Growth across the Middle East, North Africa, Afghanistan and Pakistan (MENAP) region is set to slow sharply in 2026 following the economic shock triggered by the recent US–Israel–Iran war, the International Monetary Fund has warned.
Unveiling the IMF’s April 2026 Regional Economic Outlook, Jihad Azour, Director of the Middle East and Central Asia Department, said regional growth is now projected at just 1.4% in 2026 — a steep downgrade of 2.3 percentage points from the October forecast.
“To put this in context, it’s among the largest six-month downgrades to regional growth projections we have made since the global financial crisis,” Azour said during a briefing.
War Shock Reverberates Across Key Economic Arteries
The downturn follows the outbreak of war on February 28, which the IMF described as a “severe and multifaceted shock” to one of the world’s most critical economic corridors.
At the heart of the disruption lies the Strait of Hormuz, a vital artery for global energy flows. The conflict brought activity in the strait close to a standstill, disrupting roughly one-fifth of global oil supply and over a quarter of LNG shipments.
Oil and gas production fell by an estimated 13 million barrels per day amid strikes and precautionary shutdowns. Brent crude surged past $100 per barrel, peaking at $118 before easing after the ceasefire announcement. Meanwhile, European gas prices jumped by about 60%, exceeding the spike seen after the Russian invasion of Ukraine.
Uneven Impact, Deep Scars
The IMF highlighted stark disparities across the region. Conflict-affected oil exporters — five out of eight economies — are now expected to contract in 2026.
Qatar saw the steepest downgrade, with growth revised down by nearly 15 percentage points due to extensive infrastructure damage. In contrast, Oman faced only a modest revision, largely because its maritime access lies outside the Hormuz chokepoint.
For oil-importing economies, pressures are mounting rapidly. Higher energy costs, weakening remittances, and tighter financial conditions are compounding vulnerabilities at a time when fiscal buffers are already thin.
Financial Strain and Rising Risks
Financial markets have also come under stress. Sovereign spreads widened by 50 to 100 basis points across several countries in March before stabilising following the ceasefire. However, the IMF warned that borrowing costs remain elevated, with capital outflows affecting economies with limited policy space.
Low-income and fragile states are bearing the brunt of the crisis. In countries such as Yemen, Sudan and Somalia, food imports already account for up to half of total imports, and more than half the population faces food insecurity.
Rising commodity prices — exacerbated by disruptions in fertilizer trade through Hormuz — risk widening current account deficits, depleting foreign reserves, and intensifying social pressures.
Trade, Services and Confidence Hit
Beyond energy, the war has disrupted multiple sectors. Air traffic dropped sharply, maritime insurance costs surged, and shipping routes lengthened, weakening global logistics chains.
The IMF noted that the conflict has undermined three critical pillars of regional stability: energy markets, trade routes, and business confidence.
Outlook: Fragile Recovery, Downside Risks
Prior to the conflict, the MENAP region had been on a relatively strong footing, with growth gaining traction, inflation easing, and non-oil sectors performing well. That progress, the IMF said, has now been “sharply reversed.”
“The uncertainty around our projection is high, and risks are firmly tilted to the downside,” Azour cautioned.
The Fund added that the full economic impact of the conflict is still unfolding, warning that prolonged instability could further derail growth prospects across the region and beyond. - TradeArabia News Service
