IMF slashes Middle East growth outlook due to war disruptions

The International Monetary Fund has reduced its growth projections for the Middle East and Central Asia in 2026 due to the ongoing war disrupting economies in the region. According to the IMF's World Economic Outlook report, the regional economy is now expected to shrink by 0.3 percent, down from the previous forecast of 1.9 percent growth.

The contraction is attributed to the prolonged closure of the Strait of Hormuz, a critical shipping route, which has been repeatedly targeted by Iran since the war began in late February. The United States has taken counter-measures against Iranian ports, while also escorting friendly vessels through the strait. Iraq, Kuwait, Qatar, and Bahrain are the most affected countries, with their economies projected to contract by double digits in 2026, followed by rebounding growth in 2027 as normalcy returns to production and exports.

Saudi Arabia, the world's largest crude exporter, is expected to experience a 3.3 percent GDP contraction this year, but is projected to rebound with a 7.9 percent growth next year. The fund highlighted Saudi Arabia's advantage due to its diversified export routes and the use of the East-West oil pipeline to bypass the Hormuz strait.

The UAE and Oman are also projected to see some contraction in 2026, at 3.9 percent and 2.4 percent respectively, but their economies are expected to remain resilient in the face of energy and food price shocks. Meanwhile, Iran's GDP is expected to decline by 7.6 percent as a result of the war, blockade, and US sanctions.