to a 0.2% decrease predicted previously. We expect Oman and Saudi Arabia to be the least negatively impacted by the fallout from the dispute, with both economies continuing to broaden this year.

The financial damage sustained in the last few months is substantial. Saudi GDP information for Q1 revealed growth slowed to 3% y/y, with non-oil activities broadening by 2.9%, the weakest rate since 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 disruption struck late in the quarter.

Advancing Industrial Success through Global Diversification

Aside from Oman, all GCC manufacturers along with Iran and Iraq have suffered comprehensive oil and gas production losses since the start of the conflict. Might data reveal regional production almost 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 helped avoid an even bigger 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 decrease in numerous decades. We then anticipate a 23.5% rebound next year, driven largely by normalisation from a badly depressed base. Meanwhile, oil rates have been unpredictable, relieving below $85 per barrel as the interim arrangement was revealed.

In the medium term, we anticipate oil rates to be a little lower than our pre-war standard, as the UAE's departure from OPEC+ enables a progressive boost in its output towards the 5mn barrel each day production target once trade normalises. Against this backdrop, the UAE will speed up the building and construction of a brand-new West-East pipeline that need to double the capacity of export through Fujairah.

The May PMI studies reported output development reaching its greatest level in 3 months, driven largely by enhanced domestic need. Nevertheless, they stay listed below long-run averages, with weak export orders and rate pressures from greater product and transport expenses are a common style. In general, we expect a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% growth pre-war) and a steady healing over the rest of the decade.