IMF Slashes MENA Growth to 1.1% as War Disrupts Gulf Energy Exports

The International Monetary Fund's April 2026 World Economic Outlook, published on April 14, delivered the starkest assessment yet of the economic cost of the US-Iran war. The fund cut its MENA growth forecast by 2.8 percentage points to 1.1% for 2026 — the largest regional downgrade in the report — citing the closure of the Strait of Hormuz and damage to critical energy infrastructure as the primary drivers.

For GCC sovereigns, the damage varies significantly by exposure. Saudi Arabia's 2026 GDP growth forecast was cut from 4.5% to 3.1%, and the UAE's was similarly revised down to 3.1%. Both are still expected to expand, underpinned by large sovereign buffers and non-oil diversification. The bleaker picture sits with Bahrain, Iraq, Kuwait, and Qatar, which the IMF now projects will contract outright in 2026 — a sharp reversal for economies that entered the year with solid momentum.

Global Spillovers

Global growth was revised down to 3.1% for 2026, from a pre-war baseline that the IMF had been preparing to upgrade to 3.4% on the back of easing trade tensions and strong tech-sector gains. The fund's Managing Director noted that higher oil and gas prices, along with surging costs for diesel, jet fuel, fertilizer, aluminum, and helium, are exporting an inflationary shock far beyond the immediate conflict zone.

Iran absorbed the report's most dramatic country-level revision — a 7.2 percentage point cut that flips its 2026 outlook from modest growth to a 6.1% contraction. For GCC equity investors, the operative signal is that Saudi Arabia and the UAE retain positive growth trajectories even in the IMF's base case, which assumes the conflict remains contained and does not escalate into a prolonged multi-year disruption.

The IMF's downside scenario — which models a deeper and longer war — sees MENA growth turning sharply negative. That tail risk, not the base case, is what equity markets need to price. TASI has already shed more than 10% since April 2, suggesting markets are already pricing something between the base and the downside. The IMF report gives that discount a macro anchor it previously lacked.