Middle East and Central Asia’s economy to shrink in 2026 amid war, IMF says

The IMF expects the Middle East and Central Asia’s GDP to contract by 0.3 percent in 2026. In simple terms, the region’s total economic output is expected to be slightly smaller than before. This matters because the region is forecast to perform worse than every other major region listed in the outlook.

The downgrade is especially striking because the IMF projected 1.9 percent growth in April. The difference between those forecasts reflects the fallout from the US-Israel war on Iran and prolonged shipping disruption in the Strait of Hormuz. That waterway carries one-fifth of global oil supplies in peacetime.

The forecast is regional, but national outcomes vary sharply. Kuwait, Iraq, and Qatar face the deepest contractions, while Kyrgyzstan is expected to grow 9 percent. Globally, growth is forecast at 3.1 percent, but the IMF warns that escalating conflicts, trade tensions, fiscal weaknesses, and changing AI expectations could still weaken activity.

Gross domestic product, or GDP, is the total value of goods and services produced within a country or region during a specific period. It is one of the main ways economists measure economic activity. A rising GDP usually indicates expanding output, while a falling GDP indicates contraction.

A regional contraction means the combined economy produces less than it did previously. For example, the IMF forecasts Middle East and Central Asia GDP will shrink 0.3 percent in 2026. That figure does not mean every country will decline equally. Kuwait is forecast to fall 16.7 percent, while Kyrgyzstan is expected to expand 9 percent.

GDP contraction can affect jobs, company revenues, household incomes, tax collections, and government spending, although the article does not detail each effect for this region. The forecast therefore signals a broad economic setback, not that every person or industry will experience the same change. It also helps compare the region with other economies.

The IMF projects unusually large GDP declines across several energy-producing economies. Kuwait’s economy is expected to shrink 16.7 percent, Iraq’s 16 percent, and Qatar’s 15.6 percent. These are the three largest contractions identified in the article.

Bahrain’s GDP is forecast to contract 11.3 percent, while Iran’s economy is projected to shrink 7.6 percent. Saudi Arabia is expected to record negative growth of 3.3 percent. The figures show that the shock is uneven, even among countries exposed to the same regional conflict and shipping disruption.

The article links the wider downgrade to the war’s fallout and prolonged disruption in the Strait of Hormuz. Saudi Arabia faces a smaller projected decline because it partly offset damage to its energy sector by increasing oil exports through the East-West pipeline. These forecasts are estimates, so the final outcomes could differ if conditions change, but they show the scale of the expected shock.

The Strait of Hormuz is a strategic maritime passage connecting the Persian Gulf with the Gulf of Oman and the wider ocean shipping network. The source does not provide a geographic definition, but it identifies the strait as a conduit for one-fifth of global oil supplies in peacetime.

That concentration makes the passage a chokepoint. If ships cannot travel through it normally, oil exporters may struggle to reach customers, while buyers face uncertainty about supplies. The IMF cited prolonged disruption there as a major reason for downgrading the Middle East and Central Asia’s 2026 outlook from 1.9 percent growth to a 0.3 percent contraction.

The effects can spread beyond nearby countries because oil is traded globally. The article connects the disruption with severe forecasts for Kuwait, Iraq, Qatar, Bahrain, Iran, and Saudi Arabia. Saudi Arabia’s East-West pipeline helped partly offset the damage, showing why alternative routes can reduce dependence on one vulnerable passage.

War can damage production, investment, trade, and confidence. When shipping is disrupted, oil exporters may be unable to move normal volumes to customers. Oil importers can face tighter supplies, higher transport costs, and more expensive fuel. Consumers worldwide may then pay more for energy and goods moved by sea. These broader effects are established economic mechanisms; the article does not quantify consumer prices.

For exporters, lost shipments can reduce export earnings and government revenue. For importers, higher oil prices can raise business costs and strain household budgets. Companies may delay investment, while governments may need to support affected households or industries. The scale depends on how long the disruption lasts and whether alternative routes are available.

The IMF cited prolonged Strait of Hormuz disruption when forecasting contractions of 16.7 percent in Kuwait, 16 percent in Iraq, and 15.6 percent in Qatar. Saudi Arabia’s smaller projected decline reflects partial protection from its East-West pipeline, while global growth is still forecast at 3.1 percent.

Saudi Arabia partly protected its energy sector by boosting oil exports through the East-West pipeline. The article does not state the pipeline’s capacity or exact destination. It does show that the route provided a way to move more oil when shipping through the Strait of Hormuz was disrupted.

An alternative export route creates flexibility. It can reduce a country’s dependence on one vulnerable passage and allow some production to keep reaching international buyers. That can preserve export income and limit damage to economic output. It cannot necessarily replace every shipment, so the protection may be partial rather than complete.

The contrast appears in the forecasts. Saudi Arabia’s GDP is projected to contract 3.3 percent, a smaller decline than Kuwait’s 16.7 percent, Iraq’s 16 percent, or Qatar’s 15.6 percent. The article attributes part of that difference to Saudi Arabia’s pipeline-supported export increase, while the wider regional outlook still turns negative.

Oil-dependent economies often rely on energy exports for foreign earnings and government income. If a chokepoint disrupts shipments, producers may sell less oil or face higher costs reaching buyers. That can reduce national output and weaken public finances. The article does not quantify the effects on jobs or budgets, but these are standard channels through which an export shock spreads.

Lower oil revenue can mean less money for government salaries, infrastructure, subsidies, and services. Energy companies may cut production, investment, or hiring. Businesses that serve the oil sector can also lose work. Households may feel the shock through weaker employment, lower incomes, or reduced public support. Importing goods may become more expensive at the same time.

The forecasts illustrate the risk. Kuwait, Iraq, and Qatar are expected to suffer double-digit GDP declines, while Bahrain and Iran face contractions of 11.3 and 7.6 percent. Saudi Arabia’s pipeline offers partial protection, but its GDP is still projected to fall 3.3 percent.