The war in the Middle East and the closure of the Strait of Hormuz will push the Middle East and Central Asia region into contraction this year, with several Gulf oil producers facing double-digit declines, the International Monetary Fund said on Tuesday.

In its October 2026 World Economic Outlook, the IMF projected growth in the Middle East and Central Asia at minus 0.3 per cent in 2026, before a rebound to 6.3 per cent in 2027. The region grew 3.7 per cent in 2025.

Relative to the April projection, the Fund said, "this is a downward revision of 2.2 percentage points for 2026 and an upward revision of 1.7 percentage points for 2027, consistent with a longer closure of the Strait of Hormuz, compared with the baseline assumptions in the April WEO, and a corresponding larger rebound after the Strait reopens.”

The steepest falls are in the smaller Gulf producers. The IMF said Bahrain, Iraq, Kuwait and Qatar, "commodity producers most affected by disruptions to energy output and transport", are projected to see "double-digit contractions of their economies in 2026, followed by double-digit expansions in 2027 as production, exports, and logistics normalize.”

According to the report's tables, Kuwait's economy is projected to shrink 16.7 per cent in 2026, Iraq's 16.0 per cent, Qatar's 15.6 per cent and Bahrain's 11.3 per cent.

The rebound forecast for 2027 is equally sharp: 19.0 per cent for Iraq, 18.8 per cent for Qatar, 17.1 per cent for Kuwait and 13.9 per cent for Bahrain.

"Saudi Arabia is somewhat less affected, as an economy with more diversified export routes, with a projected contraction of 3.3 percent in 2026 and growth of 7.9 percent in 2027," the WEO said. The kingdom grew 4.6 per cent in 2025.

The United Arab Emirates is projected to contract 3.9 per cent in 2026 and grow 7.7 per cent in 2027. Oman bucks the trend, with growth projected at 4.1 per cent this year.

Iran's economy is projected to shrink 7.6 per cent in 2026, with inflation forecast at 78.6 per cent. The IMF said Iran's growth in 2026 "is revised downward amid resumed military exchanges, the reimposition of the naval blockade, and enhanced sanctions.”

The report described the scale of the shock. The closure of the Strait of Hormuz, it said, disrupted "a transit route through which about 20 million barrels of oil, or roughly a quarter of the world's maritime oil trade, flowed each day prior to the start of the war.”

It said "Persian Gulf producers redirected some supply to other ports, while production outside the Gulf rose by 2 million barrels a day.”

The WEO said oil prices "almost doubled in the early months of the conflict" before settling "only 20 percent to 40 percent higher than those before the conflict.”

The Gulf's exposure also limits its share of the artificial intelligence boom. The report said spillovers from technology exports would reach some commodity exporters, "although for Gulf oil exporters this will depend critically on the normalization of maritime trade.”

India, whose growth forecast the IMF raised to 7.0 per cent, was singled out as an exception. The Fund said medium-term downgrades were concentrated among economies "directly affected by the conflict in the Middle East and energy-importing emerging market and developing economies elsewhere, excluding India.”

The WEO warned that "a prolonged stalemate or further escalation in the Middle East or Ukraine could make commodity prices higher and more volatile for longer.”