IMF warns gulf economies face long recovery after Iran war

The International Monetary Fund (IMF) has warned that Gulf economies may take years to recover from the economic damage caused by the Iran war, as escalating fighting involving Saudi Arabia and Yemen’s Houthis continues to disrupt energy supplies, damage infrastructure and weaken regional growth.

IMF Middle East and Central Asia Director Jihad Azour said on Thursday that although energy-rich economies were expected to recover eventually, they were unlikely to return to their pre-war growth trajectory in the medium term.

“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,” Azour told reporters.

He added that damage to infrastructure and the need for additional spending to strengthen economic resilience would further complicate recovery efforts.

The warning comes as the conflict, which began in Iran and subsequently spread to Saudi Arabia and Yemen, continues to threaten regional stability. Maritime energy traffic remains disrupted, adding pressure to global energy markets and raising concerns about the wider economic consequences of a prolonged war.

The IMF’s latest projections paint a difficult picture for the Middle East and Central Asia, a region heavily exposed to the conflict. The organisation expects the regional economy to contract by 0.3 per cent in 2026, reflecting the combined impact of fighting, disrupted trade and uncertainty over energy supplies.

Saudi Arabia faces an even sharper downturn. The IMF projects that the kingdom’s economy will shrink by 3.3 per cent this year, pointing to a rare recession for a country that has traditionally benefited from substantial energy exports.

The outlook highlights the vulnerability of Gulf economies to prolonged disruptions in oil production, shipping routes and critical infrastructure, despite their considerable energy resources.

The situation has deteriorated in recent days as fighting between the Saudi-led coalition and Yemen’s Houthis intensified. Deadly missile strikes have hit airports and energy facilities, while attacks have also targeted the headquarters of Saudi state oil giant Aramco, according to the report.

The escalating violence has heightened concerns about the security of vital energy infrastructure and the potential for further disruption to international oil supplies.

On Wednesday, IMF Managing Director Kristalina Georgieva warned that continued attacks on Saudi Arabia could have consequences far beyond the Middle East, affecting people and economies around the world.

The economic risks were also under discussion in Bangkok this week, where officials and experts examined challenges facing the global economy, including persistently high energy costs and uncertainty surrounding the sustainability of the artificial intelligence boom.

For Gulf countries, the immediate challenge is not simply restoring economic growth but repairing damaged infrastructure, maintaining investor confidence and preparing for further shocks.

Azour’s warning suggests that even if the fighting subsides, the region may face a prolonged recovery, with the economic consequences of the war extending well beyond the end of active hostilities.