The World Bank has revised its growth forecasts for the economies of the Middle East, North Africa, Afghanistan, and Pakistan for 2026, citing the repercussions of the Iranian war and the closure of the Strait of Hormuz, which negatively impacts energy infrastructure and public utilities.
The report indicates that the expected economic growth in the region, excluding Iran, will slow to 1.8% in 2026, which is about 2.4 percentage points lower than the January forecasts. This decline is particularly concentrated in the economies of the Gulf Cooperation Council and Iraq, which have been directly affected by the conflict.
Details of the Event
The World Bank also reduced its growth forecasts for Gulf economies to 1.3% in 2026, compared to the January forecasts which indicated 4.4%. The bank explained that the risks surrounding the forecasts are heavily skewed towards the negative, as the continuation of the conflict could exacerbate economic conditions through rising energy and food prices, alongside declines in trade and tourism.
The Iran war has led to the closure of the Strait of Hormuz, a vital corridor for energy flows, through which approximately 25% of seaborne oil trade passes. Goldman Sachs has predicted that the average price of Brent crude could exceed $100 per barrel if the closure of the waterway continues for an extended period.
Background & Context
Osman Dioun, the World Bank's Vice President for the Middle East, North Africa, Afghanistan, and Pakistan, stated that the current crisis necessitates proactive measures to enhance the ability of regional economies to withstand shocks. He emphasized that the challenge is not only to withstand shocks but also to rebuild economies that are more capable of facing challenges.
Dioun added that strengthening macroeconomic fundamentals, improving governance, and investing in infrastructure are vital, as peace and stability are essential conditions for achieving sustainable development in the region.
Impact & Consequences
The World Bank anticipates that the economies of Saudi Arabia and Oman will be the least affected by the repercussions of the conflict, with growth in both countries expected to decline by only 1.2 percentage points during the current year. Saudi Arabia is positioned at the forefront of Gulf economies in terms of expected growth rates, while an economic contraction is anticipated in Kuwait and Qatar.
The report noted that Saudi Arabia, Oman, and the UAE are better positioned to withstand the repercussions of the closure of the Strait of Hormuz due to partially having alternative options for oil exports through outlets outside the Gulf. However, the World Bank has lowered its growth forecast for the UAE economy to 2.4% in 2026, compared to 5.1% in the January forecasts.
Regional Significance
In North Africa, the World Bank has reduced its growth forecast for Morocco's economy in 2026 to 4.2%, while raising its forecast for Algeria's economy to 3.7%. As for the Egyptian economy, the bank has kept its forecast unchanged at 4.3%.
These forecasts indicate that the repercussions of the conflict come as an additional shock to a region already suffering from structural challenges, with ongoing uncertainty regarding the duration of the conflict and its impacts on trade and energy.
Under these circumstances, the war remains on the brink of a fragile truce, as U.S. President Donald Trump announced an agreement with Iran for a two-week ceasefire. However, pressures remain due to intensified Israeli strikes on Lebanon, complicating the situation further.