IMF warns of further energy, trade disruptions as regional economy faces contraction

• The IMF forecasts a 1.3% economic contraction in the Middle East, North Africa and Pakistan in 2026, reversing growth of 3.3% in 2025.
• The fund expects a 6.6% rebound in 2027, provided the conflict eases and energy production and trade gradually return to normal.

The International Monetary Fund (IMF) has warned that the ongoing war involving the United States, ‘Israel’ and Iran is weighing heavily on regional economies, disrupting energy production, shipping, tourism and trade.

In its regional economic outlook released Thursday, October 22, the fund projected that economic output across the Middle East, North Africa and Pakistan would contract by 1.3% in 2026, a sharp reversal from the 3.3% growth recorded in 2025.

The IMF cautioned that further disruptions to energy production and major trade routes could push energy prices higher, while tighter global financial conditions could add to economic pressure.

The fund said the outlook remained clouded by "exceptionally high uncertainty," with the duration of the conflict and the pace of recovery in energy production and trade expected to play a decisive role in determining the region's economic performance.

The economic impact has varied across the region, with oil-exporting economies particularly exposed to disruptions in energy production and maritime transport.

According to the IMF's projections reported by Reuters, Bahrain, Kuwait, Qatar and Iraq are expected to record double-digit economic contractions in 2026. Saudi Arabia and the United Arab Emirates are also projected to enter recession.

Oil-importing economies have shown greater resilience, supported by domestic demand, tourism revenues, remittances and policy measures aimed at limiting the impact of higher commodity prices on consumers.

However, the fund warned that renewed supply disruptions could increase inflationary pressures and further weaken economic activity across the region.

The IMF's baseline forecast assumes the conflict will ease in early 2027, allowing trade to gradually normalize over the course of the year.

Under this scenario, regional economic output is projected to grow by 6.6% in 2027. However, the fund expects output in affected economies to remain below pre-conflict projections, indicating that the recovery may not fully reverse the economic damage.

The IMF also warned that the recovery remains vulnerable to prolonged hostilities, further damage to energy infrastructure and renewed restrictions on shipping routes.

The fund urged policymakers to prioritize price stability, maintain sustainable public finances, preserve central bank independence and implement structural reforms aimed at boosting productivity and creating jobs.

The projections underscore the region's exposure to geopolitical shocks, particularly where energy exports and maritime trade are central to economic activity. A prolonged disruption could deepen losses, raise costs for businesses and households, and complicate efforts to restore growth.