The Gulf enters 2026 facing what may be a significant stress test of its diversification strategy. Global oil markets are oversupplied, prices have come under pressure and confidence among finance professionals has softened. Yet at the same time, non-oil growth remains resilient, government spending continues and corporate optimism tells a different story.
The question for businesses is no longer whether oil prices will fall – that debate is largely settled. The real question is whether the region’s diversification story is now strong enough to absorb a period of lower energy prices without derailing growth.
Energy slump
The oil backdrop is unambiguous. The International Energy Agency expects global supply to exceed demand by close to four million barrels per day throughout 2026. This surplus reflects a combination of record non-OPEC output from the US and Brazil, the gradual unwinding of OPEC+ voluntary cuts, and slower demand growth from major economies. Together, these forces have effectively pinned prices into a US$55–US$65 per barrel range, leaving little room for the sharp rallies Gulf economies once relied on.
Historically, a gloomy oil outlook translates into a gloomy Gulf outlook
For regional producers, the response has been pragmatic. Instead of restricting supply to prop up prices, major exporters are prioritising volume, increasing output to defend market share. The trade-off is clear: more barrels sold but at thinner margins. It is precisely this tension that shows up in ACCA’s Global Economic Conditions Survey, where confidence in the Middle East declined sharply in the second half of 2025 as finance professionals braced for tighter margins and more disciplined fiscal policy.
That caution is understandable. Historically, a gloomy outlook for oil translates directly into a gloomy outlook for the Gulf. Lower prices have often triggered spending pullbacks, delayed projects and weaker private sector confidence.
Diversification dividend
Yet 2026 does not look like a typical oil cycle.
Non-oil activities now account for just over 73% of total GCC economic output, a structural shift that is increasingly reflected in forecasts. The International Monetary Fund (IMF) describes 2026 as a consolidation year, with growth driven less by hydrocarbons and more by tourism, construction, logistics, mining and services. The IMF expects the UAE to grow by around 5% and Saudi Arabia by roughly 4%, while inflation across the region is projected to remain contained at about 2%.
For businesses, this combination matters. Stable inflation preserves consumer purchasing power and cost predictability, even as global conditions remain uncertain. It also suggests that lower oil prices are no longer automatically feeding into domestic demand weakness.
Bank lending growth is increasingly driven by non-oil activity
Credit rating agencies have reinforced this view. S&P Global Ratings, in its latest GCC banking outlook, maintains a stable outlook for the vast majority of regional banks. Crucially, it notes that lending growth is now increasingly driven by non-oil activity rather than government oil revenues, a signal that credit conditions can remain supportive even in a softer oil environment.
Moody’s echoes this assessment, arguing that the link between sovereign credit strength and oil prices is weakening. Large sovereign wealth funds are increasingly acting as fiscal shock absorbers, smoothing revenue volatility and ensuring that strategic investment programmes are not derailed by temporary oil surpluses.
Optimism high
This divergence is also visible in how confidence is expressed across the region. While surveys such as ACCA’s point to caution among finance professionals, executive sentiment is more optimistic. Recent surveys indicate that more than 80% of GCC CEOs are entering 2026 with high confidence, suggesting that business leaders are looking beyond the oil price to domestic demand, investment pipelines and earnings visibility.
That confidence is not abstract. It is reinforced by continued capital deployment across non-oil sectors and a growing belief that the region’s growth drivers are becoming structurally more diversified. Sentiment, increasingly, is being shaped by what is happening inside GCC economies rather than by movements in global energy markets.
AI has become the region’s economic X-factor
The big AI bet
One emerging bet, still unproven but increasingly central to the region’s narrative, is AI. AI has become the region’s economic X-factor, not as a guaranteed growth engine but as an area where governments and businesses are placing long-term bets.
Saudi Arabia is moving through a US$43bn AI infrastructure push, while the UAE is seeing billions of dollars in new commitments from global hyperscalers (massive cloud service providers) and regional players such as Microsoft and G42.
What matters for businesses is how this investment translates into economic activity. AI-related spending is driving demand beyond the technology sector, feeding into construction, energy, logistics, financial services and professional services. Datacentres are capital-intensive and energy-hungry, anchoring revenue streams largely disconnected from oil prices.
Tech investment aims to ensure value creation remains local
The emphasis on sovereign AI adds another strategic layer. By investing in domestic datacentres, compute infrastructure and Arabic-language models, GCC governments are seeking to ensure that value creation remains local rather than exported. That reinforces AI’s role not just as a technology enabler but as a potential structural contributor to non-oil GDP.
As 2026 unfolds, the contradiction will remain visible. Oil markets may stay bearish, while domestic economic momentum continues. Whether this ultimately marks a lasting decoupling will become clear only over time. But for the first time, the Gulf has entered a period of lower oil prices with enough non-oil depth, fiscal buffers and emerging digital momentum to make the outcome far less predictable than in the past.
