Amman, Oct. 6 (Petra) — The conflict that began in February 2026
continues to impose serious economic costs across the Middle East,
North Africa, Afghanistan and Pakistan (MENAAP), with Gulf oil
exporters hit hardest by the closure of the Strait of Hormuz, the
World Bank said Tuesday.

In its latest economic update for the region, the World Bank
projected regional output to contract by an average 2.1% in 2026,
after expanding 3.3% in 2025.

Unlike previous energy shocks, which typically benefited oil
exporters, the closure of the Strait of Hormuz has imposed the
largest costs on oil-exporting Gulf countries, as lower export
volumes translate into substantial losses in output and government
revenues.

Gulf Cooperation Council (GCC) economies are projected to contract by
an average 4.3% this year, according to the report, titled “From
Divide to Opportunity: AI, Jobs, and Growth.”

The repercussions of the conflict extend beyond the energy shock,
with setbacks in tourism, aviation and logistics, while heightened
uncertainty weighs on financial markets and business sentiment.

Oil-importing countries in the region, by contrast, have remained
comparatively resilient, with growth projected to rise to 4.3% in
2026 from 3.9% in 2025.

Inflationary pressures are also rising across much of the region,
particularly through higher food prices, as shipping disruptions
increase import costs and strain supply chains.

In fragile and conflict-affected economies, the shock is compounding
longstanding vulnerabilities. Poverty is increasingly concentrated in
these economies, while MENAAP remains the only region in the world
where poverty levels rose over the past decade as they declined
elsewhere.

If the conflict subsides by the end of 2026, regional growth
excluding Iran is projected to rebound to 7.8% in 2027, driven
largely by a recovery in hydrocarbon production and exports.

The World Bank cautioned, however, that a regional recovery is not
guaranteed and will require sustained policy efforts. Damaged
infrastructure, postponed investment and depleted fiscal buffers
could continue to weigh on growth long after the immediate shock has
faded.

While policymakers confront the immediate consequences of conflict
and economic disruption, the report said the region must also prepare
for a second, longer-term transformation: the rise of artificial
intelligence.

AI’s primary effect in MENAAP is likely to come through augmentation
to productivity rather than job losses due to automation, according
to the report.

Less than 10% of jobs in the region face near-term automation risk,
while between 13% and 20% carry significant augmentation potential,
raising productivity for workers and firms able to use AI tools
effectively.

Realizing AI’s potential, however, will require closing structural
gaps, including the underrepresentation of the region’s languages and
data in global AI systems, low usage of AI tools and a foundational
capital gap encompassing human capital and infrastructure. Limited
private sector dynamism is also a critical constraint, the report
said.

The World Bank identified regional collaboration on AI as a major
opportunity for MENAAP, with AI leaders such as Saudi Arabia and the
United Arab Emirates sharing their experience in model development
and governance.

Middle-income countries could contribute talent and local data, while
more vulnerable economies could adopt “Small AI”, purpose-built,
affordable tools designed to operate on basic mobile devices, to
improve basic services and support local businesses.

The report said closing gaps in skills, infrastructure and
institutions will be critical to determining how effectively the
region can turn AI into higher productivity and longer-term growth.

//Petra//