- World Bank Forecasts 2.1% Africa Contraction as War Disrupts Oil, Tourism and Trade
The closure of the Strait of Hormuz has overturned the conventional economics of a Middle East energy crisis, transforming oil wealth from a source of protection into a channel of economic vulnerability.
The Middle East, North Africa, Afghanistan and Pakistan region is expected to contract by 2.1 per cent in 2026, reversing growth of 3.3 per cent in 2025, according to the World Bank’s latest regional economic update.
Gulf Cooperation Council economies are projected to shrink by an average of 4.3 per cent, making them the hardest-hit group despite the increase in international energy prices usually associated with conflict in the region.
The reversal reflects the importance of physical export capacity. Higher oil prices offer limited protection when producers cannot move sufficient volumes through the Strait of Hormuz, one of the world’s most important energy corridors.
For Gulf exporters, the disruption is therefore working through two channels: lower hydrocarbon production and export volumes are weakening national output, while reduced petroleum receipts are placing government revenues under pressure.
This distinguishes the current shock from previous episodes in which oil exporters benefited from higher prices while import-dependent economies absorbed the damage.
The World Bank said the conflict, which began in February, had spread beyond the energy industry, disrupting tourism, aviation and logistics while weakening financial markets and business confidence.
Inflationary pressure is also increasing as shipping disruptions raise food import costs and strain supply chains. The result is a regional shock that combines weaker production with higher living costs a particularly difficult policy environment for governments with limited fiscal room.
Yet the downturn is uneven. Oil-importing economies have shown greater resilience, with their combined growth forecast to rise to 4.3 per cent in 2026 from 3.9 per cent in the previous year.
That apparent paradox reflects the unusual nature of the crisis. Importers still face expensive energy, freight and food, but they are less directly exposed to the loss of export volumes caused by the closure of Hormuz.
The contrast suggests that commodity ownership alone does not guarantee resilience. Infrastructure, alternative export routes, diversified production and fiscal buffers can matter as much as the resource itself.
The World Bank’s baseline contains the possibility of a sharp recovery. If the conflict subsides by the end of 2026, regional growth excluding Iran could rebound to 7.8 per cent in 2027 as hydrocarbon production and exports recover.
But the size of that forecast should not be mistaken for a return to business as usual.
Part of the projected expansion would reflect a statistical recovery from the deep contraction of 2026. Damaged infrastructure, delayed investment and depleted government buffers could continue to constrain economies after shipping routes reopen.
The underlying question is therefore not simply how quickly oil exports resume, but how much productive capacity, investor confidence and fiscal space survives the conflict.
Ousmane Dione, the World Bank’s regional vice-president, said governments must focus on “protecting vulnerable households, restoring productive capacity, and investing in more resilient energy and transport infrastructure”.
The warning is particularly relevant to fragile and conflict-affected states. The World Bank said poverty had become increasingly concentrated in these economies, with the wider MENAAP region the only part of the world where poverty increased over the past decade while declining elsewhere.
Higher food prices, lost livelihoods and disrupted public services risk converting a temporary economic shock into a longer deterioration in human capital. Children who leave school, households that lose access to healthcare and businesses that exhaust their working capital may not recover automatically when the conflict ends.
Alongside the immediate crisis, the World Bank identified artificial intelligence as a potential source of longer-term productivity growth.
Between 13 and 20 per cent of jobs across the region could benefit significantly from AI-assisted productivity, while fewer than 10 per cent face near-term automation risks.
This indicates that AI’s first-order impact is more likely to be the augmentation of workers than their outright replacement. But the opportunity remains conditional.
Low adoption of AI tools, insufficient digital infrastructure, skills shortages and the weak representation of regional languages and data in global AI systems could prevent many economies from capturing the gains.
World Bank regional chief economist Roberta Gatti said the decisive issue was whether countries could build “the skills, infrastructure, and institutions needed to benefit” from the technology.
Regional differences could offer the basis for collaboration. Saudi Arabia and the United Arab Emirates possess computing capacity and experience in AI investment, while middle-income economies can contribute technical talent and local data.
Poorer and more fragile states could adopt smaller, affordable AI systems designed to operate on basic mobile devices, improving public services and supporting small businesses without requiring expensive computing infrastructure.
The deeper message from the World Bank’s assessment is that the region faces two transformations moving at different speeds.
The first is immediate and destructive: conflict is interrupting trade, weakening public finances and exposing the vulnerability of economies dependent on narrow export routes.
The second is slower and potentially productive: AI could broaden economic opportunity, raise worker productivity and support diversification.
Whether the region emerges stronger will depend on its ability to prevent the first transformation from destroying the fiscal, physical and human foundations required to benefit from the second.
