“This is a multidimensional shock.” That is how Dr. Jihad Azour, Director of the Middle East and Central Asia Department at the International Monetary Fund, summed up the bleak outlook gripping the region, describing the current war as an earthquake not seen in geopolitics and economics for five decades.
He said it has struck one of the world’s most vital economic corridors, shaking energy markets, disrupting trade routes and eroding business confidence, creating uncertainty that demands unconventional responses.
He added that Saudi Arabia has, in recent years, built strong financial institutions and diversified its income, giving it room to maneuver despite the pressure.
The IMF has cut its 2026 growth forecasts for Gulf states in its World Economic Outlook, citing the fallout from the Iran war. The impact varies sharply by country, depending on exposure to energy markets and trade, and the availability of alternatives to secure oil exports.
Among oil exporters hit by the conflict, five of eight economies are now expected to contract in 2026. Qatar faces the steepest downgrade due to extensive infrastructure damage. Oman, by contrast, sees only a slight downgrade, as its maritime outlet lies entirely outside the Strait of Hormuz, and it is expected to benefit from stronger fiscal and current account balances driven by higher oil prices.
Saudi Arabia stands out, with growth projected at about 3.1% this year, supported by alternative oil pipelines.
Speaking at a virtual discussion on the IMF’s latest assessment of the war’s impact on Middle East and North Africa economies, Azour said this exceptional shock, hitting the core of global trade and energy routes, is being met in Saudi Arabia with institutional resilience.
He said the Kingdom has built strong financial “buffers” through income diversification and institutional strengthening, giving it the fiscal space to advance Vision 2030 and shield its mega projects from regional turbulence.
Strong financial institutions
Responding to a question from Asharq Al-Awsat, Azour said Saudi Arabia has anchored its fiscal policy to a medium-term framework.
He described the Kingdom’s “reordering of project priorities” as a healthy and normal response to shifting global conditions, aimed at preserving Vision 2030’s core goals of economic diversification and job creation.
He added that strong financial institutions give the Kingdom the flexibility to absorb disruptions to trade routes.
Cracks in energy infrastructure
Azour said the shock has centered on hydrocarbons, with data showing a sudden halt in the flow of more than 12 million barrels a day of oil and gas. The disruption has spread beyond energy to the real economy, with tourism across most Gulf Cooperation Council countries declining noticeably.
Business confidence has weakened, reflected in widening credit spreads and currency volatility. The Egyptian pound has been among the clearest indicators of these sharp aftershocks.
‘Baseline scenario’
Looking ahead, Azour outlined a “baseline scenario” in which hostilities end by midyear. Even then, he said, markets should expect oil prices to rise by $10 a barrel. He warned of a more severe scenario in which oil averages $130 for a prolonged period, turning the crisis from a supply shock into a heavy burden on oil importers such as Jordan and Tunisia, triggering a sharp contraction in their current accounts.
Interconnected regional interests
Azour underscored the region’s deep interdependence, saying countries such as Pakistan, Egypt and Jordan rely structurally on Gulf states not only for energy, but for financial lifelines.
Any disruption in the Gulf quickly translates into falling remittances, which account for about 5% of GDP in some countries, and a halt in capital flows. A prolonged war, he warned, could turn the energy crisis into a food security disaster for vulnerable states due to rising fertilizer and basic commodity costs.
‘Keep your powder dry’
In his strongest remarks, Azour said governments’ room for maneuver is shrinking under the weight of pandemic-era debt. He cited advice from a “Gulf finance minister” to “keep your powder dry,” urging countries to use their limited buffers with agility.
He stressed the need for precise policy calibration, replacing broad subsidies with targeted cash support for vulnerable groups, maintaining monetary tightening to curb inflation, and recognizing exchange rate flexibility as the key shield against severe shocks.
Azour said the crisis, despite its severity, should mark a turning point, forcing a fundamental rethink of the region’s long-term economic strategies.
Heavy reliance on single trade and energy routes, he said, has become an existential risk in a world of fast-moving geopolitical volatility. The post-war phase should not mean a return to old models, but a shift toward building a “resilience economy.”
He said this shift requires parallel action, accelerating diversification of production to reduce exposure to energy price shocks, while deepening regional economic integration, which the crisis has shown is not just a political choice, but a shared economic safeguard.
He also highlighted the need to strengthen food and water security through innovation, to ensure livelihoods are not left vulnerable to disruptions in global supply chains.
In a message to policymakers, Azour said lasting financial stability depends not only on crisis management, but on embedding structural shock absorbers within economic systems, enabling countries to absorb major shocks and move toward more sustainable and inclusive growth, away from the volatility of geopolitics and prolonged conflict.
