IMF cuts Gulf growth forecasts for 2026 as Strait of Hormuz closure drags on

The International Monetary Fund has sharply reduced its 2026 growth forecasts for Gulf economies, blaming the prolonged closure of the Strait of Hormuz and pushing back its timetable for the waterways reopening.

In its latest World Economic Outlook, published on Tuesday, the fund said the Middle East and North Africa region is now the only area of the world expected to contract this year, with GDP set to shrink by about 2 per cent a downward revision of 3.1 percentage points from its April projection. The IMF cited a negative supply shock from the Iran war and the resulting disruptions to energy and shipping as key drivers of the downgrade.

The forecast revision is dramatic for several smaller oil exporters. Bahrain, Kuwait and Qatar are projected to suffer doubledigit contractions in 2026 of 11.3, 16.7 and 15.6 per cent respectively. Iraq and Iran were also downgraded sharply: Iraq is forecast to contract by roughly 16 per cent, while Iran faces an estimated 7.6 per cent decline amid tighter sanctions and a US naval blockade.

Saudi Arabia, by contrast, is expected to see a smaller hit because of its more diversified export routes. The fund now expects the kingdom to move from growth of 4.6 per cent last year to a 3.3 per cent contraction in 2026.

Oman stands out among the Gulf Cooperation Council states as the only GCC member forecast to post positive growth in 2026, with GDP estimated to expand by about 4.1 per cent. Under the IMFs baseline, once the shipping routes normalise and the Strait of Hormuz reopens, many oil exporters are expected to rebound in 2027. The fund assumes a gradual reopening from March 2027 and a return to prewar conditions by October, although it warns that uncertainty will remain elevated through next year.

If conditions evolve as the IMF expects, Bahrain, Kuwait and Qatar could see rebounds in 2027 of roughly 13.9, 17.1 and 18.8 per cent respectively. Saudi growth is projected to accelerate to about 7.9 per cent next year; the kingdoms own finance ministry has said it expects 12.8 per cent growth in 2027.

Not all countries in the broader region were downgraded. Importers and nonoil economies show greater resilience: Egypt is now forecast to expand by 5.1 per cent in 2026 (still more than eight percentage points below the IMFs April outlook), Morocco by 4.5 per cent and Jordan by 2.7 per cent. The fund did not publish projections for Lebanon.

The IMF flagged two opposing forces shaping the outlook. On the negative side, the Iran war has produced supply shocks particularly to energy and disrupted shipping through Hormuz. On the positive side, the fund highlighted a demand shock tied to an AI infrastructure boom that is supporting activity in parts of the global economy. But both trends are feeding inflationary pressure.

Global headline inflation, the IMF projects, will rise to about 4.7 per cent in 2026 before easing to roughly 4.1 per cent in 2027 a cumulative upward revision of about 0.7 percentage points relative to earlier expectations. Higher inflation is already pushing up borrowing costs in advanced economies at a time when public debt levels are elevated.

The fund warned that the interaction of high debt and higher financing costs increases fiscal risks. Global bond markets have reacted: the yield on the 10year US Treasury a global benchmark for borrowing costs recently traded at its highest level since 2002, and yields in Japan, France, Germany and the UK have hit multidecade highs. Pimco warned last week that the 10year Treasury yield could reach 6 per cent for the first time since 2000.

The IMF emphasised the need to move from coping to rebuilding: restoring fiscal space, strengthening supplyside resilience and ensuring that policies limit the harm to vulnerable households and firms. The timing of a recovery in Gulf output, the fund said, remains conditional on the normalisation of shipping routes and the reopening of the Strait of Hormuz.

Analysts, traders and policymakers will be watching tanker transit data closely. Kpler analytics showed confirmed Hormuz clearance at roughly 11.9 million barrels per day about 30 per cent below the prewar baseline though daily readings have swung widely. Recent weeks have seen a drop in vessels transiting the strait after a spike in tanker attacks; data showed only one tanker crossing on one recent Saturday, down from eight the day before.

The IMFs latest outlook underlines how geopolitical shocks to energy supply can reverberate across regional and global markets, widening growth divergences between commodity exporters and importers and complicating policy choices for central banks and fiscal authorities.