By Anant Chandak and Indradip Ghosh
BENGALURU, April 27 (Reuters) – Gulf Cooperation Council (GCC) economies are sliding into their worst economic crisis since the pandemic, with several expected to contract this year on spillovers from the U.S.-Israel war with Iran right on its doorstep.
The war’s knock-on effects have ripped through the energy market – the Gulf economies’ lifeline – driving oil prices sharply higher and triggering a historic supply shock, drawing comparisons to the 1970s.
As a result, economists slashed 2026 growth forecasts in the April 8–24 poll, with some countries swinging from expected growth to outright contraction. A partial rebound is due next year.
Previous episodes of higher oil prices have handed an economic windfall to economies in the region, all heavily reliant on energy exports.
But the near-total closure of the Strait of Hormuz, through which one-fifth of global energy supply passes, along with damage to refineries and gas plants in Saudi Arabia, the United Arab Emirates (UAE), Kuwait and Qatar, has nearly crippled the region’s economies.
Even with oil prices still around 40% higher than before the war erupted nearly two months ago, the economies of Qatar, Kuwait and Bahrain are now expected to shrink 6.0%, 4.4% and 2.9% respectively this year. That is a total reversal from growth of 4.9%, 3.4% and 2.9% expected in January.
Growth in the UAE is seen stagnating, compared with a 5.0% expansion predicted three months ago.
“We do not expect a simple return to the pre-war growth path,” said Ralf Wiegert, head of MENA economics at S&P Global Market Intelligence.
“The GDP-level that will emerge after the war is clearly lower for the next several years, despite a relatively swift recovery…It will take the entire second half of 2026 to rebuild damaged assets and re-establish supply chains.”
Saudi Arabia, the world’s largest crude exporter, and Oman are expected to weather the shock slightly better. Their economies are forecast to grow 2.6% and 2.2% this year, according to the survey of 18 economists. But both figures are well below January forecasts of 4.3% and 2.8%.
“The second layer of shock is the non-oil economy, especially important for Saudi Arabia, the UAE, Qatar,” said Lluis Dalmau Taules, an economist at Allianz.
“The Middle East was the fastest-growing region in terms of tourism in the last few years, so that’s clearly going to take another shape, and that has impacts on retail and other areas.”
QUICK REBOUND IN 2027
Economists expect a quick rebound next year, but that is based on the assumption the conflict ends soon. Qatar, the UAE, and Kuwait are expected to grow 7.8%, 5.4% and 5.0% next year, respectively.
Saudi Arabia, Bahrain and Oman are forecast to expand 4.5%, 4.3% and 2.8%.
Those views broadly aligned with the International Monetary Fund’s expectation that energy production and transport in the region will rebound and normalise in the coming months.
“The prolonged delay in returning to full production capacity due to damage and shut-ins will have a significant but uneven impact on GCC economies and public finances,” economists at Goldman Sachs noted.
“Longer-term, however, we expect the rebound in economic activity to be robust across the board, aided by high levels of public investment, financed by a recovery in hydrocarbon revenues…and high levels of government savings.”
Steeper oil prices are stoking inflation globally, and the Gulf economies aren’t immune.
Inflation in Bahrain will average 2.4% in 2026, higher than the 1.4% forecast in January, the poll median showed.
In the UAE, Qatar, Kuwait and Oman, inflation is expected to average 2.6%, 2.6%, 2.9% and 1.7%, respectively, compared with 1.9%, 2.0%, 2.3% and 1.4% predicted three months ago. Saudi Arabia’s forecast was unchanged at 2.0%.
(Other stories from the Reuters global economic poll)
(Reporting and polling by Anant Chandak; Editing by Hari Kishan and Chizu Nomiyama )
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