World Bank: MENAAP Output to Contract 2.1% in 2026 as Hormuz Closure Hits Gulf Exporters

Conflict costs spread beyond energy

The conflict that began in February 2026 continues to impose serious economic costs across the Middle East, North Africa, Afghanistan, and Pakistan, according to the World Bank's latest regional economic update, published October 6, 2026. The report is titled From Divide to Opportunity: AI, Jobs, and Growth.

Unlike earlier energy shocks that typically benefited oil exporters, the closure of the Strait of Hormuz has imposed the largest costs on Gulf oil-exporting countries. Lower export volumes have translated into substantial losses in output and government revenues. The World Bank also cites setbacks in tourism, aviation, and logistics, with heightened uncertainty weighing on financial markets and business sentiment.

Diverging paths for exporters and importers

GCC economies are projected to contract by an average of 4.3%. Oil-importing countries have remained comparatively resilient, with growth projected to rise to 4.3% in 2026 from 3.9% in 2025.

Inflationary pressures are rising 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 World Bank says the shock is compounding longstanding vulnerabilities, and the region remains the only one where poverty levels rose in the last decade.

Recovery depends on conflict subsiding

If the conflict subsides by the end of 2026, regional growth excluding Iran is projected to rebound to 7.8% in 2027, driven largely by recovery of hydrocarbon production and exports. The World Bank cautions that recovery is not guaranteed and will require sustained policy efforts, with damaged infrastructure, postponed investment, and depleted fiscal buffers potentially weighing on growth.