Economies of the Gulf Cooperation Council (GCC) are expected to contract by a collective 0.2% this year, according to new analysis from ICAEW in partnership with Oxford Economics. The dip is forecast to play out against a backdrop of diminished prospects for the broader Middle East, given a sharp rise in geopolitical tensions stemming from the war in Iran.

As noted in their joint Economic Insights Q1 2026 report, it is just three months since the researchers tipped the Middle East for a 3.6% growth surge this year, based on an estimated 3% gain achieved in 2025. Now, though, the regional outlook is far more subdued – revised down to a 2.2% slump.

Constraints on energy production will persist at least until the end of April and will only partially ease during May and June. But a more drawn-out conflict in Iran would worsen economic impacts in both the Middle East and the world at large.

That said, the report acknowledges that those projections sit within a context of significant uncertainty. Ultimately, outcomes will hinge on how the situation develops throughout the coming weeks.

In its assessment of key GCC industry sectors, the report sets out the following forecasts.

1. Energy markets have been hit hard and fast

Upheaval in this field will create the biggest immediate impact for the GCC, outweighing any benefits felt from higher energy prices.

In the wake of attacks on regional energy infrastructure and severe disruption to shipping through the Strait of Hormuz, Brent oil has traded above $100pb since mid-March. A revised baseline forecast assumes that the price will average $113pb during Q2 and will not settle down to a pre-crisis level before 2028.

Amid a prolonged halt in Qatar’s liquefied natural gas production, the gas markets face a sharper shock, with prices across key benchmarks around 60% above the baseline that the researchers set three months ago.

In light of security risks and prohibitive insurance costs, transit through the Strait has been significantly marred and looks unlikely to start recovering before May, with trade disruption easing gradually throughout the rest of 2026. While GCC oil sectors will decline by 5.8% this year, the analysis projects “a strong pickup” of 18.2% in 2027.

2. Travel and tourism damage could be long term

Economic damage in these sectors – described as “growth engines” of recent years – is likely to linger for longer than it will in the energy field. Airspace closures and widespread flight cancellations arising from the Iran conflict are disrupting regional and global travel alike.

While flights are slowly recovering across the region, early estimates from the researchers’ Tourism Economics team suggest that arrivals to the Middle East are set for a year-on-year decline anywhere from 11-27% this year, wiping out a December baseline that projected 13% growth.

In absolute terms, the report notes, that equates to 23-38m fewer international visitors, and an accompanying loss in visitor spending of $34-$56bn. Recovery will follow only as regional stability returns and travel confidence rebuilds.

3. Consumer spending is forecast to be lower

With anticipations of a rise in precautionary savings amid higher inflation and reduced sentiment, the report revises down the previously upbeat outlook for consumer spending in the GCC.

That means the 2026 forecast for household consumption growth has been cut by 2.6ppt compared to three months ago, to a level of 1.4%. At the same time, they have raised their 2027 projection by 2ppt to 6%.

Softer domestic demand momentum in the GCC will limit growth across non-energy sectors to just 0.1% this year (4.2% three months ago) before rising again to 6.4% in 2027 (previously 4.0%).

4. Property and investment should not significantly slow

In the near term, security concerns will drive greater business and investor caution, leading to a moderation in real-estate activity, particularly in more internationally exposed markets, such as Dubai.

However, the researchers foresee no permanent damage to GCC’s attractiveness as a global business and investment hub. Eventually, they believe, the Iran conflict will spur increased government spending efforts in strategically important sectors, such as AI and technology, financial services and healthcare.

As investors seek compensation for the rise in geopolitical risk, financial conditions have tightened for now. While that may deter some private foreign direct investment in the short term, the region’s structural investment case is strong enough to warrant a swift recovery.

The trajectory looks uncertain

Overall, the researchers expect no lasting damage from the war to the GCC’s strong credit profiles and financing prospects. Once the outlook settles, gulf sovereigns and government-affiliated entities will likely return to global debt markets to raise funds for long-term development plans.

Elsewhere in the Middle East, though, the picture is different. The Iranian economy faces a sharp contraction, estimated at 9.4% this year, and an uncertain post-war political trajectory. Under most conflict scenarios, damage to Iran’s oil facilities points to reduced production for the remainder of 2026, while non-oil sectors also face severe disruption from war.

Meanwhile, Lebanon faces renewed Israeli strikes, occupation in the south of the country and forced displacement of 20-25% of the population. All of those factors threaten its recovery prospects this year.

ICAEW Regional Director of MEASA Hanadi Khalife says: “Recent regional developments have created a more challenging near-term environment for GCC economies, with disruption to energy trade and softer confidence weighing on activity. While this has placed pressure on growth in the short term, the region’s underlying fundamentals remain strong, supporting a recovery as conditions stabilise.”

Oxford Economics Head of GCC Macroeconomic Analysis Azad Zangana, adds: “The impact across the GCC reflects differences in economic structure and exposure to external demand. While energy markets are anticipated to recover as trade flows normalise, sectors such as tourism may take longer to recover, which could weigh on diversification momentum in the near term. The strength of the rebound will depend on how quickly stability returns and confidence is restored.”