Executive Summary
This report evaluates the Middle East’s geopolitical risk for 2026, a year defined by the precarious “armed peace” following the 2025 Israel-Iran kinetic escalation and the first anniversary of the Syrian transition.
The report suggests a clear transition from interstate conventional warfare to high-stakes proxy competition and systemic resource-driven civil unrest.
The ongoing Iranian nuclear program, regional competition among key powers, and the governance failures in the Levant and Gaza are among the major risks affecting the Middle East in the year coming.
Key Takeaways
- Syrian Institutional Fragility: One year after the collapse of the Ba’athist regime, a “shadow cabinet” of hardline Hayat Tahrir al-Sham (HTS) and local ethnic clashes increasingly undermined President Ahmed al-Sharaa’s transitional government bureaucrats. Internal divisions have impeded the consolidation of state authority, allowing the Islamic State to establish mobile operational bases in the Badia region and the eastern Euphrates. The consequence is a fragmented security environment, where revolutionary legitimacy has not yielded administrative stability.
- Iranian Nuclear Breakout Posture: In response to the military conflicts with Israel in June 2025 and the reinstatement of UN sanctions in September 2025, Tehran has adopted a nuclear posture focused on survival. Several intelligence agencies suggest Iran has increased enrichment up to 90% as an ultimate measure to deter regime change. This raises the high-probability prospect of a second Israeli-Iranian military conflict in the initial quarter of 2026, given the effective closure of the “diplomatic window” for a renewed agreement akin to the JCPOA.
- Intra-GCC Hegemonic Competition: The divergent strategic objectives of Riyadh and Abu Dhabi have reached a critical juncture in Yemen and Sudan. The Southern Transitional Council (STC), backed by the UAE, moved towards formal secession in late 2025, which presented a direct challenge to Saudi Arabia’s preference for a unified Yemen. The existing diplomatic rivalry has evolved into a structural competition for regional dominance, endangering the cohesive economic and security framework of the Gulf Cooperation Council (GCC).
- The Gaza Governance Void: Following the October 2025 ceasefire, the Gaza Strip remains in a state of “suspended resolution.” The shift to a reformed Palestinian Authority effectively halted, which generated a security vacuum. Subsequently, residual Hamas factions and local clans vied for authority over aid distribution. The “Yellow Line” established by Israeli security forces persists as a continuous point of contention, while the absence of a large-scale reconstruction initiative fosters a “perpetual insurgency,” which could escalate into intense urban combat by mid-2026.
Geopolitical Context
The Middle East enters 2026 in a state of exhausted realignment. The fall of Assad’s regime in December 2024, and the subsequent rise to power of Ahmed al-Sharaa in Damascus, and the 12-day war between Tel Aviv and Tehran characterised the year 2025.
These pivot events undermined the long-standing “Axis of Resistance” deterrence paradigm, resulting in a power void that local entities—such as the STC in Aden and Hayat Tahrir al-Sham in Damascus—have swiftly moved to occupy, with differing levels of accomplishment and violence.
This transition has effectively ended the era of “frozen conflicts” in the Levant. A transactional and volatile environment has emerged, replacing a predictable, albeit violent, status quo. Regional powers like Turkey and Saudi Arabia are now compelled to intervene directly to prevent the complete disintegration of the novel, unstable political entities they helped establish.
Simultaneously, the geopolitical weight of the region has shifted toward the “Maritime Corridor” extending from the Eastern Mediterranean through the Red Sea to the Gulf of Oman. International norms no longer secure these waters; instead, their safety is now vulnerable to the “conditional truces” established by non-state actors like the Houthis. This has elevated maritime security from a logistical concern to a primary pillar of regional strategic posture.
Finally, the current US administration’s shift back to a “Maximum Pressure 2.0” posture has led to a renewed polarisation in the region. Some Gulf capitals are in favour of the revived pressure on Tehran, but others are concerned about the unexpected effects of an Iranian regime that feels trapped. As a result, middle powers have adopted a careful strategy of hedging, increasingly seeking a balance to US unilateralism in 2026 by looking towards China and Russia.
Political Risk
The foremost political risk in 2026 is the “Shadow Government” crisis in Syria. Religiously conservative officials from Idlib in Damascus have caused a significant cultural and political divide with the city’s more diverse residents. Should President al-Sharaa not expand his coalition by June 2026, the outcome is a “counter-revolution” or another sectarian civil war between Sunnis and Alawites, which could cause Turkish and Israeli forces to intervene further in Syria.
Iran experienced considerable difficulties in 2025 because of the military conflict with Israel, pressure from Western nations, and the need to adjust its foreign policy in the Middle East and surrounding nations. Concerns and distrust have arisen among the Iranian populace toward the central government and security apparatus because of the 12-day Israeli-Iranian military conflict, which resulted in substantial casualties within the Islamic Republic, and the continuous strain on the domestic economy caused by Western sanctions. Despite the government’s development of diverse strategies to mitigate the impact of Western sanctions on its economy, a recurrence of protests within the next year is possible if Tehran fails to address water scarcity and hyperinflation.
