World Bank cuts Middle East growth to minus 2.1% on Iran war

Summary

• The World Bank now projects Middle East GDP will contract 2.1% in 2026 as the Iran war drags on.
• Gulf economies face an average 4.3% contraction, with Qatar heading for its weakest performance in five decades.
• Closure of the Strait of Hormuz has cut Gulf oil output by roughly 10 million barrels a day.

The latest

Middle East economies will shrink by 2.1% in 2026, the World Bank said on Tuesday, deepening a downgrade that began when the lender cut its January forecast of 3.6% to 2.1% in April. The region's chief economist for Menaap, Roberta Gatti, said losses are concentrated in the region while other parts of the world are revising forecasts upwards. Global growth is projected at 2.5%.

Details

• The Gulf hit: GCC economies are forecast to contract by an average of 4.3% in 2026, a downgrade of 5.7 percentage points from April, according to the World Bank. The lender tied the revision to lower export volumes after the closure of the Strait of Hormuz, citing heavy losses in output and government revenue.
• Country forecasts: The UAE is set to swing from 6.2% growth in 2025 to minus 1.6% this year, and Saudi Arabia from 4.6% to minus 2%, the World Bank said. Kuwait is projected to contract 14.6%, an 8.2-point downgrade from April. Oman is the only GCC member expected to grow, at 3.1%.
• Qatar's collapse: Qatar faces its weakest economic performance in five decades, slowing from 1.8% growth in 2025 to minus 20.9% in 2026, the World Bank said. It linked the fall to a drop of roughly 67% in average monthly gas production between March and July, after damage at production sites.
• The oil numbers: Gulf oil production fell from a prewar average of 26 million barrels a day to about 16 million in March, according to the World Bank. The IMF's PortWatch monitor recorded just three tankers moving through the Strait of Hormuz in the seven-day moving average ending September 27.
• Gatti's framing: The Menaap chief economist summed up the shock as a volume and quantity story for the region, and a price story for the world. Brent crude has swung sharply since the war began on February 28, trading near $118 a barrel in March and again in May.
• Iraq and Iran: Iraq's 2026 outlook was cut by 3.8 percentage points to minus 12.4%, the World Bank said. Opec's second-largest producer relies on oil for about 90% of government revenue. Iran's economy is expected to shrink by 7.7% this year.
• The rebound scenario: The report assumes the Strait of Hormuz gradually reopens starting December 31. Under that scenario, 2027 activity rebounds 8% in the UAE, 6.1% in Saudi Arabia, 25% in Qatar, 20.5% in Kuwait and 8.6% across the GCC. No alternative timeline was published.
• Workarounds: The UAE is pursuing a Zero Hormuz strategy to diversify supply chains, while Saudi Arabia has used its East-West Pipeline to move crude to Yanbu on the Red Sea. Aramco chief Amin Nasser credited that route with holding prices near $100 a barrel and warned refilling global inventories could take two years.
• Importers gain: Gatti described a reversal of fortunes versus the 2022 energy shock. Egypt is seen growing 5.1% after 4.4% last year, Morocco was raised 0.2 points to 4.4% and Pakistan 0.7 points to 3.7%. Jordan holds at 2.7%; Tunisia was trimmed to 2.3%.
• Conflict economies: Lebanon swings from 4.2% growth in 2025 to a 6.4% contraction as Israel-Hezbollah hostilities resume. Forecasts fell to 3% for Afghanistan and 1% for Yemen, while Syria is seen expanding 8% to 10%. West Bank and Gaza growth drops to 1.5%, with poverty at 41.9%. AI could lift productivity in up to 20% of the region's jobs.

Background

The World Bank's regional downgrades have been sequential: 3.6% growth projected in January, cut to 2.1% growth in April, and now reversed to a 2.1% contraction. The seven-month war has hit energy, tourism, aviation and logistics, and left financial markets unsettled.

Between the lines

The severity ranking follows exposure to Hormuz rather than conflict proximity: Qatar, whose gas output fell 67%, and Kuwait post the deepest contractions, while Oman is the only Gulf economy still growing. Saudi Arabia's Red Sea pipeline route explains milder single-digit declines. The 2027 rebound figures are a function of the December 31 reopening assumption, not an independent recovery forecast.

What's next

The December 31 assumed start of a gradual Hormuz reopening is the pivot for every 2027 projection. Also watch PortWatch tanker transit counts and Gulf production against the 16-million-barrel March level.

Source: The World Bank, The National, IMF PortWatch