The International Monetary Fund (IMF) has projected a 1.3 percent contraction in economic output across the Middle East, North Africa and Pakistan in 2026, citing the economic consequences of the US- and Israeli-led war against Iran. The conflict has disrupted energy production, shipping routes, tourism and international trade, creating additional pressure on economies across the region.
According to the IMF, the regional economic outlook has deteriorated as businesses and governments face uncertainty over energy supplies, transportation costs and trade flows. The impact has varied among countries, depending on their reliance on energy exports, exposure to disrupted shipping routes and ability to absorb economic shocks.
Despite the expected contraction in 2026, the fund forecasts a significant recovery in the following year. Regional economic output is projected to grow by 6.6 percent in 2027, provided the conflict eases and commercial activity gradually returns to normal.
The projections were outlined in the IMF’s regional economic outlook, released in Dubai on Thursday. The report highlights the significant economic consequences that prolonged conflict can have on countries connected through energy markets, supply chains, tourism and cross-border trade.
Oil-exporting economies have faced particularly strong pressure because disruptions to energy production and shipping can directly affect export earnings and government revenues. Restrictions on the movement of oil and other commodities can also create uncertainty in global energy markets, affecting prices and the cost of doing business.
Oil-importing economies, meanwhile, have demonstrated greater resilience in the current circumstances, according to the IMF’s assessment. However, these countries may still face higher import bills, rising transportation expenses and increased pressure on businesses and consumers if energy supplies remain disrupted.
For Pakistan, the regional outlook is particularly important because changes in international energy prices and shipping costs can influence domestic inflation, import expenditure and the country’s external financing requirements. Higher oil prices can increase the cost of fuel imports, potentially putting additional pressure on foreign exchange reserves and the balance of payments.
Disruptions to international trade may also affect businesses that depend on imported raw materials, machinery and fuel. If operating costs increase, companies could face pressure on profit margins, while consumers may experience higher prices for essential goods and services.
Tourism and other service-related industries across the wider region could also face challenges as security concerns and travel uncertainty affect visitor numbers and business activity. A prolonged downturn in these sectors could reduce employment opportunities and weaken revenue for companies that depend on international visitors.
The IMF’s projected recovery in 2027 depends on several important assumptions. Its baseline scenario anticipates that the conflict will ease in early 2027, followed by a gradual normalization of trade throughout the year.
However, the fund cautioned that economic output in countries affected by the conflict would generally remain below the levels projected before the war. This suggests that even if growth resumes, some economies may continue to face lasting losses from disrupted production, delayed investment and weaker commercial activity.
The difference between the projected contraction in 2026 and the expected expansion in 2027 underscores the importance of developments in the conflict and the restoration of normal trade flows. The pace of recovery will depend on energy production, shipping operations, investor confidence and the ability of affected economies to resume regular economic activity.
For regional governments, the outlook reinforces the need to monitor inflation risks, protect essential economic activity and prepare for continued uncertainty in international markets. For Pakistan, developments in energy supplies and global trade will remain important factors influencing the country’s economic conditions in the months ahead.