IMF cuts 2026 growth forecasts for Gulf economies due to prolonged Hormuz closure

The International Monetary Fund has sharply reduced its 2026 economic growth projections across the Gulf, citing the ongoing shutdown of the Strait of Hormuz and a later expected reopening of the vital trade corridor.

According to the fund's latest World Economic Outlook published on Tuesday, the broader Middle East and North Africa region is now projected to shrink by 2 percent in 2026. This marks a downward change of 3.1 percentage points compared to estimates made in April, establishing it as the only global region expected to suffer an economic contraction this year.

Despite the regional strain, the IMF kept its 2026 worldwide economic growth projection steady at 3.1 percent and raised its 2027 estimate to 3.4 percent. The conflicting global trends stem from negative energy supply disruptions tied to the conflict involving Iran counterbalanced by surging demand linked to artificial intelligence infrastructure, according to IMF chief economist Silvana Tenreyro. While the broader international economy has so far endured the energy disruption by tapping reserves and curbing fuel use, Tenreyro cautioned that global resilience is reaching its limits.

The impact remains acute in the Gulf, where maritime movement through the Hormuz passage has dropped significantly following repeated assaults on commercial tankers. Analytics group Kpler recorded that daily transit through the strait has fallen to around 11.9 million barrels, nearly 30 percent below normal volumes prior to the conflict.

Within the region, the United Arab Emirates is predicted to contract by 3.9 percent in 2026—a 7 percentage point cut from previous forecasts—before expanding by 7.7 percent in 2027 assuming trade routes reopen. Saudi Arabia's economy is expected to shrink by 3.3 percent this year, down from 4.6 percent expansion last year, before rebounding with 7.9 percent growth next year. Double-digit contractions are forecast for Kuwait at 16.7 percent, Qatar at 15.6 percent, and Bahrain at 11.3 percent. Oman stands as the lone Gulf Cooperation Council member projected to post growth in 2026, with an expected increase of 4.1 percent.

The revised figures rest on expectations that the Strait of Hormuz will begin a slow return to service in March 2027 and reach normal activity levels by October of that year. Elsewhere among major regional energy producers, Iraq's gross domestic product is predicted to decline by 16 percent, while Iran faces an estimated 7.6 percent contraction under tightened sanctions and naval restrictions.

Regional energy importers showed greater stability. Egypt is expected to record 5.1 percent expansion this year, alongside 4.5 percent in Morocco and 2.7 percent in Jordan.

On a broader scale, the dual pressures of warfare and technology infrastructure investment are pushing worldwide inflation up to an expected 4.7 percent in 2026, with major central banks confronting elevated debt burdens and higher financing expenses across international bond markets.