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//