Muscat – The World Bank has raised its growth forecast for Oman’s economy in 2026 to 3.1%, citing higher hydrocarbon production, economic diversification and resilient non-oil activity, as the Iran conflict is expected to push most GCC economies into a sharp contraction.

Oman’s real gross domestic product (GDP) is projected to grow by a further 3.4% in 2027, according to the World Bank’s latest regional economic update. The revised forecast for 2026 is 0.7 percentage point higher than its April estimate, reflecting increased oil and gas production and continued expansion in non-oil sectors.

According to the World Bank, Oman stands out as the only GCC economy expected to maintain robust growth in 2026, supported by hydrocarbon output, ports and export infrastructure outside the Strait of Hormuz, and relatively resilient non-oil activity.

The bank also expects Oman’s fiscal position to strengthen, with the budget surplus projected to reach 4.1% of GDP in 2026 and 4.2% in 2027.

GCC economy faces sharp contraction

By contrast, the World Bank expects the GCC economy to contract by 4.3% in 2026, as the closure of the Strait of Hormuz disrupts hydrocarbon production and exports, while spillover effects weigh on tourism, aviation and logistics.

Unlike previous energy shocks, which generally benefited oil-exporting economies through higher prices, the current disruption has imposed substantial costs on Gulf producers by restricting their ability to transport and sell hydrocarbons.

The largest economic contractions are expected in Qatar and Kuwait, where damage to energy infrastructure and limited alternative export routes have amplified production and trade losses.

Qatar’s GDP is projected to shrink by 20.9% in 2026, its weakest performance in more than five decades, while Kuwait’s economy is expected to contract by 14.6%, the steepest decline in more than three decades, according to the World Bank.

Elsewhere in the region, alternative export routes, economic diversification and policy support are helping cushion the impact. Saudi Arabia benefits from its East-West Pipeline, while the UAE relies on export infrastructure outside the Strait of Hormuz and greater production flexibility following its exit from OPEC.

Bahrain’s more diversified economic base is expected to limit the downturn, although disruptions to refining, tourism and business services remain significant, while constrained fiscal space limits the government’s ability to respond.

Sharp rebound expected in 2027

The World Bank expects GCC economic growth to rebound sharply in 2027 as hydrocarbon production and exports gradually recover. The strongest recoveries are projected in Qatar and Kuwait, the two economies expected to suffer the deepest contractions this year.

Qatar’s GDP is forecast to expand by 26.7% in 2027 as liquefied natural gas (LNG) production resumes, while Kuwait’s economy is projected to grow by 22% as oil exports normalise.

“Expansion in 2027 also accelerates in the other GCC economies, as hydrocarbon production recovers and trade, tourism, and domestic activity strengthen. As a result, average growth across GCC economies is expected to rise to 10.3%,” the bank said.

However, the projected rebound largely reflects the restoration of lost production and export capacity rather than a fundamental strengthening of underlying economic growth, the World Bank cautioned.

Damage to infrastructure, delayed investment and continued uncertainty are likely to weigh on activity even after hydrocarbon output recovers. Some losses in tourism, logistics and investor confidence could also take longer to reverse.

Food inflation accelerates

The economic disruption in the Gulf is also feeding through to consumer prices, with food inflation across the region accelerating as higher energy costs and shipping constraints push up production, processing and transportation expenses.

The World Bank said average food inflation across regional economies rose from close to zero in January 2026 to around 6% in July. Disruptions to maritime routes have also increased freight and insurance costs, adding to pressure on food supply chains.

Oman is among the GCC economies experiencing a particularly wide gap between food inflation and headline inflation, according to the bank.

In Qatar, food inflation exceeded 12% in June, while overall inflation remained just above 2%. In Bahrain and Oman, food inflation surpassed 7%, more than twice the headline inflation rate of around 3%.

“The widening gaps are consistent with disruptions to food supply chains and trade routes, including the sharp decline in agricultural shipments through the Strait of Hormuz,” the World Bank added.