Positioning Middle East Portfolios for 2026 Shifts

Property costs have actually come under pressure after a duration of strong development, with recent information from the Dubai Land Department showing a drop in mortgage deals and money sales. However, we think the danger of a long lasting migrant outflow and a serious downturn in the property sector is low.

As a lasting US-Iran offer takes shape, the fallout from the dispute has tightened up regional monetary conditions, exposing vulnerabilities through capital outflows, wider bond spreads, and weaker investor belief. The majority of GCC sovereigns bring relatively little financial obligation and funding threats are for that reason restricted in the UAE, the reserve bank's liquidity management has actually alleviated instant concerns.

That stated, Bahrain has been able to rely on support from neighbours, including Saudi Arabia and the UAE, and it successfully raised $1bn from an oversubscribed sovereign bond sale this month, marking the very first offering from the region because the war began. High-frequency financial data highlight the strain on local public finances from the dispute.

ANSR July GCC PRs 50DR+

Navigating Investment Diversification in a Global Economy

In Saudi Arabia, the deficit spending more than doubled to SAR125.7 bn, or about 9% of GDP in Q1, driven by a decline in oil revenue and a surge in spending, particularly on aids, showing contingency expenses tied to the regional environment and a velocity of Vision 2030 spending. In Qatar, the crisis brought oil and gas earnings to a stop, swelling the budget plan deficit to the biggest considering that 2017.

GCC inflation dynamics stay irregular, with food rates the main source of upward pressure and inflation in this category fortifying in Kuwait, Oman and Qatar. By contrast, food inflation stays relatively suppressed in Saudi Arabia, likely reflecting the mitigating effect of its larger domestic food production base and greater supply-chain strength.

We continue to see price pressures as mostly transitory rather than indicative of a continual inflationary cycle. Appropriately, we anticipate average inflation to alleviate to 2.1% y/y in 2027 as temporary supply-side pressures dissipate. With near-term inflation elevated and transit through the Strait most likely set to resume gradually, we anticipate the United States Federal Reserve to keep rate of interest on hold until December, and regional rate policies to do the same.

We anticipate Iran's GDP to diminish by 10.8% this year (we anticipate a 9.4% contraction three months ago). Oil production and exports, which provide important income and FX inflows, have been curtailed by the United States naval blockade, while non-oil activity has actually been seriously hit. In Iraq, oil exports have actually collapsed to a drip and we're forecasting GDP to agreement by around 22% this year, with a sharp 33% rebound in 2027 as oil exports normalise.

By contrast, Syria continues to reintegrate into the international economy after more than a years of civil war. We anticipate GDP growth to average 9.6% over 2026-2027, supported by renewed investment, particularly in banking and energy, financial reforms, and the steady resuming of regional trade links.

The 2026 Investment Landscape of the GCC

The World Bank has slashed its 2026 development projection for Middle East economies, saying total GDP development in the region is expected to slow from an estimated 3.6% in January to 1.8% for 2026. The closure of the tactical Strait of Hormuz, and destruction of energy and public facilities, had actually disrupted markets, increased financial volatility, and damaged the 2026 development outlook, the World Bank Group stated in its Economic Update for the Middle East, North Africa, Afghanistan and Pakistan.

The April 2026 World Bank's Macro Poverty Outlook forecasts that the region's aggregate (omitting the Iran) GDP development will slow down to 1.8 percent in 2026, below 4.0 percent approximated for 2025. The 2026 forecast has been devalued by 2.4 percentage points given that the January forecasts, reflecting the adverse effects of the ongoing dispute.

Saudi Arabia: Forecast was reduced by 1.2 portion points since January. Development is now anticipated to slow from 4.3% in 2025 to 3.1% in 2026, keeping in mind that Saudi Arabia's outlook remains the strongest amongst Gulf economies. United Arab Emirates: Growth projection for the UAE has actually fallen by 2.7 percentage points considering that January.

Qatar: Significantly, growth projection for the Qatari economy has actually seen a sharp decrease of 11.0 percentage points considering that January. The economy is now anticipated to record a contraction of 5.7%, down from an estimated development of 5.3%, due to severe obstruction to melted gas products. Qatar is a key player in the global energy market, with an international market share of liquefied gas (LNG) supplies varying in between 20% and 21%.

Kuwait relies totally (100%) on the Strait of Hormuz to export its petroleum and derivatives. Closing the strait would mean a total shutdown of the country's financial lifeline, immediately halting earnings inflows to the state budget. Bahrain: Growth projection for Bahrain's economy has decreased by 1.8 portion points given that January.