The International Monetary Fund now expects the economy of the Middle East, North Africa and Pakistan to shrink 1.3% in 2026, a sharp reversal from last year’s expansion, as the fallout from regional conflict, damaged energy infrastructure and disrupted shipping routes continues to weigh on output.
Jihad Azour, the IMF’s director for the Middle East and Central Asia, presented the updated outlook on October 15 during the annual meetings of the IMF and World Bank in Bangkok. He cautioned that the path of the recovery hinges on conditions that are far from guaranteed: energy production returning to normal and major trade corridors reopening.
“The outlook depends critically on how quickly energy production and trade normalize, and on countries’ ability to preserve macroeconomic stability,” Azour said at a news conference.
The projected contraction follows growth of 3.3% in 2025. But the IMF’s baseline scenario anticipates a strong, if uneven, rebound in 2027, with regional GDP expanding 6.6% as oil and gas output resumes and shipping activity recovers.
That recovery, however, is conditional. The Fund’s assumptions rest on trade and transport routes returning to normal during the first quarter of 2027, with exports gradually recovering by midyear. The restoration of energy infrastructure and the reopening of major transportation corridors are central to that timeline.
The conflict involving Iran has disrupted oil and gas production, constrained shipping through the Strait of Hormuz and damaged trade links connecting Gulf economies to international markets. While Gulf oil exports have partially recovered from earlier disruptions, production losses and transportation constraints continue to drag on economic activity.
| Year | Regional GDP Growth | IMF Assessment |
|---|---|---|
| 2025 | +3.3% | Expansion |
| 2026 | -1.3% | Economic contraction |
| 2027 | +6.6% | Conditional recovery |
Note: Forecasts cover the Middle East, North Africa and Pakistan. Source: IMF, October 15, 2026.
Azour described the economic damage as highly uneven across the region. Oil-exporting countries directly affected by the war are expected to experience substantial contractions in 2026, followed by stronger growth in 2027 as energy production normalizes. Even so, output is projected to remain below the levels anticipated in pre-war medium-term forecasts.
Oil-importing countries in the region have shown greater resilience and are expected to maintain that relative stability. The Caucasus and Central Asia region, meanwhile, has weathered the shock comparatively well. The IMF projects growth there to slow to 5.2% in 2026 and 5% in 2027, from 6.2% in 2025, with inflation continuing to decline from elevated levels.
Among individual Gulf economies, the impact varies sharply. Qatar faces substantial damage to its natural gas infrastructure, though authorities have accelerated restoration efforts. Saudi Arabia and the United Arab Emirates are contending with disrupted trade, weaker investment and heightened regional uncertainty.
The US-Israeli-led attacks on Iran and Tehran’s subsequent closure of the Strait of Hormuz triggered the initial energy shock. Pre-war supply surpluses, alternative shipping routes, demand adjustments and substantial inventory drawdowns helped absorb much of the initial disruption.
Those defenses, however, are eroding. “These buffers bought time, but they are finite. Inventories are lower, spare capacity is tighter, and renewed disruption could generate much larger price adjustments,” Azour said.
The IMF director warned that emergency inventories, alternative routes and pre-war financial reserves cannot provide unlimited protection. The squeeze on oil inventories presents a particular challenge if renewed disruptions prevent producers from rebuilding depleted stockpiles.
Diesel markets illustrate the region’s vulnerability. Damaged refineries and disrupted exports have contributed to persistent global fuel shortages, and emergency oil releases have only partially cushioned energy markets.
The Fund urged policymakers to prioritize price stability, focus on rebuilding fiscal reserves and strengthen their capacity to withstand future shocks. For investors, the central question is whether energy production and regional shipping can normalize quickly enough to support the projected recovery.
The 6.6% growth forecast for 2027 represents a conditional rebound from a severely disrupted year, rather than evidence that the economic consequences of the conflict have already faded. Prolonged war and renewed disruptions to energy production, shipping routes or critical infrastructure remain the biggest risks to the region’s economic outlook, according to the Fund.
