RESEARCH — Jan 7, 2026
Age of Agility: Key Themes Shaping the MENA Region in 2026
By Jack Kennedy, Jessica Leyland, Kevjn Lim, Ph.D., Zaineb Al Assam, Jamil Naayem, and Ralf Wiegert
In 2026, we expect the Middle East North Africa (MENA) region to experience contrasting trends of growth and conflict instability.
S&P Global Market Intelligence forecasts that MENA will be the only major global region with anticipated economic growth in 2026 surpassing that of 2025, following a notable increase of 2.5 percentage points in real GDP growth between 2024 and 2025.
Unresolved conflicts from 2025 are likely to pose significant risks to this forecast, keeping the MENA region, especially the Gulf, at the center of broader global geopolitical trends.
Key takeaways
- Unresolved conflict escalation pathways from the 12-day June war between Israel/the US and Iran continue to represent the main driver of MENA regional instability and severe interstate war risks in 2026.
- Military supply chain vulnerabilities and constraints are likely to determine the willingness of all belligerent parties to commit to renewed conflict, spurring more armed exchanges with limited scope and duration.
- Gulf states, notably the UAE and Saudi Arabia, will continue to focus on integrating US-designed computing, networking, and cloud technologies into their economies. This ongoing strategic shift is expected to stimulate economic growth and enhance security and Gulf Cooperation Council (GCC) geopolitical alliances by 2026.
- The GCC states will drive economic growth in the MENA region, largely driven by increased hydrocarbon output, continued economic diversification efforts, and declining borrowing costs in the GCC.
- Lower oil prices will hinder MENA hydrocarbon exporters’ external sector performances and likely constrain their ability to generate foreign currency earnings in 2026.
Shifting asymmetric power in MENA
Unresolved conflict escalation pathways from the 12-day June war between Israel/the US and Iran continue to represent the main driver of regional instability and severe interstate war risks in 2026. US-Iran negotiations over a new nuclear agreement have not yet officially resumed. Further airstrikes in 2026 are likely if Israel (and/or the US) assesses that Iran is making significant progress in reconstituting its enrichment, ballistic missile and advanced air defense capabilities. This is especially likely if no US-Iran nuclear agreement is reached, again triggering Iranian counterstrikes on Israeli territory and maintaining the severe risk of escalation to interstate war.
A resumption of war, with Iran’s conventional offensive capabilities weakened, would increase the likelihood of Iran seeking to at least partially obstruct vessel passage in the Strait of Hormuz, significantly disrupting international trade routes and impacting global energy prices to a higher degree than during the June war.
Supply-chain vulnerabilities will probably determine the willingness of the parties involved to commit to renewed conflict, encouraging more armed exchanges of limited scope and duration. The capacity to sustain and replenish air defense interceptors almost certainly influenced Israeli and the US strategy during the June war.
Militant access to relatively affordable offensive capabilities such as uncrewed systems and cruise and ballistic missiles, and a probable increased reliance on other state-fostered capabilities including AI, will continue posing security challenges to established military powers, and maintain the risk of periodic armed exchanges.
Gulf states, notably the UAE and Saudi Arabia, are positioning themselves for a recalibration of shifting power dynamics, focusing on integrating US-designed computing, networking, and cloud technologies into their economies.
Both governments have recognized AI and data center development as core components of their economic diversification plans. The UAE currently leads the Middle East in data center market size, while Saudi Arabia — which ranks second — is also making significant investments to expand its capabilities. The growth of Saudi Arabia’s data centers is anticipated to support broader Vision 2030 infrastructure objectives, particularly in constructing and expanding desalination plants necessary for cooling.
Substantial investments in AI and data centers also come with risks from technological and security perspectives. The ongoing technological rivalry and strategic competition between the US and mainland China is likely to influence GCC access to critical technologies.
Shaky economic foundations, new trade realities in MENA
Risks to the MENA region’s 2026 economic outlook are heavily weighted to the downside due to severe regional war risks and soft hydrocarbon prices. We forecast the MENA region, on aggregate, to record sustained economic growth in 2026, but with stark contrasts within the region. The GCC states will drive economic growth in MENA. Real GDP growth will be largely driven by increased hydrocarbon outputs, continued economic diversification efforts, and declining borrowing costs in the GCC.
The growth trend in the MENA region is, in large part, due to the unwinding of oil output restrictions by OPEC+ until September 2025. The region’s oil producers are critically dependent on global oil demand and oil prices. S&P Global Energy projects an average oil price of US$58 per barrel (Brent) in 2026, down by 16% from projected 2025 averages. This will squeeze oil revenues, which could fall further if global growth performs less strongly, weakening demand for oil.
Non-hydrocarbon growth momentum is set to continue across the GCC economies, in line with their economic development strategies and partly helped by hydrocarbon output increases in conformity with OPEC+ decisions. GCC development plans focusing on reducing reliance on hydrocarbons and encouraging private sector involvement into their economies, coupled with robust domestic demand, are likely to drive the recovery of the non-hydrocarbon economy in 2026.
Such a sustained strong momentum will likely be facilitated by further monetary easing by GCC central banks in line with US Federal Reserve moves. Given the long-standing currency pegs to the dollar, which are unlikely to change in the foreseeable future, we currently forecast two policy rate cuts in GCC states in 2026, leading to less costly borrowing and supporting investment activity in the GCC.
Lower energy prices will continue to place adverse pressure on the external balances of hydrocarbon exporters and their ability to accumulate foreign reserves. Outside the GCC, weaker energy prices will also widen the current account deficits of Algeria, Iraq and Libya.
The pause in Houthi attacks on shipping in the Red Sea is unlikely to hold through 2026 if, as is likely, the Gaza ceasefire collapses; we therefore forecast that any recovery in Suez Canal revenues will at best be gradual.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
Theme
Location