Prolonged conflict could drag Saudi growth to 2% as BMI slashes GCC outlook

Our 2026 economic outlook is getting dimmer the longer the war drags on: The Kingdom’s GDP growth could slow to 2-2.2% in 2026 if the US-Iran war extends through May without a breakthrough, BMI MENA Country Risk Senior Analyst Mariette Kas-Hanna said in a webinar attended by EnterpriseAM. That’s a sharp downgrade from a pre-conflict forecast of 4.8%, which would have marked the Kingdom’s fastest expansion since 2022.

BMI’s outlook is more pessimistic than the IMF, which pegged Saudi Arabia to grow 3.1% this year.

The neighborhood isn’t doing much better: GCC growth estimates for 2026 have been slashed to 1.9%, down from a pre-conflict estimate of 4.8%. The broader Mena growth outlook has also been revised down by 2.9 percentage points to just 1%, making it “the slowest-growing region globally,” Kas-Hanna noted. The IMF is on the same page with a 1.1% forecast for Mena.

It all comes back to Hormuz and its spillover: Kas-Hanna attributed the revision mainly to the region’s heavy exposure to the Strait of Hormuz. “Any sustained disruption [of the Strait] would affect not only energy exports but also non-energy exports, re-exports and imports,” she said. While energy flows may recover relatively quickly, non-hydrocarbon trade could take longer, adding inflationary pressure and potentially causing shortages of key industrial inputs and capital goods, which may disrupt sectors like construction.

BUT- Our oil production offers some cushion: Despite the downgrade, Saudi Arabia remains an outlier, with output down some 23% in March as it rerouted exports through the East-West pipeline, preserving some hydrocarbon revenue, said Fitch’s Head of Mena Country Risk Ramona Moubarak. By comparison, production fell nearly 61% in Iraq and around 50% in Kuwait and Bahrain due to reliance on the Strait of Hormuz, while the UAE saw a 45% drop but maintained some exports via the Fujairah pipeline.

MENA at a standstill: The broader MENA growth outlook has been dragged down by 2.9 percentage points to just 1%, “making it the slowest growing region globally,” Kas-Hanna noted. This aligns closely with recent IMF projections placing MENA growth at 1.1%, though the Fund remains more optimistic about the UAE, forecasting 3.1% growth.

The regional outlook is currently split between a 55% “extend to end” base case and a 45% “extend to escalate” scenario, Moubarak explained. Under the base case, hostilities are contained through April, leading to a diplomatic framework as both the US and Iran seek to avoid the structural costs of a full-scale war, and Brent would average about USD 78 / bbl.

In a more severe escalation scenario, oil prices could spike to as high as USD 150 / bbl in a “level 3” case involving an uncontrolled, prolonged war that inflicts structural damage on energy infrastructure. Under “level 1” and “level 2” scenarios, which would see Houthi-led disruptions in Bab Al Mandeb and temporary closures of key maritime chokepoints, prices would likely range between USD 115-130 / bbl, Moubarak explained.