The International Monetary Fund on Tuesday trimmed its growth outlook for the Middle East and North Africa, saying the region will expand much more slowly this year as oil-exporting nations cope with the economic fallout of the Iran war.
In its latest World Economic Outlook, the IMF reduced the region's real GDP forecast to 1.1%, a downward revision of 2.8 percentage points from its January projection. The fund still expects growth to recover to 4.8% in 2027, but it cautioned that this projection rests on the assumption that energy production and transportation in the area return to normal within the coming months - an assumption that it said might need updating if the conflict persists.
Tehran's attacks on neighbouring Gulf states - carried out in response to U.S.-Israeli strikes that began in late February - have inflicted damage on key energy infrastructure and disrupted shipping through the Strait of Hormuz. The strait is ordinarily responsible for moving about 20% of global oil and liquefied natural gas flows. The IMF said these disruptions have added to inflationary pressures and clouded the global economic outlook.
Diplomatic efforts have been uneven. U.S.-Iran talks aimed at resolving the conflict collapsed over the weekend, and the U.S. military has initiated a blockade of Iranian ports, even as officials continue limited efforts to sustain dialogue.
Country-level revisions and outlooks
The IMF said it adjusted GDP projections downward across the region, primarily reflecting reduced energy production and a fall in exports. The scale of the revisions varies depending on the extent of damage to energy and transport infrastructure, reliance on the Strait of Hormuz, and the availability of alternative export routes.
Saudi Arabia - the world’s largest oil exporter and the biggest Arab economy - is now expected to grow 3.1% in 2026, a revision 1.4 percentage points below the January estimate. The fund noted that Saudi Arabia should be less heavily affected by the war than several of its Gulf neighbours.
Iran's economy faces a much steeper contraction. The IMF forecasts a 6.1% shrinkage in the Iranian fiscal year that began on March 21, followed by a rebound to 3.2% growth in the subsequent year. Before the outbreak of the conflict, Iran had been expected to grow 1.1% in the current fiscal year.
Bahrain, Iraq, Kuwait and Qatar are also projected to see their economies contract this year, the IMF said, though it did not provide specific numerical estimates for those countries in the report released on Tuesday.
By contrast, the revisions were smaller for economies in the region that import oil and gas. Egypt, for example, is now projected to grow 4.2% in 2026, down from an earlier estimate of 4.7%, and is forecast to recover to 4.8% in 2027.
The IMF said a separate, more expansive Middle East regional economic outlook will be published on April 16.
Summary
The IMF has sharply downgraded its near-term growth outlook for the Middle East and North Africa to 1.1% in its latest World Economic Outlook, citing damage to energy and transport infrastructure and disruption of shipping through the Strait of Hormuz caused by the Iran war. The fund projects a rebound to 4.8% in 2027 under the assumption of rapid normalization of regional energy and transport activity.
Key points
- Regional GDP forecast for 2026 cut to 1.1%, a 2.8 percentage point downgrade since January.
- Saudi Arabia forecast to grow 3.1% in 2026, less affected than neighboring Gulf exporters; Iran set to contract 6.1% in the fiscal year beginning March 21, then rebound to 3.2%.
- Shipping disruptions through the Strait of Hormuz - which handles about 20% of global oil and LNG flows - and damage to energy infrastructure have contributed to inflation and a dimmer global outlook.
Risks and uncertainties
- The outlook for 2027 depends on energy production and transport returning to normal in the coming months; a protracted conflict would require the IMF to revise its assumptions - affecting energy and shipping sectors most directly.
- Damage to regional energy and transportation infrastructure, and the dependence of some countries on the Strait of Hormuz, create continued downside risks to exports and fiscal revenues for oil-exporting economies.
- Breakdown in diplomacy - illustrated by the collapse of U.S.-Iran talks and the initiation of a U.S. naval blockade of Iranian ports - increases uncertainty for trade flows and inflation pressure across the region.