How the Hormuz crisis is dividing the MENA infrastructure market’s fortunes

MENA construction is heading for its sharpest contraction in years — and the pain is very uneven. Construction gross value added (GVA) across the Middle East and North Africa is estimated to shrink 3.3% in real terms in 2026, reversing a pre-war forecast of 3.2% growth, according to a report from BMI, Fitch Solutions’ research arm, seen by EnterpriseAM. The US-Iran conflict and the effective closure of the Strait of Hormuz are feeding into construction through four channels: direct attack-related disruptions, supply-chain pressure, weakened public investment capacity, and softer private-sector demand, BMI says.

The headline number obscures a growing split: BMI sees the GCC contracting 6.2% in aggregate, with Bahrain (-10.2%), Qatar (-9.7%), and Kuwait (-7.6%) the worst hit, followed by the UAE (-6.8%) and Saudi Arabia (-4.7%). North Africa, by contrast, keeps growing at 2.2%, shielded by continued access to global trade routes and the absence of direct attacks.

The dividing line is Hormuz dependence, not market size. “The risk of supply chain disruptions to projects is most pronounced in markets such as Bahrain, Qatar, Kuwait, and to a lesser extent the UAE,” BMI Head of Infrastructure Research Matteo Addonizio tells EnterpriseAM. Oman is the GCC outlier, contracting just 2.2% — its Gulf of Oman ports give it alternative sea-lane access, and it has faced fewer direct disruptions.

The UAE paradox

The UAE remains MENA’s top-ranked infrastructure market, which is precisely why its pullback is so telling. BMI ranks the UAE first regionally and sixth globally with an RRI score of 32.3, reflecting deep financial markets, experienced contractors, and strong foreign investor participation. But the UAE also saw the sharpest equity pullback among GCC markets since the conflict began — a function of its unusually large base of mobile foreign capital. “It has particularly high reliance on foreign investment precisely because of its attractiveness as an investment destination,” Addonizio tells EnterpriseAM.

Attractiveness and exposure are two sides of the same coin: “The market’s attractiveness remains despite the challenges faced since the start of the conflict in February,” but that view depends on a sustained recovery in Hormuz shipping and a calming of regional tensions, Addonizio says. “There are certainly risks to the market's attractiveness for private investment in infrastructure over the medium term,” he adds, if those conditions don't come together.

Egypt: best growth story, worst risk profile

Egypt is at the other end of the risk-reward spectrum among top-performing markets. BMI gives it MENA’s best Industry Rewards score (20.1 out of 100), reflecting its large construction market and deep project pipeline, but its Risks score of 65.1 is dragged down by weak contract frameworks, high labor-market risk, and elevated country-level macroeconomic exposure.

The near-term picture has deteriorated. BMI has cut Egypt's FY2025-26 construction growth forecast to 0.4% from 5.6%, after the sector contracted 0.3% y-o-y in 1H 2025-26. Interest rates above 20%, rising steel and cement costs compounded by energy subsidy reforms, skilled-worker migration to the Gulf, and a government pulling back from infrastructure spending to manage debt in line with IMF commitments are all stacking pressures. The conflict is compounding, not causing, the problem: Elevated energy prices and risk-off sentiment are softening the Gulf-backed FDI Egypt’s megaproject pipeline — New Administrative Capital, Ras El Hekma, industrial zone expansions — depends on.

The medium-term view is still positive: BMI projects annual average real growth of 6.0% between FY 2027-28 and FY 2030-31. But the downside risks are material — a re-escalation would hit Egypt through energy import costs, portfolio outflows, weaker tourism, reduced Suez Canal revenues, and softer GCC investment.

What to watch

Everything hinges on the one variable we all know. “The key factor that we need to see is a sustained normalisation of trade through the Strait of Hormuz,” Addonizio says, noting it will be critical both for supply chain relief and for the oil and gas revenues that fund government spending capacity.

BMI's base case assumes a preliminary US-Iran agreement by the end of June, with the worst construction impacts contained within 2026 — and so far that’s what we have now. In this scenario, the GCC would rebound 6.0% in 2027, and MENA construction GVA would grow 5.1%. But BMI's Country Risk team assigns a 45% probability to escalation.

And even the base case is not a snapback. Shipping takes months to normalize and input-cost inflation won’t cool down right away. Meanwhile, private capital is expected to remain cautious on some projects. Infrastructure is defined by long-term commitments, Addonizio notes, which should insulate from immediate capital flight, but that would mean “increased caution toward large-scale projects through 3Q and potentially beyond, in particular impacting projects which have yet to start construction.”