IMF cuts Middle East growth forecast to 0.7% as Hormuz closure drags on

The International Monetary Fund on Wednesday slashed its 2026 growth forecast for the Middle East and Central Asia region to 0.7%, citing the prolonged closure of the Strait of Hormuz as the war in Iran continues to choke one of the world's most critical energy corridors. The revision marks a 1.2-percentage-point downgrade from the fund's April projection of 1.9%.khaleejtimes+1

The IMF attributed the deeper cut to "an assumed longer closure of the Strait of Hormuz and a correspondingly sharper rebound once disruptions ease," according to the fund's latest World Economic Outlook update released Wednesday. Iraq, Kuwait, and Qatar are expected to see sharp economic contractions this year, followed by double-digit expansions in 2027 if energy flows normalize.khaleejtimes

Regional Damage

The Strait of Hormuz, through which roughly a fifth of the world's oil supply transits, has been effectively blocked since early March, when the conflict disrupted shipping routes. In April, the IMF's Regional Economic Outlook identified five oil-exporting economies facing contraction in 2026: Iran, Iraq, Qatar, Kuwait, and Bahrain. Qatar faced the largest downward revision at the time, with its forecast cut by 14.7 percentage points to a contraction of 8.6%, largely due to infrastructure damage.icis+1

Iraq's economy is projected to shrink by 6.8% this year as oil output and export logistics remain disrupted. Iran's economy is now expected to contract by 5.4% in 2026, slightly better than the April estimate after stronger-than-expected oil exports in March and April.amwalalghad+1

Saudi Arabia remains somewhat insulated thanks to diversified export routes, with growth forecast at 1.7% in 2026.khaleejtimes

Global Spillovers

The IMF lowered its global growth forecast to 3.0% for 2026, down from 3.5% averaged in 2024–2025, with the oil shock pushing projected global inflation to 4.7%, up from 4.1% last year. The fund set its petroleum price assumption at $89 a barrel, 9% higher than in April.reuters+1

The United States, a net energy exporter, is relatively insulated at a projected 2.3% growth rate, while the euro area was trimmed to 0.9%. The IMF cautioned that transmission from the war "is still in its early stages," with strategic destocking providing only temporary relief and forward-looking indicators pointing to softer momentum ahead.khaleejtimes

The fund projected a rebound to 6.5% growth for the Middle East region in 2027, contingent on the normalization of energy production and transport networks — an outcome that remains far from assured as the conflict enters its fifth month.reuters+1