Gulf Economies Plunge Into Deepest Post-Pandemic Recession as Middle-East Conflict Rattles Energy Markets

The U.S.–Israel war with Iran has triggered a supply shock that forced the Strait of Hormuz—carrying about 20 % of global energy—to close and damaged refineries in Saudi Arabia, the UAE, Kuwait and Qatar. Oil prices surged, prompting economists to cut 2026 growth forecasts for Qatar, Kuwait and Bahrain to –6.0 %, –4.4 % and –2.9 % respectively, reversing earlier expansion expectations.

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Historically, high oil prices have buoyed GCC fiscal balances, while recent tourism growth in Saudi Arabia, the UAE and Qatar added non-oil revenue. The current shock now hits both oil and tourism sectors.

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2026 growth: Saudi +2.6 %; Oman +2.2 %; UAE flat; Qatar, Kuwait, Bahrain contracting. 2027 rebound: Qatar +7.8 %; UAE +5.4 %; Kuwait +5.0 %; Saudi +4.5 %; Bahrain +4.3 %; Oman +2.8 %. 2026 inflation: Bahrain 2.4 %; UAE 2.6 %; Qatar 2.6 %; Kuwait 2.9 %; Oman 1.7 %; Saudi 2.0 %.

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S&P Global’s MENA chief Ralf Wiegert warned a “simple return to the pre-war growth path” is unlikely. Goldman Sachs economists said delayed full-capacity restoration will cause “a significant but uneven impact on GCC economies and public finances.” The IMF expects energy production and transport to normalise once hostilities cease, supporting the 2027 growth outlook.

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Analysts note that higher oil prices are feeding global inflation, which the GCC cannot fully shield from. The shock’s uneven effect on oil revenues and tourism raises fiscal-strain concerns, especially for Bahrain and Kuwait, where contraction is deepest. Some warn that reliance on a swift conflict resolution adds uncertainty to the rebound.

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• “We do not expect a simple return to the pre-war growth path,” — Ralf Wiegert, Head of MENA Economics, S&P Global Market Intelligence

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• “The second layer of shock is the non-oil economy, especially important for Saudi Arabia, the UAE, Qatar,” — Lluis Dalmau Taules, Economist, Allianz

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• “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.” — Goldman Sachs economists

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• “ Economists expect a quick rebound next year, but that is based on the assumption the conflict ends soon.” — Reuters poll of 18 economists

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Forecasts depend on the war’s end. An IMF-based scenario envisions a rapid rebound in energy flows and a return to pre-shock fiscal paths if hostilities cease soon. Prolonged conflict would keep oil prices high, sustain inflation and produce uneven recovery across GCC states. Tracking the reopening of the Strait of Hormuz and repair of damaged energy assets will be key to gauging the region’s economic trajectory.

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