IMF sees double-digit Gulf contractions in 2026 as Hormuz stays shut

Summary

• IMF slashed 2026 Gulf forecasts, projecting contractions of 16.7% in Kuwait and 15.6% in Qatar.
• The fund now assumes the Strait of Hormuz reopens gradually from March 2027, not earlier.
• Middle East and North Africa is the only region the IMF expects to shrink this year.

The latest

The Gulf's largest economies are now projected to shrink sharply in 2026, with Kuwait down 16.7%, Qatar 15.6%, Bahrain 11.3% and the UAE 3.9%, after the International Monetary Fund pushed back its assumption for the reopening of the Strait of Hormuz. The fund's World Economic Outlook, released Tuesday, also cut the Middle East and North Africa forecast to a 2% contraction this year.

Details

• The regional cut: The IMF estimates the Middle East and North Africa economy will contract by 2% this year, a downward revision of 3.1 percentage points from its April projections. It is the only region the fund expects to record a contraction in 2026.
• The UAE numbers: The fund projects a 3.9% contraction for the UAE this year, a 7-point downgrade from April, followed by 7.7% growth in 2027 — an upgrade of 2.4 points. The rebound is conditional on shipping routes normalising and Hormuz reopening.
• Saudi Arabia: The kingdom is forecast to swing from 4.6% growth last year to a 3.3% contraction this year, a milder hit than its neighbours because of diversified export routes, according to the IMF. Riyadh vowed to keep bringing its oil to market despite recent Houthi attacks.
• The rebound scenario: The IMF assumes a gradual reopening of Hormuz starting March 2027 and a return to prewar conditions by October, with uncertainty elevated throughout next year. On that basis Qatar would grow 18.8%, Kuwait 17.1%, Bahrain 13.9% and Saudi Arabia 7.9%.
• Competing projection: Saudi Arabia's finance ministry said last week its economy was forecast to grow 12.8% next year, well above the IMF's 7.9% figure. Oman is the only GCC member the fund expects to post positive growth in 2026, at 4.1%. The fund submitted no projections for Lebanon.
• Shipping data: Confirmed total Hormuz clearance stands at roughly 11.9 million barrels per day, about 30% below the pre-war baseline, according to analytics firm Kpler, with daily readings swinging widely. One tanker crossed the waterway on Saturday, down from eight the day before.
• Other oil exporters: Iraq was downgraded to a 16% contraction for 2026 and Iran to 7.6%, with Tehran also hit by enhanced sanctions and a US naval blockade. Regional importers held up better: Egypt is forecast to grow 5.1%, Morocco 4.5% and Jordan 2.7%.
• Inflation and debt: Global headline inflation is set to rise to 4.7% in 2026 before easing to 4.1% in 2027, a cumulative upward revision of 0.7 points. Chief economist Silvana Tenreyro said high debt meeting high financing costs has "heightened fiscal concerns and risks".
• Bond market: The 10-year US Treasury yield has recently traded at its highest since 2002, with bonds in Japan, France, Germany and the UK also hitting multi-decade highs. Investment firm Pimco warned last week the 10-year could reach 6% for the first time since 2000.
• Global picture: The IMF held its 2026 global growth forecast at 3.1% and lifted 2027 to 3.4%. US growth is projected at 2.3%, against 1.1% for the euro area, 1.3% for the UK and 0.7% for Japan. China is seen slowing to 4.5%, India at 7%.

Background

The IMF counts the Iran war energy shock as the latest in a sequence of global disruptions, following the 2025 tariffs row, Russia's 2022 invasion of Ukraine, the Covid-19 pandemic and the tightening cycle that came after it.

Between the lines

Tenreyro framed the outlook as the net result of two opposing forces: a negative supply shock from the Iran war and a positive demand shock from the AI infrastructure boom. Both, she said, are pushing inflation higher, which explains why the fund can hold global growth steady at 3.1% while cutting an entire region by 3.1 points. She added that resilience is reaching its limits and the task is shifting from coping to rebuilding fiscal space.

What's next

The IMF's assumed reopening window for Hormuz begins in March 2027. Nearer term, watch Kpler's daily transit readings, further Houthi attacks on Saudi facilities, and central bank decisions this quarter as advanced economies raise rates.

Source: International Monetary Fund, The National, Kpler, Pimco