IMF Warns Gulf Economies Will Not Return to Pre-War Growth Soon
The International Monetary Fund warned on Thursday that the energy-rich economies of the Gulf will not return to their pre-war growth path in the medium term, delivering one of its bluntest assessments yet of the economic damage from months of fighting across the Middle East. IMF regional director Jihad Azour told reporters the conflict would leave lasting scars on trade, infrastructure and investment.
The imf gulf economies warning comes as the Fund projects a widespread contraction in Gulf economies this year, following a war that began in Iran and has since spread to Saudi Arabia and Yemen. Maritime energy traffic through the region remains disrupted, and attacks on energy facilities continue.
What Azour told reporters
“We will not go back to the pre-war trajectory in the medium term because this shock will have a scarring impact on various sectors and also will disrupt a certain number of infrastructure, and will require additional spending in order to increase resilience,” Azour said.
The remarks were made on Thursday, with the Fund’s projection pointing to a rare recession for the Gulf kingdom, long buffered by robust energy exports.
IMF chief Kristalina Georgieva added her own caution on Wednesday, warning that the continuing attacks on Saudi Arabia could affect people “everywhere” as energy markets absorb the shock.
Why the IMF’s Gulf economies warning matters
Country-by-country projections underline how uneven the damage is. The smaller Gulf producers face the steepest declines: the Fund expects double-digit contractions for Kuwait, Iraq, Qatar and Bahrain in 2026, with figures running as deep as 15 to 16 per cent for Kuwait, Qatar and Iraq. Saudi Arabia and the United Arab Emirates are projected to shrink 3.3 and 3.9 per cent respectively, while Oman is the sole Gulf economy expected to stay in positive territory, with growth of about 4.1 per cent.
The recovery forecast for 2027 is sharp, but it rests on a single assumption: that the Strait of Hormuz reopens and production, exports and logistics normalise. Azour’s warning was aimed precisely at that assumption. Even if the fighting stops, damaged infrastructure, broken supply chains and higher defence and resilience spending will keep growth below its old trend for years.
The immediate backdrop explains the urgency. A battle between a Saudi-led coalition and Yemen’s Houthis has escalated in recent days, with fatal missile strikes hitting airports, energy facilities and the headquarters of state oil giant Aramco. The Houthis have also vowed further attacks on Saudi airports and oil installations.
What it means for Pakistan
Pakistan watches the Gulf slowdown closely, and for good reason. Millions of Pakistanis work in the Gulf states, and their remittances are a mainstay of the country’s foreign-exchange inflows. A prolonged downturn in Saudi Arabia, the UAE, Qatar and Kuwait raises questions about the job market and pay conditions facing those workers.
Pakistan also buys a large share of its fuel and liquefied natural gas from the region. Oil prices settled 20 to 40 per cent above pre-conflict levels, and another leg higher would feed directly into Pakistan’s import bill and domestic inflation, which is already expected to approach double digits this fiscal year.
The maritime picture is no more reassuring. Two more vessels sank near the Strait of Hormuz this week after being hit by projectiles, the second and third sinkings since the war began in February. With the Strait still effectively closed to normal traffic, the shipping lane that once carried a fifth of the world’s maritime oil trade remains a chokepoint for the global economy.
FAQ
What did the IMF say about Gulf economies?
IMF regional director Jihad Azour said Gulf economies will not return to their pre-war growth trajectory in the medium term, warning of lasting scars to sectors, infrastructure and investment that will require extra spending on resilience.
Which Gulf economies are hit hardest?
Kuwait, Iraq, Qatar and Bahrain face double-digit contractions in 2026, with declines of up to 16 per cent. Saudi Arabia is projected to shrink 3.3 per cent and the UAE 3.9 per cent. Oman is the only Gulf economy expected to keep growing, at about 4.1 per cent.
When does the IMF expect a recovery?
The Fund projects a strong rebound in 2027, but only if the Strait of Hormuz reopens and production, exports and logistics normalise. Azour’s warning signals that even a ceasefire may not restore the old growth path.
How does this affect Pakistan?
A slower Gulf threatens remittance inflows from millions of Pakistani workers in the region and keeps Pakistan’s fuel import bill high. Both are pressure points for the rupee and for inflation at home.
