Kuwait’s economy is projected to contract by 6.4 percent in 2026 due to oil export disruptions from the Middle East war and closure of the Strait of Hormuz, an IMF seminar heard on May 11. Regional growth excluding Iran is expected to slow from 4 percent in 2025 to 1.8 percent this year while GCC growth has been revised down to 3.1 percent and oil prices have climbed to around $112 a barrel, according to the Arab Times report on the event.
The virtual international seminar organized by the Middle East Center for Economics and Finance of the International Monetary Fund in collaboration with its Middle East and Central Asia Department discussed the Regional Economic Outlook report titled “The War in the Middle East: Economic Repercussions and Policy Changes.” Giovanni Melina and John Bludorn, both deputy directors of the IMF department, participated alongside Sheikh Ahmed Diop, chief economist at the Islamic Development Bank, with the session moderated by economic analyst Basel Awad and chaired by center director Sami Ben Nasser. The speakers described the conflict as having evolved from a geopolitical crisis into a “protracted economic shock” threatening growth, financial stability, food security and energy across the MENA region at a sensitive time following the COVID-19 pandemic.
Disruptions in hydrocarbon production, reduced tourism activity, higher financing costs, exchange rate volatility and capital flow fluctuations have stemmed directly from the war, the Arab Times reported from the seminar. The baseline scenario assumes some of these disruptions will be contained by mid-year although downside risks remain high if the conflict is prolonged or expands, potentially triggering a new wave of oil and energy price hikes, participants stated. Figures from the latest World Bank Group reports cited during the discussions indicated the conflict caused widespread disruption to energy markets and supply chains.
Melina confirmed that while higher oil prices may provide temporary financial support to some Gulf economies the GCC countries will also experience a slowdown in non-oil activities particularly in tourism, financial services and trade, according to the Arab Times. He noted that tourism has become a major driver of demand in Gulf economies as part of their diversification plans making prolonged regional instability a significant pressure point on non-oil growth. Gulf economies remain vulnerable to food security disruptions because of their heavy reliance on food imports, Melina added.
Diop confirmed that member economies face inflationary pressures and varying degrees of slowdown with uneven shocks and structural differences making unified policies difficult to implement, the seminar coverage showed. He called for strengthening regional cooperation, developing flexible financing mechanisms and enhancing integration in energy, food and financial liquidity. The MENA region constitutes a vital area within the Islamic Development Bank’s membership necessitating greater coordination among regional and international financial and development institutions, Diop stated.
Kuwait’s economy is heavily dependent on oil which accounts for around 90 percent of government revenue and 50 percent of GDP, a Kuwait Embassy overview indicated. A World Bank report placed the 6.4 percent contraction in 2026 after estimated 2.6 percent growth in 2025 driven by oil sector disruptions assuming three months of shipping constraints in the Strait of Hormuz before a rebound to 13.5 percent growth in 2027. Inflation is expected to accelerate to 4 percent in 2026 disproportionately affecting low-income households and migrant workers, the World Bank assessment found.
The IMF’s April 2026 Regional Economic Outlook update reported that oil exporters around the Gulf directly affected by the war face steep downward revisions of up to 15 percentage points this year with five out of eight economies including Kuwait projected to see GDP contraction. This damage primarily reflects their heavy reliance on the Strait of Hormuz for the transit of traded goods and higher incidence of infrastructure damage from attacks, the IMF document stated. A more prolonged or intense war would further weigh on economic prospects across the region, an accompanying IMF briefing indicated.
