The World Bank said on Tuesday it now expects the UAE economy to contract by 1.6 per cent in 2026, a sharp reversal from the 6.2 per cent growth recorded in 2025. The downgrade, outlined in the bank's latest regional outlook, is attributed chiefly to the Iran war that began on February 28 and the temporary closure of the Strait of Hormuz.
Roberta Gatti, the World Bank's chief economist for the Middle East and North Africa, said Gulf oil production collapsed from 26 million barrels a day to 16 million by March as the conflict disrupted shipping and output. GCC economies are projected to contract by 4.3 per cent on average this year. Qatar faces its worst performance in five decades, with GDP expected to fall 20.9 per cent after gas infrastructure damage cut production by 67 per cent between March and July. Kuwait's economy is forecast to shrink 14.6 per cent, while Saudi Arabia is now projected to contract 2 per cent, down from 4.6 per cent growth in 2025.
Oil-importing economies in the region have fared better by comparison, with Egypt expected to grow 5.1 per cent and Morocco 4.4 per cent this year.
"This conflict is very painful and it has concentrated the losses of the conflict in our region while the global economy and other regions are upgrading their forecasts," Ms Gatti said.
The report underscores how, despite years of diversification efforts aimed at reducing oil dependence, the fallout from regional conflict continues to weigh heavily on the UAE's near-term economic trajectory, even as the country's non-oil sectors have shown resilience elsewhere this year.