IMF Warns of 4.8% Gulf Economic Contraction in 2026 Amidst Iran War's Impact on Energy Exports

Gulf economies are projected to contract by 4.8 percent in 2026, primarily due to disruptions in energy exports and a slowdown in non-oil activity caused by the Iran war. However, a rebound of 9.1 percent is anticipated for 2027, according to the International Monetary Fund (IMF) in its latest Regional Economic Outlook released in Dubai.

This forecast represents a significant shift for the six-member Gulf Co-operation Council (GCC). The IMF has revised its 2026 growth projection downwards by 6.8 percentage points from the 2 percent expansion previously expected in April. The bloc's non-oil economy is also expected to shrink by 0.8 percent this year before growing by 4.5 percent in 2027, highlighting the broader economic repercussions of the ongoing conflict.

Jihad Azour, director of the IMF's Middle East and Central Asia department, stated at the report's launch that oil-importing countries have experienced their "most severe shock" due to the Iran war. The conflict is also diminishing the Gulf's financial reserves. The IMF forecasts the bloc's current-account surplus to decrease to 1.3 percent of gross domestic product (GDP) this year, down from 5 percent in 2025. Concurrently, its combined fiscal deficit is expected to widen to 2.3 percent of GDP, an increase from 0.8 percent. Inflation is predicted to rise to 2.7 percent.

Oil and gas production among Gulf exporters directly impacted by the conflict saw a sharp decline, falling from 33 million barrels per day in February to approximately 19 million in May. Qatar's output experienced a significant drop of up to 86 percent, the IMF reported. Although exports have shown a partial recovery since then, with Gulf crude shipments reaching over 75 percent of pre-war levels in September according to the International Energy Agency (IEA), the IMF's projection for a strong rebound in 2027 is contingent on the cessation of hostilities and the resumption of shipping through the Strait of Hormuz by early 2027.