Gulf Oil Exporters Hit Hardest as Middle East Conflict Further Weakens the Regional Economic Outlook
Longer term, artificial intelligence has the potential to boost regional productivity and growth, but structural gaps must be closed
The conflict that began in February 2026 continues to impose serious economic costs across the Middle East, North Africa, Afghanistan, and Pakistan (MENAAP), according to the World Bank Group’s latest economic update for the region.
Unlike previous energy shocks, which typically benefited oil exporters, the closure of the Strait of Hormuz has imposed the largest costs on oil-exporting Gulf countries.
The report, titled, ‘From Divide to Opportunity: AI, Jobs, and Growth,’ notes that even as the conflict slows growth, new opportunities continue to emerge, particularly in artificial intelligence, which holds the potential of boosting the productivity of up to 20 percent of the region’s jobs.
Regional output is projected to contract by 2.1 percent on average in 2026, after expanding 3.3 percent in 2025.
The repercussions extend beyond the energy shock, to setbacks in tourism, aviation, and logistics, while heightened uncertainty weighs on financial markets and business sentiment.
The economic impact has been most severe among oil exporters affected by the closure of the Strait of Hormuz, where lower export volumes have translated into substantial losses in output and government revenues.
The Gulf Cooperation Council (GCC) economies are projected to contract by an average of 4.3 percent.
In contrast, oil-importing countries in the region have remained comparatively resilient, with growth projected to rise to 4.3 percent in 2026 from 3.9 percent in 2025.
Inflationary pressures are on the rise across much of the region, particularly through higher food prices as shipping disruptions raise import costs and strain supply chains.
In fragile and conflict-affected economies, the shock is compounding longstanding vulnerabilities.
Poverty is increasingly concentrated in these economies, and MENAAP remains the only region in the world where poverty levels rose in the last decade while they declined elsewhere.
If the conflict subsides by the end of 2026, regional growth excluding Iran is projected to rebound to 7.8 percent in 2027, driven largely by the recovery of hydrocarbon production and exports.
However, a regional recovery is not guaranteed, and will require sustained policy efforts.
Damaged infrastructure, postponed investment, and depleted fiscal buffers could continue to weigh on growth long after the immediate shock has faded.
Protecting vulnerable households, restoring productive capacity, and investing in more resilient energy and transport infrastructure will be critical to ensuring that a temporary shock does not leave lasting losses in human capital, growth prospects and living standards.
Countries that are able to build up resilience and capacity now will be well positioned to take advantage of the opportunities of the future, particularly in artificial intelligence.
Ousmane Dione
World Bank Vice President for the Middle East, North Africa, Afghanistan and Pakistan
While policymakers confront the immediate consequences of conflict and economic disruption, the region must also prepare for a second, longer-term transformation: the rise of artificial intelligence. The region is experiencing not one transformation, but several unfolding at different speeds, according to the report.
AI’s primary effect in MENAAP is likely to come through augmentation to productivity rather than job losses due to automation. While less than ten percent of jobs in the region face near-term automation risk, between 13 and 20 percent, carry significant augmentation potential — raising productivity for workers and firms that can use these tools effectively.
Realizing AI’s promise, however, will require closing structural gaps, including the underrepresentation of the region’s languages and data in global AI systems, low usage of AI tools, and a foundational capital gap encompassing both human capital and infrastructure. Limited private sector dynamism is also a critical constraint.
The question is not whether AI will play a role in the region’s future, but whether countries can build the skills, infrastructure, and institutions needed to benefit from it. The region’s diversity provides an advantage.
The Gulf’s computing capacity, the region’s linguistic richness, and the talent found across middle-income economies together create an opportunity to build the foundation of a regional AI ecosystem.
Roberta Gatti
World Bank Group Chief Economist for the Middle East, North Africa, Afghanistan and Pakistan
The report points to regional collaboration on AI as a major opportunity for MENAAP, with AI leaders like Saudi Arabia and the United Arab Emirates sharing their experience in model development and governance, middle-income countries contributing talent and local data, and more vulnerable economies adopting “Small AI” – purpose-built, affordable tools designed to operate on basic mobile devices – to improve basic services and help local businesses.