IMF Predicts Economic Decline in Gulf States Amidst Tensions and Closure of Hormuz Strait

Washington, October 13 (Daily Kiran) : The International Monetary Fund (IMF) has issued a stark warning regarding the economic outlook for the Middle East and Central Asia. On October 13, the IMF reported that ongoing conflicts in the region and the anticipated closure of the Hormuz Strait could lead to a contraction in these economies in 2026. According to the IMF’s October 2026 World Economic Outlook (WEO) report, economic growth in the region is projected to plummet from 3.7 percent in 2025 to -0.3 percent in 2026. However, a rebound to 6.3 percent growth is expected in 2027.

The IMF has revised its growth forecast for 2026 down by 2.2 percentage points from its April estimates, attributing this adjustment primarily to the prolonged closure of the Hormuz Strait. The report suggests that a robust recovery could follow once the strait reopens in 2027.

The impact of these developments is expected to be most severe on smaller Gulf oil-producing nations. The economies of Kuwait, Iraq, Qatar, and Bahrain could shrink by 16.7 percent, 16 percent, 15.6 percent, and 11.3 percent, respectively. The IMF highlighted that disruptions in energy production and transportation will significantly affect these countries.

Despite the anticipated downturn in 2026, the IMF forecasts a strong recovery for these nations in 2027. Iraq’s economy could grow by 19 percent, followed by Qatar at 18.8 percent, Kuwait at 17.1 percent, and Bahrain at 13.9 percent.

Saudi Arabia is projected to experience a relatively milder impact due to its diversified export routes. The country’s economy is expected to contract by 3.3 percent in 2026, with a rebound of 7.9 percent in 2027. The United Arab Emirates (UAE) might see a 3.9 percent decline in 2026 but is expected to grow by 7.7 percent the following year. Oman is predicted to defy this trend with a projected growth of 4.1 percent in 2026.

The IMF also anticipates a 7.6 percent contraction in Iran’s economy in 2026, driven by escalating military tensions, renewed naval blockades, and stringent sanctions. Inflation in Iran could soar to 78.6 percent.

Notably, the Hormuz Strait is crucial for global energy supplies, with approximately 20 million barrels of oil passing through it daily before the onset of conflict. The report mentions that Gulf nations have begun redirecting some exports through alternative ports, while oil production outside the Gulf has increased by nearly 2 million barrels per day.

The IMF predicts that average crude oil prices could reach $95.74 per barrel in 2026, significantly higher than the $67.74 per barrel in 2025. By 2027, prices are expected to drop to $87.39 per barrel. The report indicates that crude oil prices may rise by 41 percent, while natural gas prices could increase by 48 percent, leading to a 10 percent rise in fertilizer prices and a 5 percent increase in food prices.

Countries reliant on energy imports will face the most pressure, grappling with high import bills, currency exchange rate stress, declining real income, and limited fiscal capacity.

Despite these challenges, the IMF notes that India remains in a relatively strong position due to robust domestic demand and a supportive services sector. India’s economic growth is expected to continue, distinguishing it from other emerging economies that have seen their growth forecasts downgraded.

The IMF warns that if tensions in the Middle East escalate or persist, energy and food prices could remain elevated, exerting further pressure on global inflation, economic growth, and financial stability.