Middle East Economy Contracts Sharply Amid Strait of Hormuz Closure; Saudi Arabia Shows Resilience

The global economy faces a divided outlook, with the Middle East and North Africa region experiencing a significant downturn due to the prolonged closure of the Strait of Hormuz amid the Iran war. The International Monetary Fund's latest World Economic Outlook projects a 0.5% contraction for the region in 2026, marking one of its worst performances this century.

Major oil producers like Iraq, Kuwait, and Qatar are expected to face sharp contractions this year due to disrupted supply logistics and reduced energy production. The IMF forecasts a strong regional rebound in 2027, contingent on the gradual reopening of the Strait of Hormuz, which is anticipated to begin in mid-July and return to normal by March 2027. This recovery is described as "V-shaped" by Deniz Igan, head of the IMF's research department.

In contrast, Saudi Arabia has emerged as a resilient economy, largely due to its development of alternative logistics networks. While the IMF lowered its 2026 growth forecast for the Kingdom to 1.7%, it significantly raised the projection for 2027 to 5.5%, defying the bleak regional trend. This strategic adaptation has protected Saudi Arabia's economic momentum.

Globally, growth is projected at 3% for the year, buoyed by investments in artificial intelligence and U.S. tax cuts. However, the energy shock from the conflict has caused prices to surge 25% to 32% above pre-war levels, halting two years of progress in combating inflation. The IMF has consequently raised its global inflation forecast for 2026 to 4.7%.

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V-shaped