Conflict, Hormuz disruptions and weaker trade are increasing economic pressures, while AI offers a potential path to stronger regional productivity.
The ongoing conflict that began in February 2026 is expected to cause significant economic damage across the Middle East, North Africa, Afghanistan and Pakistan (MENAAP), with regional output forecast to decline by 2.1% this year, according to the World Bank’s latest economic update.
The report, titled From Divide to Opportunity: AI, Jobs, and Growth, highlights the widespread economic consequences of prolonged instability, including disruptions to energy supplies, transportation, tourism, aviation and logistics. Rising uncertainty has also affected financial markets and weakened business confidence across the region.
The closure of the Strait of Hormuz has created particularly severe challenges for oil-exporting economies. Unlike previous energy disruptions, which often provided an advantage to oil producers through higher prices, the current situation has reduced export volumes and placed pressure on government revenues.
The World Bank expects economies of the Gulf Cooperation Council (GCC) to contract by an average of 4.3% in 2026. Oil-importing economies, however, are projected to show greater resilience, with their growth expected to increase to 4.3% from 3.9% in 2025.
Inflation is another major concern. Disruptions to shipping routes are increasing import costs and putting pressure on supply chains, particularly for food products. These pressures could further strain household finances and economic activity in vulnerable countries.
Despite the difficult outlook, the report identifies artificial intelligence as a potential source of longer-term growth. AI could raise productivity in as much as 20% of jobs across the region, although the World Bank says structural weaknesses must be addressed to fully benefit from the technology.
Regional output had grown by 3.3% in 2025 before the projected contraction this year. If the conflict ends by the close of 2026, growth excluding Iran could rebound to 7.8% in 2027, supported largely by recovering hydrocarbon production and exports.
However, the World Bank cautioned that recovery will depend on sustained policy measures, as damaged infrastructure, delayed investment and weaker fiscal positions could continue affecting regional economies even after the immediate conflict-related shock subsides.