Middle East’s Economic Shock Deepens as Hormuz Closure Hits Gulf and AI Opens Doors

Regional growth excluding Iran could rebound to 7.8% in 2027 if the conflict subsides by the end of 2026, driven largely by recovering hydrocarbon production and exports.

The conflict that began in February 2026 is inflicting heavy economic losses across the Middle East, North Africa, Afghanistan and Pakistan, with the closure of the Strait of Hormuz placing the greatest burden on oil-exporting Gulf countries. The World Bank Group's latest regional update, From Divide to Opportunity: AI, Jobs, and Growth, projects regional output to contract by an average of 2.1% in 2026 after expanding 3.3% in 2025, as disrupted trade and growing uncertainty spread the damage across businesses, public finances and households.

Hormuz closure turns an energy shock into an export crisis

Oil exporters, which typically benefited from earlier energy shocks, are facing substantial losses in output and government revenue because the closure has reduced the volumes they can export. Gulf Cooperation Council economies are projected to contract by an average of 4.3%, reflecting the severity of this disruption. Oil-importing countries have shown greater resilience, with growth expected to rise from 3.9% in 2025 to 4.3% in 2026, revealing sharply different economic experiences across the region.

The consequences reach beyond energy, with tourism, aviation and logistics suffering setbacks and uncertainty weakening financial markets and business confidence. Shipping disruptions are increasing import costs and straining supply chains, pushing food prices higher and adding to inflation across much of the region. Fragile and conflict-affected economies face mounting pressure on existing vulnerabilities, with poverty increasingly concentrated in these countries; MENAAP remains the only region where poverty rose over the past decade as it declined elsewhere.

Recovery depends on ending the conflict and rebuilding capacity

Regional growth excluding Iran could rebound to 7.8% in 2027 if the conflict subsides by the end of 2026, driven largely by recovering hydrocarbon production and exports. That forecast depends on conditions improving, with damaged infrastructure, delayed investment and depleted government financial reserves capable of holding back growth beyond the immediate disruption. Sustained policy efforts will be needed to restore productive capacity and prevent the shock from leaving deeper economic scars.

Ousmane Dione, the World Bank's Vice President for MENAAP, stressed the importance of protecting vulnerable households and investing in more resilient energy and transport infrastructure. These measures would help limit lasting damage to people's skills, health, living standards and future economic opportunities. Building resilience and capacity now would strengthen countries' ability to benefit from emerging technologies, including AI, connecting the immediate work of recovery with the foundations needed for future growth.

AI could improve productivity across millions of working lives

The report describes several transformations unfolding at different speeds across the region, with AI's main near-term contribution expected to come from helping people perform their work more productively. Fewer than 10% of jobs face near-term automation risk, and between 13% and 20% have significant potential for productivity gains through AI assistance. Capturing those benefits requires addressing the poor representation of regional languages and data in global AI systems, low use of AI tools, gaps in skills and infrastructure, and limited private sector dynamism.

Roberta Gatti, the World Bank Group's Chief Economist for MENAAP, highlighted the potential to combine Gulf computing capacity, the region's linguistic richness and talent from middle-income economies into a regional AI ecosystem. Collaboration could bring together Saudi Arabia and the United Arab Emirates' experience in model development and governance with local data and talent from neighbouring countries. More vulnerable economies could adopt "Small AI", affordable tools built for specific tasks and basic mobile devices, to improve essential services and support local businesses, with stronger skills, infrastructure and institutions determining how widely these opportunities become available.