In one year, Western Asia’s growth fell from 3.6% to 1.4%. This deterioration is primarily associated with regional conflict and the resulting economic disruptions; a predominance of regional governance is not established. The 4.2% rate concerns an ASEAN growth forecast for 2025; it does not allow, without comparable data for 2026 and econometric analysis, attributing the gap with Western Asia to regional institutions alone.

Key Points

  • Western Asia’s growth falls to 1.4% in 2026, versus 3.6% in 2025, according to the United Nations World Economic Situation and Prospects report (May 2026).
  • ASEAN was projected at 4.2% in 2025; this figure is neither from the same year nor directly comparable to the Western Asia crisis scenario in 2026.
  • The report mainly documents energy, trade, logistics, financial, and confidence shocks; it does not validate a three-channel typology including FDI flight and paralysis of regional coordination.
  • Two trajectories open up for the 2026-2035 decade: institutional reconstruction through sectoral sub-regional frameworks, or a deepening of fragmentation that would render the Middle East permanently marginal in global value chains.
  • Signals of partial cooperation exist, particularly in hydrocarbons and transit corridors, but their consolidation depends on political choices that the data cannot yet predict.

Uncertainty as an Entry Cost

An investor evaluates geopolitical risk differently depending on what they find before them. In the Balkans of the 1990s, the risk was real, and investment flows collapsed. In Southeast Asia today, the risk is equally real—South China Sea, tensions between regional powers, supply chain dependencies—but ASEAN provides a minimum of clarity: common rules, resolution forums, a mechanism for dialogue, however imperfect. This clarity can support growth.

Western Asia has sub-regional institutions, particularly the GCC, but their integration and scope remain limited and heterogeneous. Available sources link the major economic disruptions of 2026 to the conflict that led to the closure or near-closure of the Strait of Hormuz from March 2026 onward; they do not demonstrate the causal chain formulated since April 2025. The Arab League has never served the role of an integrated economic bloc. The Gulf Cooperation Council functions for its members, but its relations with the rest of the region—Iraq, Syria in reconstruction, Lebanon in institutional decomposition, Yemen in conflict—are discontinuous and often suspended. As for Iran, its commercial exchanges with its immediate neighbors take place largely outside formal channels, making them invisible to statistics and impervious to agreements.

Former ambassador and geopolitical analyst Michel Duclos has regularly emphasized this dimension in his work on the recomposing world order: the absence of functional regional diplomacy can increase economic uncertainty. Companies evaluate both the level of risks and their predictability; high uncertainty can discourage investment. A conflict whose rules and limits are known is more manageable than peace without institutions.

The ASEAN-Western Asia Gap Cannot Be Explained by Conflicts Alone

We must be precise about what this gap measures and what it does not measure. Attributing the entirety of the 2.8-point gap to the institutional variable would be excessive. ASEAN benefits from the reorientation of global supply chains resulting from Sino-American tensions: Vietnam, Malaysia, and Indonesia capture flows of Chinese disinvestment that the Middle East would not have intercepted anyway. The productive structure is different. The manufacturing export bases are not comparable.

But this legitimate objection does not contradict the institutional thesis; it refines it. Dani Rodrik, an economist specializing in the conditions for good globalization, demonstrated in his work on the globalization “trilemma” that economies that benefit from international trade flows are precisely those that have managed to build national or regional rules compatible with openness. Countries that lack these rules do not capture flows: they see them pass by. In the Eastern Mediterranean and the Fertile Crescent, economies with potentially complementary activities can remain poorly connected in the absence of agreement mechanisms.

The Institute for Economics and Peace has documented for several years what it calls the “great fragmentation”: the progressive disintegration of networks of formal cooperation between states, which can durably increase the cost of exchanges. A tariff can be negotiated and eliminated in a few months. Rebuilding a network of trust between actors who have severed their relations takes decades.

Three Mechanisms That Transform Geopolitics Into GDP Loss

The WESP attributes the deterioration to the effects of conflict and associated economic disruptions; it does not document the institutional typology in three channels advanced in the article.

The first is the destruction of commercial corridors. Western Asia concentrates several of the world’s most active transit routes, from the Red Sea to the Persian Gulf, from the Iraqi corridor to Turkey to land routes to Central Asia. When tensions between riparian states block these corridors, even temporarily, logistical costs for regional exporters increase. Companies that produce in Lebanon, Jordan, or Iraq must reconfigure their supply chains toward longer and more expensive routes. This additional cost can erode the competitive margin of exporters and discourage investors.

Foreign investment is heterogeneous across countries and sectors; available data do not show an aggregate flight of FDI out of Western Asia. FDI to Western Asia increased in 2024, although the situation was mixed across countries: marked rebound in the United Arab Emirates and declines in certain Gulf states. Regulatory and security unpredictability weighs on location decisions, particularly for long-cycle sectors—infrastructure, energy, telecommunications—which need ten to twenty years of visibility to be profitable. When this visibility is limited, investment decisions can be affected. Companies go precisely where institutional frameworks, however imperfect, reduce uncertainty to a manageable level.

