Citi Research Projects Contraction in Gulf Economies; Oil Plunges Under War's Shadow

In Brief: According to Citi Research estimates, Persian Gulf economies will contract by 3.1% in 2026 due to regional conflicts, shifting from growth to recession. The oil sector, the main source of revenue for these countries, faces a sharp 13.7% drop in production and serious disruptions to export routes. The scenario […]

According to Citi Research's estimate, the economy of the Persian Gulf countries will shrink by 3.1% in 2026 under the influence of regional conflicts, turning from growth to recession.

The oil sector, as the main source of income for these countries, faces a sharp drop of 13.7% in production and serious disruptions in export routes.

The scenario of returning economic stability and preventing a deeper recession will depend on the conditional reopening of the Strait of Hormuz in the fourth quarter of the year.

According to Citi Research, the economy of the Persian Gulf countries will shrink by 3.1 percent in 2026 due to the impact of Middle East conflicts on energy production, trade and tourism. This contraction in the oil sector is expected to reach 13.7 percent.

New forecasts for the economic outlook of the Persian Gulf countries have shown the impact of regional conflicts on production and economic activity. Citi Research's assessment shows that disruptions in the energy sector, as well as a reduction in non-oil activities, will limit economic growth.

In this regard, the economy of the Persian Gulf is expected to change from growth to stagnation. The economy of this region had predicted a growth of 4.5 percent in 2025. However, the outlook for 2026 has been reversed due to ongoing conflicts that have disrupted economic activity.

Citi Research predicts that the economy of the Persian Gulf countries will shrink by 3.1 percent in 2026, after growing by 4.5 percent in 2025. This bank cited disruption in oil production and reduced activity in the non-oil sector as the main reasons for economic losses.

It is predicted that oil production in this region will decrease by 13.7% and the oil sector, as the main source of income for the Persian Gulf economies, will be the most affected by these conflicts. Citi Research has forecast that oil production will decline by 13.7 percent this year due to regional security issues disrupting production processes.

The decrease in energy production is one of the factors that directly affect the growth performance of economies dependent on oil revenues. Disruption in export and transportation routes in the region also makes it difficult to deliver products to international markets.

Also, the growth of non-oil sectors can decrease to 1%. Efforts to diversify the economy in the Persian Gulf countries have also been affected by these conflicts. According to Citi, the growth rate in non-oil sectors will decrease from 5.1 percent in 2025 to 1 percent in 2026.

This forecast shows that the growth of non-energy economic activities will decrease by 4.1%. Disruption in trade, tourism and other service activities have been mentioned as the main factors affecting the performance of non-oil sectors.

The economic effects will be different in the six countries of the Persian Gulf. Citi Research stated that these conflicts will not affect the economy of the six countries of the region as much. Infrastructure and alternative transit options related to energy exports are expected to be determinants of economic performance in Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Oman, and Bahrain.

Countries that can continue to transport oil via alternative routes face different conditions than economies dependent on maritime transport. In addition, the degree of influence of countries from disruptions in international trade and tourism activities will also play a role in the economic consequences.

The fate of the region's stagnation depends on the reopening of the Strait of Hormuz

According to this estimate, the Strait of Hormuz will be reopened in the fourth quarter of this year. City Research's economic forecasts for 2026 are based on the assumption that sea traffic through the Strait of Hormuz will return to normal in the last quarter of the year.

Disruption in the Strait of Hormuz, as a critical point for the transit of global oil trade, puts pressure on energy exports and logistics activities of the Persian Gulf countries. The bank stated that if shipping disruptions in the Strait of Hormuz continue longer than expected, the risk of recession for the Persian Gulf economies could increase further.

Uncertainty in shipping affects the economic outlook. The continuation of energy production and the timetable for the normalization of maritime transport are very important for the economic performance of the Persian Gulf countries in the rest of the year. Citi's assessment states that if the conflict continues, not only the oil sector, but also non-oil activities such as trade and tourism are likely to face more pressure.

Overall, current forecasts for regional economies are based on the assumption that activity on transit routes will improve in the fourth quarter, but possible delays could lead to further changes in growth forecasts.