The International Monetary Fund (IMF) has forecast that economic output across the Middle East, North Africa and Pakistan will shrink by 1.3% in 2026 as the ongoing war involving Iran disrupts energy production, shipping, tourism and trade.
In its regional economic outlook released in Dubai on Thursday, the IMF projected that the affected economies could rebound with growth of 6.6% in 2027. However, it warned that economic output would generally remain below pre-war expectations and that further disruptions could worsen the outlook.
The fund said the conflict had affected countries unevenly, with oil-exporting economies suffering more severe consequences from interruptions to energy production and shipping, while oil-importing nations had shown greater resilience.
Jihad Azour, the IMF’s director for the Middle East and Central Asia, said the economic downgrade was concentrated among countries most directly affected by the conflict.
“This sharp downgrade is concentrated among the economies most directly affected by the conflict,” Azour said at a press conference.
He added that several Gulf oil exporters were expected to experience recessions this year.
Gulf Economies Face Recession Risks
According to the IMF, economies within the Gulf Cooperation Council (GCC) are expected to contract in 2026, with Oman the exception.
Bahrain, Kuwait and Qatar, alongside Iraq, which is not a GCC member, are projected to record double-digit declines in gross domestic product (GDP).
The fund also warned that Saudi Arabia and the United Arab Emirates, despite being relatively less affected by disruptions to energy trade, were now expected to enter recession in 2026.
The IMF’s projections assume that the conflict will ease in early 2027, allowing trade to gradually return to normal during the year.
However, the organisation stressed that the outlook remained highly uncertain, with the possibility of a prolonged war posing the greatest threat to economic recovery.
“A more prolonged conflict remains the principal risk to the outlook,” Azour said.
Escalating Conflict Adds to Economic Uncertainty
The economic warning comes amid continued security concerns in the region.
US officials told Reuters that the State Department had ordered some diplomats and their family members to leave American missions in Saudi Arabia. The department also planned to withdraw family members from several other US diplomatic missions in the region.
The move followed escalating missile attacks by Yemen’s Iran-aligned Houthi movement against Saudi Arabia.
The IMF warned that worsening financial conditions could also weigh on the regional economy. Investors reassessing expectations for artificial intelligence-driven productivity gains could contribute to tighter financial conditions, while concerns about inflation and government finances could push interest rates higher.
These developments could increase borrowing costs and place additional pressure on governments and businesses already dealing with the economic consequences of the conflict.
Oil Importers Show Greater Resilience
While energy-exporting countries face significant challenges, the IMF said domestic demand in oil-importing economies had been supported by remittances, tourism receipts and relatively favourable financial conditions.
Government measures to shield consumers from higher commodity prices have also helped cushion the impact of the crisis.
Elsewhere, economic growth across the Caucasus and Central Asia is expected to moderate to a more sustainable pace.
The IMF projected that economic output in the region would grow by 5.2% in 2026 before easing to 5% in 2027.
IMF Urges Policymakers to Protect Economic Stability
Against the backdrop of the conflict and rising uncertainty, the IMF urged governments to maintain price stability, safeguard the sustainability of public finances and preserve central bank independence.
It also called for structural reforms aimed at improving productivity and creating jobs, stressing the importance of strengthening economic resilience as countries navigate the effects of the war.
Although the fund expects a strong regional rebound in 2027 under its baseline scenario, it cautioned that the recovery depends heavily on the conflict easing and trade gradually returning to normal.