A third mechanism sometimes mentioned concerns monetary and budgetary coordination. In an integrated regional space, asymmetric shocks—a drought in Iraq, a banking crisis in Lebanon, a fluctuation in oil prices—can be partially absorbed by mechanisms of solidarity or compensation. In the absence of such mechanisms, each country absorbs shocks alone, which amplifies their impact and makes national economic policies less effective. Regional inflation is notably fed by energy prices, commodities, freight, and supply disruptions; the effect of “broken” regional monetary channels is not documented.

Lessons From the Gulf and Their Limits

It would be inaccurate to present all of Western Asia as a uniform stagnation zone. Gulf economies—Saudi Arabia, United Arab Emirates, Qatar, Kuwait—behave differently. Their sovereign wealth funds invest massively in economic diversification. Riyadh pursues its Vision 2030 reforms with notable consistency. Abu Dhabi consolidates its positioning as a financial and logistics hub.

These oil economies have the resources to absorb regional instability and continue to attract capital.

But their relative resilience also reveals the limits of the model. The development of these economies does not necessarily rest on regional integration. They have built bridges to Asia, without their primary trading partners being specified here. This strategy is rational at the individual level; it is suboptimal at the regional level. An integrated Middle Eastern economic space, including Gulf economies, Levantine countries, and major economies like Egypt and Turkey, would represent a market and productive base without equivalent in the Southern Hemisphere.

This critical mass remains untapped.

Thomas Philippon demonstrated that uncompetitive markets maintain rents that give their beneficiaries a direct interest in maintaining the status quo. This reasoning applies at the geopolitical scale: actors who profit from fragmentation—smuggling networks, informal financial intermediaries, and armed factions controlling border posts—have a structural interest in preventing institutionalization. Fragmentation can also be promoted by political and economic interests opposed to integration.

Rebuilding Without Waiting for Peace: Concrete Avenues for the Coming Decade

The UN report raises without fully answering the possibility of building minimal regional economic cooperation before political conflicts are resolved. History provides nuanced answers.

ASEAN itself was founded in 1967 in a context of intense tensions among its founding members. The European Economic Community was built between countries that had engaged in the deadliest war in human history. In both cases, economic integration preceded political reconciliation, not the reverse. This is what some Middle East Institute analysts call “functional cooperation”: sectoral agreements, limited to specific fields—energy, water, transit, health data—that do not presume generalized political trust but create sufficient common interests to generate stability.

In this logic, several signals merit monitoring. Electrical interconnection between the Gulf and certain Levantine countries is technically feasible and would lower energy costs for economies in need of it. The transit corridor between Iraq, Jordan, and Mediterranean ports represents a viable trade route if security guarantees are assured. The Abraham Accords, limited but real, demonstrated that partial normalizations can produce measurable economic flows between countries that did not recognize each other diplomatically.

These avenues are not projections: available data do not allow rigorously quantifying their potential. But they indicate a possible trajectory, distinct from the major institutional reconstruction that a comprehensive peace agreement on the region would make possible but which remains an uncertain political horizon, and from continued fragmentation that would transform Western Asia into a permanently marginal space. The condition of this intermediate trajectory is precisely what the IEP calls reducing the coordination cost: even light mechanisms that allow mistrustful actors to engage in limited projects without abandoning their fundamental political positions.

The variable to monitor is less the dynamic of conflicts, which no international institution controls, than the capacity of Gulf economies to play a pivotal institutional role. Certain Gulf economies have resources and networks capable of supporting sub-regional cooperation mechanisms. The question is whether their strategy of internal economic diversification will lead them to look toward their neighborhood or to continue building bridges to Asia and the West by bypassing this neighborhood. These choices can influence regional economic trajectories.

For the rest of the world, the lesson is clear. Trade tensions and institutional fragmentation are conceptually distinct, but they frequently overlap and can reinforce each other mutually. The former can be negotiated in a few months between parties still talking to each other. The latter is repaired in years, sometimes decades, and only if actors actively decide to rebuild channels that war or mistrust has closed. Regional institutions can have measurable economic benefits, but their GDP return must be demonstrated and quantified case by case.

The WESP emphasizes the effects of conflict, the closure of the Strait of Hormuz, and associated disruptions; it does not develop the institutional thesis advanced in the article.

Sources

  1. United Nations, World Economic Situation and Prospects, May 2026
  2. Institute for Economics and Peace, Great Fragmentation, January 2026 (IEP, URL not confirmed)
  3. Middle East Institute, Unfinished Business, 2026 (MEI, URL not confirmed)
  4. Michel Duclos, works and analyses at Institut Montaigne (diplomacy, world order, regional crises)
  5. Dani Rodrik, The Globalization Paradox and works on the globalization trilemma (Princeton University Press)
  6. Thomas Philippon, The Great Reversal (Harvard University Press, 2019)