World Bank says Middle East economy to contract 2.1% in 2026 on Iran war

The World Bank has forecast that the Middle East's economy will contract by 2.1% in 2026 due to the ongoing Iran war, a significant downgrade from previous projections. The conflict's impact on energy supplies, tourism, aviation, logistics, and financial markets has resulted in a widespread economic slowdown across the region. The Gulf Cooperation Council's economies are expected to contract by an average of 4.3% in 2026, with the UAE and Saudi Arabia facing the steepest declines.

Qatar is projected to experience its weakest economic performance in five decades, with a projected contraction of 20.9%. Kuwait is expected to have its economy contract by 14.6%, while Iraq's growth prospects have also been revised downward. The World Bank estimates that Iraq's economy will contract by 12.4% in 2026. Oman, the only GCC member less reliant on the Strait of Hormuz, is projected to see positive growth of 3.1% in 2026.

The World Bank projects that economic activity in the UAE and Saudi Arabia will rebound in 2027, while Qatar and Kuwait are expected to recover by 2028. The report highlights the compounding effect of the Iran war on economies already facing conflict, leading to long-term economic pain. Despite the challenges, the report also notes the potential of artificial intelligence as a key avenue for future economic opportunity.