06/04/2026 05:52 AST
Most GCC economies are expected to enter a recession in the first half of 2026 as the ongoing US-Israel war with Iran disrupts energy exports, trade flows and domestic activity, according to a report by Oxford Economics.
Oxford Economics has sharply downgraded its outlook for the region, projecting GCC real GDP to contract by 0.2% this year - a steep revision from its pre-war growth forecast of 4.4%. The downgrade reflects a combination of reduced oil production, weaker exports, declining tourism and subdued domestic demand.
The report assumes the conflict will last at least two months, with the Strait of Hormuz effectively closed during this period, followed by a gradual recovery in shipping and economic activity over the remainder of the year.
Export disruption hits some GCC states harder
The economic impact is expected to vary significantly across the GCC, depending on each country's ability to sustain oil and gas exports. Countries heavily reliant on the Strait of Hormuz - including Qatar, Kuwait, Bahrain and the UAE - are likely to face the most severe disruptions, as constrained storage capacity may force production shutdowns when exports are blocked.
Qatar is expected to see the sharpest downgrade in growth forecasts, reflecting its heavy dependence on liquefied natural gas (LNG), which accounts for around 80% of its hydrocarbon export revenues. The high cost of storing LNG makes production cuts more likely during periods of export disruption.
In contrast, Oman and Saudi Arabia are projected to fare relatively better due to their ability to bypass the Strait or reroute exports.
'Qatar, Kuwait, Bahrain and the UAE face significant downgrades due to their limited ability to reroute hydrocarbon exports, meaning production will have to be curtailed once storage facilities reach capacity. By contrast, Oman and Saudi Arabia are less reliant on the Strait of Hormuz and can therefore maintain healthier export levels,' the report said.
The study cautioned that prolonged disruptions to oil and gas exports would delay the recovery of operations, as logistics need to be realigned and trade flows re-established. Shipping insurance premiums are also expected to remain elevated until risks to tankers decline.
It further noted that the scale of the shock depends not only on export routes but also on countries' ability to build inventories for future sales. Qatar, Kuwait and Bahrain face the greatest challenges on both fronts.
'With LNG making up about 80% of Qatar's hydrocarbon exports by value, the high cost of processing and storing it compared with oil makes production shutdowns more economical. This is the primary reason why we have lowered Qatar's GDP growth forecast by 17ppts - the largest downgrade in the GCC,' the report said.
Kuwait and Bahrain, meanwhile, have limited capacity to build inventories, with only around 15% of foregone exports during the assumed two-month conflict likely to be recovered later.
In contrast, Oman's export capacity remains largely unaffected due to its location outside the shipping chokepoint, while Saudi Arabia and the UAE are expected to reroute a significant portion of their exports. Combined with larger storage facilities, this should limit production losses for the UAE, while Saudi Arabia is expected to avoid plant shutdowns altogether. However, some outages linked to attacks on oil and gas facilities have already been factored into the forecasts.
Overall, Oxford Economics estimates that GCC oil production will be cumulatively 1.2mn barrels per day lower by 2030 compared with pre-war projections.
Oman, Saudi to benefit from higher oil prices
The report noted that while some GCC countries will see a marked improvement in public finances, this benefit will be limited to those able to continue exporting oil at elevated prices. Others are likely to experience a deterioration in fiscal balances.
'Government revenues from oil and gas sales will rise sharply for countries that maintain exports, while those unable to do so will see revenues decline. A prolonged conflict would widen this divergence, with significant implications for fiscal positions,' it said.
Oxford Economics forecasts that Oman will record the strongest improvement in its budget balance, with an upward revision of 6.8ppts in 2026 and a further 2.3ppts in 2027. Saudi Arabia is also expected to see notable gains in government revenues.
Travel and tourism to suffer lasting setback
Travel and tourism - which account for up to 15% of GDP in some GCC economies - are expected to face a prolonged downturn. Although parts of regional airspace have reopened, flight volumes remain at only around 40% of pre-war levels.
The report warned that the impact on tourism and domestic demand will persist well beyond the duration of the conflict, with recovery dependent on the level of security achieved in the region after the war ends.
Muscat Daily
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