Crisis Shakes Economic Indicators in the Middle East; A 2.2% Contraction Is Expected in 2026
Rising geopolitical tensions in the Middle East are putting significant pressure on regional economies, while growth expectations for 2026 have been revised sharply downward.
According to the latest Economic Update report published by ICAEW, the effects of the Iran-centered conflict are directly impacting the economic outlook of the Gulf Cooperation Council (GCC) countries.
The report states that the global economy is expected to grow by 2.6% this year. This figure points below the narrow 2.8% to 3.0% range seen over the past three years. However, the outlook for the Middle East is significantly weaker. The regional economy, which was projected to grow by 3.6% three months ago, is now expected to contract by 2.2% in 2026. This sharp revision is driven by the combined effects of volatility in energy markets, disruptions in trade flows, and a slowdown in the tourism sector.
GCC Economic Growth Forecast Revised Down to -0.2%
For GCC economies, a more limited but still notable contraction is expected. The region’s 2026 growth forecast has been lowered by 4.6 percentage points over the past three months to -0.2%. Analysts emphasize that this contraction will be more pronounced in economies that are more dependent on trade and tourism. However, a strong recovery is expected in 2027, with GCC economies projected to grow by 8.5% next year.
Brent Oil Prices May Reach $113
Energy markets are among the areas where the effects of the current crisis are most visible. As the conflict escalated, Brent oil prices have exceeded $100 per barrel since mid-March, with the second-quarter average expected to reach $113. While prices are projected to return to pre-crisis levels by 2028 in the long term, high volatility is expected to persist in the short term.
Natural Gas Prices Are 60% Higher
A sharper shock is being observed in natural gas markets. Due to disruptions in Qatar’s liquefied natural gas production, gas prices are reported to be approximately 60% higher compared to forecasts made three months ago. This situation continues to impact both regional and global economies through increased energy costs.
Disruptions in logistics lines are also among the key factors negatively affecting the economic outlook. Transit through the Strait of Hormuz, a critical route for global energy transportation, has been severely disrupted. Under normal conditions, 18 million barrels of oil pass through the strait daily, but approximately 7 million barrels of this volume are now being rerouted through alternative pipelines. However, countries such as Bahrain, Kuwait, and Qatar have limited alternative routes, leading to production cuts.
In line with these developments, the GCC oil sector is expected to contract by 5.8% in 2026. However, a strong recovery of 18.2% is projected for 2027.
Tourism Could Decline by 27%
The tourism and travel sector is also among the most affected areas of the crisis. Due to airspace closures and flight cancellations, the number of international visitors to the Middle East is expected to decline by between 11% and 27% this year. This decline corresponds to approximately 23 million to 38 million fewer visitors. The loss in tourism revenues is estimated to range between $34 billion and $56 billion.
On the consumer side, a slowdown in spending is anticipated due to declining confidence and rising inflation expectations. Household consumption growth in GCC countries is expected to fall to 1.4% in 2026, marking a 2.6 percentage point decline compared to forecasts three months ago. In contrast, consumption is expected to grow by 6% in 2027.
The inflation outlook in the region has also been revised upward. Inflation in GCC countries is expected to reach 2.5% in 2026, before easing to 2.4% in 2027. Rising costs are primarily driven by disruptions in logistics and imports.
Notable Declines in Dubai and Abu Dhabi Stock Markets
In financial markets, increasing geopolitical risks have created a more cautious investment environment. Significant declines have been observed in the Dubai and Abu Dhabi stock markets, while markets in countries such as Oman and Saudi Arabia have remained relatively more resilient.
The report also notes that Iran’s economy is expected to contract by 9.4% in 2026. At the same time, escalating conflicts in Lebanon and the displacement of 20% to 25% of the population are highlighted as major risks to regional recovery.
Overall, while the current crisis is creating significant short-term economic pressure, the region’s strong structural fundamentals and investment potential continue to support expectations of a medium-term recovery. However, the pace and scope of this recovery will largely depend on the course of geopolitical developments.