The World Bank has cautioned that rising tensions between Iran and Israel could threaten the Gulf Cooperation Council’s (GCC) economic stability, disrupt growth trajectories, and deepen global uncertainty. The warning was issued in the Bank’s latest Gulf Economic Update, which underscores the region’s heightened vulnerability to geopolitical shocks.
Safaa El Tayeb El-Kogali, the World Bank’s Regional Director for the GCC, highlighted that while the direct economic impact of the conflict is difficult to quantify, its ripple effects could extend well beyond energy markets. “Any conflict, especially in this region, can have long-lasting and adverse effects,” she said, citing rising shipping costs, inflationary pressures, and growing investor hesitation as key concerns.
“The conflict between Iran and Israel is injecting a new layer of uncertainty into the global economy,” El-Kogali noted. “In such volatile conditions, investors tend to adopt a wait-and-see approach, delaying decisions until clarity and stability return.”
Despite mounting global tensions, the World Bank acknowledged the GCC’s improving economic resilience, supported by diversification efforts across member states. The region’s GDP grew by 1.8% in 2024, up from just 0.3% in 2023. This rebound was largely driven by a 3.7% increase in non-oil sectors, which helped offset a 3% decline in oil output following Opec+ production cuts.
Looking ahead, the World Bank projects regional GDP growth will rise to 3.2% in 2025 and accelerate to 4.5% by 2026. The UAE is expected to be one of the top performers, with forecasted growth of 4.6% in 2025 and 4.9% through 2027. This performance will be underpinned by targeted investments, improved governance, and the normalisation of oil production.
However, the report stressed that these projections remain highly sensitive to geopolitical developments and global economic conditions. “Weaker demand from key trade partners, prolonged oil price volatility, and uncertainty in global trade flows could all pose risks to the outlook,” El-Kogali warned.
The report, titled Smart Spending, Stronger Outcomes: Fiscal Policy for a Thriving GCC, also emphasised the importance of smarter fiscal management amid ongoing oil market fluctuations and growing public expenditure needs. While fiscal policy has helped stabilise non-oil growth, the report found that the long-term productivity gains from public investment remain limited.
To build lasting resilience, the World Bank urged policymakers to diversify revenue sources, accelerate tax and structural reforms, deepen intra-GCC trade, and reduce reliance on hydrocarbons. “Sustaining growth will depend on our ability to reduce fossil fuel dependency, create jobs for youth, and foster innovation,” El-Kogali said.
With geopolitical tensions rising and global headwinds looming, the Bank’s message to the region was clear: decisive reform is essential to safeguard economic progress and ensure long-term stability.
