IMF slashes MENA growth as Hormuz closure disrupts oil and shipping

Growth in the Middle East and North Africa is set to contract 3.8% in 2026 before rebounding next year to an 8.0% clip, as the Gulf war disrupts hydrocarbon production, shipping, and economic activity, according to the IMF’s October 2026 World Economic Outlook (pdf). The Fund cut its 2026 MENA growth forecast by 4.8 percentage points from April, while raising its 2027 projection by 3.1 points.

The IMF updated its forecasts almost at the last minute to reflect higher oil prices, IMF Deputy Director of Research Petya Koeva Brooks said at the WEO press briefing in Bangkok. Risks remain tilted to the downside, particularly for Gulf exporters, where the shock is also spilling into non-oil activity.

What’s driving the downturn? The closure of the Strait of Hormuz has disrupted a route that carried around 20 mn barrels of oil daily before the war — roughly a quarter of global maritime oil trade. Infrastructure damage, shipping restrictions, and higher freight and ins. costs have curtailed exports and weighed on tourism and transport.

Refinery outages and damage in the Gulf and Russia have removed an estimated 20% of internationally traded refined oil product supply, leaving prices 70-95% above prewar levels. Diesel and gasoline face particularly severe pressures.

Gulf economies face steep contractions: Oil exporters in the IMF's broader Middle East and Central Asia grouping are expected to shrink 3.8% this year before growing 7.4% in 2027. Higher oil prices are not enough to offset lost production and exports.

Kuwait’s economy is forecast to contract 16.7% in 2026 before rebounding 17.1% next year. Iraq is expected to shrink 16.0% before growing 19.0%, Qatar to contract 15.6% before expanding 18.8%, and Bahrain to shrink 11.3% before recovering 13.9%.

Saudi Arabia and the UAE face smaller contractions of 3.3% and 3.9%, respectively, followed by growth of 7.9% and 7.7% in 2027. Saudi Arabia benefits from alternative oil export routes, although the IMF warned that non-oil activity is also slowing in some Gulf economies.

Elsewhere, Oman (+4.1%), Algeria (+3.8%), and Libya (+3.3%) are expected to grow this year, while Iran is forecast to contract 7.6%, with inflation reaching 78.6%.

Oil importers are holding up better: The IMF forecasts 4.7% growth in both 2026 and 2027 for importers in its broader Middle East and Central Asia grouping, compared with 4.3% in 2025. The Fund had modestly upgraded the outlook, citing resilient domestic demand, remittances, and tourism, despite higher energy and food import bills, IMF Director of Research Silvana Tenreyo said.

Egypt’s growth forecast has been upgraded for both 2026 and 2027, driven by recovering Suez Canal activity and oil-related sectors, the IMF official said at the briefing. The Fund expects growth of 5.1% this year, up from 4.4% in 2025, before slowing to 4.7% in 2027 as the delayed impact of the Gulf conflict weighs on activity. Risks remain tilted to the downside, including from further regional shipping disruptions.

Egyptian inflation is forecast to ease from 20.4% in 2025 to 13.3% this year before rising to 14.8% in 2027. The current account deficit is projected to widen from 4.2% of GDP in 2025 to 4.4% this year and 4.9% next year.

Morocco is expected to grow 4.5% in 2026 and 4.2% in 2027, Jordan 2.7% and 3.1%, and Tunisia 2.4% and 2.0%, respectively.

Hormuz reopening scenarios: The IMF’s baseline assumes reopening will begin in March 2027, with conditions broadly returning to prewar levels by October 2027. This is a forecasting assumption, not a prediction of when the war will end. The Fund assumes average oil prices of USD 95.74 / bbl in 2026 and USD 87.39 in 2027.

What if the conflict drags on? In a downside scenario with hostilities continuing through June 2027 and further infrastructure damage, oil prices reach USD 130 per barrel in late 2026 and early 2027. OPEC production falls 22% below the 2027 baseline. Combined with tighter financing conditions and higher inflation expectations, the scenario would cut global growth by 0.5 percentage points and raise inflation by 1.1 points in 2027.

The global economy’s resilience has limits: Higher production outside the Gulf, inventory drawdowns, alternative supplies, and energy efficiency have cushioned the shock. Without these adjustments, global growth would have been 2.5% rather than the projected 3.1% in 2026, IMF Economic Counsellor Silvana Tenreyro said. But inventories and other buffers are running thin.

AI-related investment and trade have also supported global growth, although the benefits are concentrated in technology supply chains, leaving many energy importers more exposed to the shock.

What does the IMF recommend? Temporary, targeted support for vulnerable households rather than broad subsidies, rebuilding fiscal buffers, and strengthening energy security. Central banks should keep inflation expectations anchored while weighing the impact of higher prices on economic activity.

MARKETS THIS MORNING-

Asian markets were in the green in early trading. South Korea’s Kospi was up around 1%, and Japan’s Nikkei was up roughly 0.4%. US equities were broadly in the red.

THE CLOSING BELL: TADAWUL-

The TASI rose 0.3% yesterday on turnover of SAR 3.3 bn. The index is down 1.6% YTD.

In the green: Saudi Fisheries (+10%), Watani Iron Steel (+9.9%), and Jarir Marketing (+8.2%).

In the red: Tanmiah Food (-6.6%), Etihad GO Telecom (-5.6%), and Al Masar Al Shamil Education (-3.7%).

THE CLOSING BELL: NOMU-

The NomuC rose 0.4% yesterday on turnover of SAR 17.8 mn. The index is down 5.4% YTD.

In the green: Almuneef Company for Trade, Industry, Agriculture and Contracting (+14.5%),

Twareat Medical Care (+8.4%), and Group Five Pipe Saudi (+7.1%).

In the red: Knowledge Tower Trading (-10%), National Signage Industrial (-8%), and Alhasoob (-6.8%).