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Oxford Economics slashed our 2026 growth forecast by 3.2 percentage points as the escalating US-Iran conflict takes its toll on trade and tourism, according to a research note (pdf). The escalation of the conflict has triggered an effective closure of the Strait of Hormuz, upending the UAE’s status as a global trade and tourism hub, the note says.
How is the UAE uniquely exposed to the strait’s effective closure? As the region’s second-largest oil exporter, the UAE’s alternative Habshan-Fujairah pipeline can only handle an additional 400k bbl / d, leaving some 1.7 mn bbl / d of production without alternative routes — unlike Saudi Arabia, which can pivot up to half of its exports to Red Sea ports, the note explains. This logistical bottleneck, combined with a sharp decline in luxury goods spending and reduced consumer confidence, makes the UAE one of the primary drags on regional growth.
This downgrade follows a recent downward revision from S&P Global, which cut the UAE’s growth forecast by 2.5 pps to 2.2%. The agency also slashed Abu Dhabi’s expected growth rate to 2.2%, down from the 5.3% recorded in 2025.
The GCC at large
Oxford Economics trimmed the wider GCC forecast by 1.8 pps to 2.6%, citing “lower oil production exports, tourism, and domestic demand.” We saw the second largest downgrade in the region after Qatar, which saw its forecast revised down 7.25 pps.
Things could look up next year: While growth is expected to hit 2.3% in 2Q 2026, a gradual recovery is anticipated in the second half of the year, “before catch-up growth starts in 2027,” for which the growth forecast has been raised by 1 pp.
The tourism hit: The sector, which is a major non-oil contributor to regional growth, is expected to see a big hit this year, with passenger arrivals expected to decline 11% this year, down 19 pps from pre-war estimates, as airspace closures and security concerns halt the Gulf stopover model.
The inflation forecast: Annual GCC inflation is now expected to come in at 2.5% this year, up 0.2 pps from previous estimate. While governments are regulating prices for essentials (fuel, dairy, meat), the prices of non-essential goods are expected to rise due to supply shortages and the higher costs associated with rerouting cargo around the conflict zone.
