IMF Projects Kuwait, Qatar and Iraq to Contract in 2026 on the Strait of Hormuz Disruption, With Double-Digit Growth Rebounds Seen in 2027
The International Monetary Fund expects several Gulf economies, including Kuwait, to contract in 2026 as the disruption to shipping through the Strait of Hormuz weighs on oil output and export routes, before a sharp recovery in 2027, according to its July World Economic Outlook Update. The Fund cut projected growth for the wider Middle East and Central Asia region, its reporting group that extends well beyond the Gulf, to just 0.7 percent in 2026, a downgrade of 1.2 percentage points, and raised its 2027 forecast for that group to 6.5 percent, an upgrade of 1.9 points. The projection rests on an assumption that the reopening of the Strait of Hormuz begins in mid-July, with conditions returning broadly to normal by March 2027.
The Fund singled out Kuwait, Iraq and Qatar as the commodity producers most affected by the disruption to energy output and transport, projecting sharp contractions in their economies in 2026 followed by double-digit expansions in 2027. Saudi Arabia, which the IMF described as somewhat less affected given its more diversified export routes, is projected to grow 1.7 percent in 2026 and 5.5 percent in 2027.
The shape of the projection matters as much as the headline. On the IMF’s own framing, the 2026 weakness is concentrated in hydrocarbon output and transport rather than the broader economy, a temporary effect tied to the shipping disruption, and it is more than reversed the following year: the region’s 2027 rebound to 6.5 percent is one of the fastest of any bloc in the Update, and the double-digit 2027 growth the Fund pencils in for the most affected producers implies a full recovery of the lost output once flows normalise. The projection is a scenario conditioned on the duration of the disruption, not a forecast of lasting damage.
For the Gulf, the read is therefore two-sided. A year of contraction in headline output is a real cost, but the region enters it with substantial sovereign buffers, and the Fund’s own numbers point to a swift rebound as export routes reopen. The contrast the IMF draws, between the most exposed producers and a more diversified Saudi Arabia, also underscores how diversification and export-route resilience shape the toll.
Why it matters: The IMF placing Kuwait and its neighbours in a 2026 contraction quantifies, from the most authoritative global forecaster, how the Strait of Hormuz disruption is expected to hit Gulf output this year. But the same projection frames it as temporary and front-loaded, with a strong 2027 recovery, so the signal for the region is the durability of the shipping disruption, not a structural downgrade of the Gulf’s prospects.
Outlook: The variable that drives the numbers is how quickly shipping through the Strait of Hormuz normalises. Watch the pace of that recovery, the actual 2026 output data as it arrives, and any revision in the IMF’s next full World Economic Outlook, due in October, against the buffers and diversification the Fund credits the region with.
Basis: the July World Economic Outlook Update publishes 2026 and 2027 growth figures for the Middle East and Central Asia group and for Saudi Arabia; for Kuwait, Qatar and Iraq it gives direction rather than country figures, describing sharp 2026 contractions followed by double-digit expansions in 2027. Full country-level projections are due in the IMF’s October World Economic Outlook.
Sources: International Monetary Fund.
