Gulf economies will contract sharply this year as the Iran war cuts oil and gas output, the International Monetary Fund said in a new report released on Thursday. This comes as crude shipments out of the region have begun to recover after Iran disrupted traffic in the Strait of Hormuz following U.S.-Israeli strikes in late February.
The IMF’s October 2026 Regional Economic Outlook for the Middle East and Central Asia report projects that the six Gulf Cooperation Council economies will shrink 4.8% in 2026 before rebounding in 2027 with projected growth of 9.1%.
The downgrade is the steepest in the states most dependent on the Strait of Hormuz. The IMF forecasts Kuwait’s economy will contract by 16.7%, Qatar’s by 15.6% and Bahrain’s by 11.3%.
Saudi Arabia and the United Arab Emirates have pipelines that bypass the strait —their economies are projected to shrink by 3.3% and 3.9%, respectively.
Tim Callen, a visiting fellow at the Arab Gulf States Institute in Washington who previously led the IMF’s GCC division, said the contraction reflects months of lost output that a recent recovery cannot offset yet.
“Oil production recovered to some extent in September and is reported to have increased further in October as shipments increasingly make it out of the Strait of Hormuz under U.S. military escort,” Callen said. “However, for March-August, oil production in most GCC countries was well down on 2025 levels.”
Oil and gas production among the region’s exporters fell from 33 million barrels per day in February to about 19 million in May, according to the IMF report. Specifically, Qatar’s output dropped as much as 86%.
Oman is the only GCC state expected to grow. The fund projects 4.1% growth, up from 3.5% in April.
“Oman has not been affected by the difficulties of transiting the Strait of Hormuz given its geographic location,” Callen said. He added that the sultanate has largely escaped Iranian strikes and “is benefiting from recent economic reforms that are boosting confidence in the economy.”
A Rebound Contingent on Peace
The IMF’s rebound forecast rests on a key assumption. It expects disruptions to persist through the first quarter of 2027, after which hostilities end and traffic through the strait gradually recovers.
Callen said much depends on whether current export routes hold.
“At the moment quite a lot of oil is being shipped out of the Gulf because of pipelines and tankers getting through the Strait of Hormuz,” he said. “The question is whether this is sustainable.
“In all probability, if there is no end in hostilities, growth will not rebound to the extent projected by the IMF,” Callen said. “Even if oil production is stronger in 2027 than in 2026, continued hostilities will undermine growth in the non-oil sector.”
He named Kuwait, Bahrain and Qatar as the most exposed economies because of their “near total reliance on the Strait of Hormuz.” He said Saudi Arabia faces added risk from Houthi attacks.
Callen said Oman and the UAE stand to benefit most from elevated prices. Saudi Arabia would also benefit “if the East-West pipeline can remain fully operational,” he said. Iranian-backed Iraqi militias have attacked the pipeline.
All Gulf states except Bahrain retain substantial financial buffers, Callen said. The IMF also singled out Bahrain among countries drawing down reserves. Callen said the country was “the most exposed financially because of its very high government debt level.”
