Longer term, artificial intelligence has the potential to boost regional productivity and growth, but structural gaps must be closed
WASHINGTON, October 6, 2026 — The conflict that began in February 2026 continues to impose serious economic costs across the Middle East, North Africa, Afghanistan, and Pakistan (MENAAP), according to the World Bank Group’s latest economic update for the region. Unlike previous energy shocks, which typically benefited oil exporters, the closure of the Strait of Hormuz has imposed the largest costs on oil-exporting Gulf countries.
The report — From Divide to Opportunity: AI, Jobs, and Growth — notes that even as the conflict slows growth, new opportunities continue to emerge, particularly in artificial intelligence, which holds the potential of boosting the productivity of up to 20% of the region’s jobs.
Regional output is projected to contract by 2.1% on average in 2026, after expanding 3.3% in 2025. The repercussions extend beyond the energy shock, to setbacks in tourism, aviation, and logistics, while heightened uncertainty weighs on financial markets and business sentiment.
The economic impact has been most severe among oil exporters affected by the closure of the Strait of Hormuz, where lower export volumes have translated into substantial losses in output and government revenues. Gulf Cooperation Council (GCC) economies are projected to contract by an average of 4.3%.
In contrast, oil-importing countries in the region have remained comparatively resilient, with growth projected to rise to 4.3% in 2026 from 3.9% in 2025.
Inflationary pressures are on the rise across much of the region, particularly through higher food prices as shipping disruptions raise import costs and strain supply chains.
In fragile and conflict-affected economies, the shock is compounding longstanding vulnerabilities. Poverty is increasingly concentrated in these economies, and MENAAP remains the only region in the world where poverty levels rose in the last decade while they declined elsewhere.
If the conflict subsides by the end of 2026, regional growth excluding Iran is projected to rebound to 7.8% in 2027, driven largely by the recovery of hydrocarbon production and exports. However, a regional recovery is not guaranteed, and will require sustained policy efforts. Damaged infrastructure, postponed investment, and depleted fiscal buffers could continue to weigh on growth long after the immediate shock has faded.
