IMF forecasts severe hit to Middle East growth from Iran war

• More pronounced for Bahrain, Qatar, Kuwait
• Recovery should follow in 2027
• Greatest energy threat in history, IEA says

Middle Eastern economies will post a sharp fall in growth this year but rebound in 2027 as they are the most affected by the Iran war, the International Monetary Fund said.

They should be the first to benefit from any recovery, the IMF added.

Gulf oil and gas exporters face a “severe downward revision” in the IMF’s projections for GDP growth in 2026, but exact outcomes will vary based on the damage they sustained at energy production and export facilities, and their reliance on shipping through the Strait of Hormuz.

“The contraction of GDP growth for 2026 is therefore more pronounced for Bahrain, Iran, Iraq, Kuwait, and Qatar and less significant for Oman, Saudi Arabia, and the United Arab Emirates,” the IMF said on Tuesday in the latest update of its World Economic Outlook.

All these economies will post higher growth in 2027, the IMF said, provided that oil and gas production and transportation return to normal within months.

Fatih Birol, executive director of the International Energy Agency (IEA), called the war-induced shock the “greatest energy security threat” in history.

More than 80 oil and gas fields, refineries, terminals and other energy infrastructure across the region have suffered damage as a result of hostilities, and one third of them are “severely and very severely damaged”, Birol said on Monday on the sidelines of the IMF’s spring meetings in Washington.

“Coming back to where we were before the crisis will take some time, maybe up to two years,” he said.

In its “reference” projection, based on a conflict that is “short-lived” and a “moderate” 19 percent increase in energy prices this year, the IMF sees Middle East and Central Asia growth falling from 3.6 percent in 2025 to 1.9 percent in 2026, before it recovers to 4.6 percent in 2027.

Oil prices are forecast to jump 21.4 percent and natural gas prices are to be affected more because of “the technical complexity of restarting production and the comparatively lower level of reserves to fall back on”, the IMF said.

The energy shock is pushing up global inflation to 4.4 percent this year and 3.7 percent in 2027, a “sharp deviation from the global disinflation trend in recent years”.

“A longer shutdown of the Strait of Hormuz and further damage to drilling and refining facilities would disrupt the global economy more deeply and for longer,” the IMF said.

Defence spending may pick up in the aftermath of the conflict and bring some short-term relief, but will add to “inflationary pressures, weaken fiscal and external sustainability, and risk crowding out social spending”.

In the Middle East and North Africa, the IMF downgraded Saudi Arabia’s growth prospects for this year to 3.1 percent, 1.4 percentage points below its previous update from January. In 2027, the Saudi economy is expected to expand by an additional 0.9 percentage point, settling at 4.5 percent. 

Further reading:

• Bahrain announces $19bn economic support measures
• Kuwait’s fiscal safety net will shield it from worst of Iran war
• The Gulf’s growth model faces its first true stress test

Regional commodity importers face “somewhat modest downward revisions” to their growth forecasts for 2026 and 2027.

Economic growth in Egypt will fall to 4.2 percent this year and rebound to 4.8 percent next year, in what is a cumulative downward trend of 1.1 percentage points, the IMF said. 

More country-by-country details are expected later this week when the Fund releases its regional economic outlooks.