Washington: The World Bank has warned that the continuing Middle East conflict is imposing significant economic costs across the Middle East, North Africa, Afghanistan and Pakistan region, with Gulf oil-exporting economies facing particularly severe pressure.

The World Bank’s latest regional economic update projects that overall regional output will contract by 2.1% in 2026, compared with growth of 3.3% in 2025. The assessment points to disruptions in energy supplies, shipping, tourism, aviation and logistics as major factors behind the weaker outlook.

The closure of the Strait of Hormuz has created an unusual situation for Gulf oil exporters. Unlike previous energy shocks, when higher energy prices often benefited producing countries, the current disruption has reduced export volumes and placed pressure on production and government revenues.

The World Bank estimates that economies belonging to the Gulf Cooperation Council (GCC) could contract by an average of 4.3% in 2026. The impact is being felt through reduced hydrocarbon exports as well as weaker activity in sectors dependent on trade and international travel.

The economic consequences are not limited to oil markets. Shipping disruptions have increased transportation and import costs, contributing to inflationary pressure, particularly for food and other essential goods.

Oil-importing economies in the region are showing comparatively stronger growth. The World Bank projects growth of 4.3% in 2026, up from 3.9% in 2025, although these economies remain exposed to higher energy, transport and import costs.

The conflict is also affecting business confidence and financial markets. Uncertainty surrounding the duration and geographical spread of the conflict can influence investment decisions, tourism activity and government planning.

For countries already affected by conflict and economic fragility, the latest shock could deepen existing problems. The World Bank has highlighted the concentration of poverty in fragile economies and the risk that prolonged disruption could create lasting setbacks.

Despite the difficult short-term outlook, the institution sees potential for a strong recovery if the conflict subsides. Excluding Iran, regional growth could rebound to 7.8% in 2027 under a scenario in which the conflict ends by the close of 2026 and hydrocarbon production and exports recover.

However, a return to rapid growth would not automatically restore all economic losses. Damaged infrastructure, delayed investment and weakened government finances could continue affecting economies even after immediate hostilities decline.

The World Bank also identifies artificial intelligence as a potential longer-term source of productivity and employment opportunities. Its latest report estimates that AI could significantly enhance productivity in 13% to 20% of jobs across the region, provided countries improve digital infrastructure, skills and access to technology.

The latest assessment therefore highlights two contrasting forces shaping the region’s economic future: the immediate damage caused by conflict and the longer-term opportunity created by technological transformation.

For policymakers, protecting vulnerable households, restoring infrastructure and maintaining resilient energy and transport networks will be important as governments attempt to manage the economic consequences of the crisis.