Iran war pushes Middle East towards recession as IMF warns of economic slump

Dubai, 13th October — The International Monetary Fund (IMF) has significantly lowered its growth projections for the Middle East and Central Asia for 2026, attributing the decline to the ongoing war. In its latest World Economic Outlook report, the IMF predicts a contraction of 0.3%, a stark drop from its previous forecast of a 1.9% growth six months ago.

The agency attributes this downturn to "a longer closure of the Strait of Hormuz" compared to its April projections, anticipating a robust recovery by 2027 once the waterway is reopened.

Since the conflict in the Middle East escalated in late February with US-Israeli strikes on Iran, Iran has been attempting to assert control over the Strait of Hormuz, repeatedly attacking vessels that transit without its permission. In response, the United States has imposed its own blockade on Iranian ports and has been escorting friendly ships through the waterway more frequently.

According to the IMF, Iraq, Kuwait, Qatar, and Bahrain, countries affected by oil installations damage during the fighting, are set to experience double-digit economic contractions in 2026, followed by double-digit expansions in 2027 as production, exports, and logistics return to normal.

Saudi Arabia, the world’s leading crude exporter, is expected to see a GDP contraction of 3.3% this year, but is projected to rebound with a 7.9% growth rate next year, according to the IMF. The kingdom, considered the least affected in the region due to its diversified export routes, utilizes its East-West oil pipeline to circumvent the Strait of Hormuz and transport crude to its Red Sea coast.

However, this pipeline was briefly halted in September following strikes believed to be from Iran-backed groups in Iraq. Iran-backed rebels, the Houthis, have been targeting Saudi oil infrastructure and vessels in the Red Sea since their conflict with Yemen’s Riyadh-backed government reignited in July.

The United Arab Emirates, with coastal access to both sides of the Strait of Hormuz, is projected to contract by 3.9% in 2026. Oman is the only Gulf country forecasted to maintain positive growth this year, at 2.4%. The IMF also projects a 7.6% decline in Iran’s economy due to the war, blockade, and US sanctions. While other Arab nations are expected to remain relatively resilient against energy and food price shocks, the lender warns of the severe economic impacts of the ongoing conflict.