World Bank Projects 2.1% Contraction for Middle East Economy in 2026, Gulf States Face 4.3% Decline

The World Bank forecasts that the combined economies of the Middle East, North Africa, Afghanistan and Pakistan will shrink by 2.1% in 2026, with Gulf Cooperation Council members facing an average decline of 4.3%.

Qatar and Kuwait are set to suffer the steepest drops among GCC states, with GDP projected to fall 20.9% and 14.6% respectively in 2026, while the UAE and Saudi Arabia are expected to experience the mildest contractions at 1.6% and 2.0%.

Qatar’s economy, posting its weakest outlook in decades, has been hit hard by the Strait of Hormuz closure, with average monthly natural gas output slipping about 67% between March and July 2026 versus the same period in 2025.

Collective Gulf oil output has dropped from roughly 26 million barrels per day prior to the disruption to about 16 million barrels per day in March, the World Bank reports.

The disruption has pushed inflation up across the Gulf. Qatar’s food inflation topped 12% year‑on‑year in June, while overall inflation hovered near 2%; Bahrain and Oman saw food prices rise above 7% with headline inflation around 3%.

Iraq and Iran brace for steep GDP cuts as oil output slumps and inflation spikes

In Iraq and Iran, GDP is expected to fall 12.4% and 7.7% respectively, with both nations producing only 55% to 70% of their estimated oil capacity. Iran’s inflation has also jumped, climbing from about 32% in mid‑2024 to 89% in August 2026, per World Bank data.

Lebanon has also suffered from the conflict’s economic fallout; although inflation has eased from its early‑war peak, it remains above 15%. Gasoline prices are up at least 40%, diesel more than 80%, and fuel costs in the West Bank and Gaza have risen by over 40%.

Oil‑importing economies have shown greater resilience, with regional growth projected at 4.3% for 2026 versus 3.9% in 2025. Yet Egypt, Jordan, Morocco, Pakistan and Tunisia remain exposed to the conflict’s repercussions, confronting higher inflation from rising oil and commodity prices, tighter fiscal space, possible drops in Gulf remittances and higher borrowing costs amid rising insurance risk premiums.

World Bank projects a 7.8% regional rebound in 2027 should the conflict end

Excluding Iran, the World Bank Group’s macroeconomic models indicate that, should the conflict conclude this year, regional output could surge to 7.8% in 2027, propelled by a rebound in hydrocarbon output, restored trade corridors and base‑year effects.

The World Bank observed that the global economy absorbed much of the blockade’s shock, with Saudi and Emirati pipelines circumventing the disruption to add roughly 2.8 million barrels per day to world supplies. Brazil, Kazakhstan, Venezuela and the United States kept exporting, inventories filled gaps and global demand slipped by an estimated 5.8 million barrels per day relative to pre‑conflict levels.

World Bank cautions that extreme weather could exacerbate regional food shortages

Although the blockade’s impact has been tolerable for most nations, the World Bank warned that El Niño could add another layer of risk to food security in the region, where families already contend with dwindling humanitarian aid.

Together with Pakistan and Afghanistan—directly affected by shifting monsoon patterns and heat stress—the World Bank urged close watch on Egypt, Iraq and Tunisia because of prevailing water‑stress conditions.

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