IMF lowers growth forecasts for the Middle East in light of the war

The Fund also projected a 3.3% contraction in Saudi Arabia's GDP this year before seeing a recovery in 2027, noting that the Kingdom remains relatively "less affected" than its neighbors. The financial institution prepared these forecasts before the recent escalation between Riyadh and the Houthis.

The Fund explained that the adjustment to its forecasts is due to the "closure of the Strait of Hormuz for a longer period" than expected in April, but it predicted a strong recovery in 2027, provided this vital corridor for energy supplies, global trade, and Gulf oil and gas exports is reopened.

Since the outbreak of the war in the Middle East on February 28 with US and Israeli strikes on Iran, Tehran has almost completely restricted navigation through the strait, insisting that ships must pass through a route designated by it, and occasionally targeting those attempting to pass without coordination. In response, Washington has imposed a blockade on Iranian ports, preventing ships from entering or leaving them.

The Fund pointed out that Iraq, Kuwait, Qatar, and Bahrain are the countries most affected by the disruptions to transport, as well as production due to attacks on Gulf energy facilities at the beginning of the war.

The Fund projected that the GDP of these countries would decline by more than 10% this year, before seeing a recovery in 2027 in the event of a "return of production, exports, and logistics to normal."

- Saudi Arabia "less affected" -

The Fund noted that Saudi Arabia, the largest economy in the region, is relatively less affected thanks to the "diversification of export channels."

However, it projected that its economy would contract by 3.3% in 2026, before returning to growth of 7.9% the following year.

The Fund prepared its new forecasts before the current escalation between Saudi Arabia, which supports the internationally recognized Yemeni government, and the Iran-backed Houthis.

Against the backdrop of the war in the Middle East, a truce that had been in effect in Yemen since 2022 collapsed in July. Over the past weeks, the Houthis have attacked oil and civilian facilities in the Kingdom, announced a naval blockade on its Red Sea ports, and targeted its oil tankers. They have expanded their field control in Yemen by acquiring the western coast and the Bab al-Mandab Strait, which has increased in importance for Riyadh for oil exports, given Tehran's practical closure of the Strait of Hormuz.

Saudi Arabia benefits from the East-West pipeline that connects the main oil fields in the east of the Kingdom to the Yanbu terminal on the Red Sea, allowing it to bypass Hormuz. However, the Kingdom temporarily suspended operations on this line in September following drone attacks it said originated from Iraq.

Houthi strikes have targeted oil facilities in the Kingdom since the resumption of the escalation.

Furthermore, the Fund projected that the UAE, which is also capable of bypassing the Strait of Hormuz thanks to a pipeline reaching the port of Fujairah, would see a 3.9% decline in its GDP.

It projected that the Sultanate of Oman would be the only Gulf state to record positive growth this year, at 2.4%.

The IMF also lowered its growth forecasts for Iran to a negative 7.6 percent, as a result of the war, the blockade, and the economic sanctions recently tightened by Washington.

The Fund expected other Arab countries to remain "relatively resilient" in the face of rising energy and food prices.