The lack of a practical post-conflict strategy for Gaza currently paralyzes the Palestinian political situation. The Palestinian Authority’s failure to conduct the 2025 elections as scheduled has caused it to lose relevance among younger Palestinians, who are increasingly turning to local “defence committees” that are not aligned with established factions. Both the existing Palestinian fragmentation and Tel Aviv’s continuous military activities within the Gaza Strip render the realisation of any sustained peace settlement or reconstruction program unachievable given the absence of a central authority able to establish a monopoly on the use of force.
Turkish regional ambitions represent a significant wildcard in 2026. Ankara’s “buffer zone” strategy in northern Syria and Iraq is developing into a permanent administrative presence. This annexation risks directly confronting the new Syrian National Army, as well as the remnants of the Kurdish YPG. President Erdogan’s strategic calculations seem oriented towards establishing a “Turkish Sphere” to counteract domestic economic challenges, a course of action reshaping the Levant’s boundaries.
Economic Risk
The GCC economies are entering a “disciplined growth” phase as the tenth anniversary of Saudi Arabia’s Vision 2030 approaches. Although regional GDP might grow by 4.4% in 2026, Riyadh projects a widening fiscal deficit of 5.6% because it prioritises massive infrastructure projects over fiscal cushions. The competition between Riyadh and Dubai for foreign direct investment (FDI) can escalate, resulting in more stringent regulatory requirements, interesting multinational corporations to decide where to allocate resources.
The Red Sea maritime corridor remains the region’s most volatile economic chokepoint. The Houthis will immediately resume drone and missile strikes if Israel conducts military operations in Rafah or if the Gaza ceasefire fails.
The reconstruction economy in Syria currently operates unconventionally, managed by clandestine committees employing pseudonyms. Despite the softening of some Western sanctions to allow for humanitarian help, the absence of transparency and the dominance of HTS-linked monopolies have hindered major international investors. We assess Syria will remain a “subsistence economy” in 2026, heavily dependent on illicit trade and limited Gulf aid, which does not address the 87% GDP decline since 2011.
Resource scarcity, specifically water, will be the primary driver of localised instability. Iran and Jordan are facing aquifer exhaustion that outpaces their desalination and water-management capacities. By 2026, water scarcity will develop from a developmental concern to a matter of national security, which may intensify international disputes over the Tigris-Euphrates basins as nations prioritise upstream resource control, harming their neighbours.
Security Risk
The resurgence of the Islamic State is the most urgent security threat of 2026. The organisation has transitioned from a fixed territorial presence to a highly mobile, decentralised insurgent force. Capitalising on the security vacuum in the Syrian Badia and the fractured Iraqi border regions, the Islamic State has taken control of substantial caches of heavy weaponry left behind after the collapse of the Assad regime. Forecasts suggest a surge in jihadist propaganda aimed at al-Sharaa and the Damascus government, potentially alongside a concerted attempt at territorial incursion or a large-scale attack on Syrian urban centres in early 2026.
In Lebanon, Hezbollah’s presence persists despite its 2025 losses. The Lebanese Armed Forces (LAF) remain politically and kinetically incapable of enforcing the UN-backed disarmament mandates. This impasse establishes a continuous incentive for Israeli strikes. Any effort by Hezbollah to restore its long-range missile capacity will trigger immediate pre-emptive measures, thus maintaining the Blue Line in a state of consistent, low-level kinetic friction.
The maritime domain has seen a proliferation of low-cost, high-impact asymmetric technologies. Different current naval defence systems cannot counter non-state actors’ adoption of generative AI, which enhances drone swarm tactics and improves detection evasion. In 2026, the risk of water-borne IEDs (WBIEDs) and naval mines in the Bab el-Mandeb and the Strait of Hormuz will persist as a fundamental threat, thus upholding elevated insurance costs and impeding global energy supply chains.
Iran’s ballistic missile reconstitution is a primary focus for 2026. Contrary to reports from Western intelligence agencies in 2025 regarding the destruction of essential production facilities, Tehran has successfully bought new planetary mixers for solid-fuel propellant from external partners. The Islamic Revolutionary Guard Corps’ emphasis on missile production suggests a strategy of “deterrence through volume,” aimed at overpowering Israeli and US missile defences in a future conflict. This rapid reconstitution narrows the window for any diplomatic “de-risking” efforts.
Assessment
By 2025, the geopolitical situation in the Middle East has moved away from state-to-state conflict and towards a fight for control of the state. The decline of the established Syrian regime and the deterioration of the Iranian proxy network have not fostered regional peace, but a more fragmented and vulnerable environment. The principal risk is a potential “Phase 2” of the Israel-Iran conflict, which we assess as highly probable considering Tel Aviv and Tehran’s narratives, military strategies and foreign policies.
We assess that the “armed peace” presently maintaining regional stability is both transactional and transient. For policymakers, the challenge in 2026 is navigating a Middle East that is increasingly autonomous and transactional. Facilitating a stable Syrian transition and a plausible Gaza reconstruction strategy presents an opportunity to stabilise the Levant. However, should these initiatives fail by the midpoint of the year, the region will probably return to a state of intense, multi-front conflict.
For institutional investors and capital allocators, the 2026 Middle East landscape necessitates a sophisticated “risk-premium” approach to portfolio management. Despite the projected growth in technology and infrastructure within the GCC’s non-oil sectors, particularly in the Saudi and Emirati markets, their resilience is susceptible to the volatility stemming from the Iranian nuclear threshold and the fragile Levantine transitions.
Investors must account for the “conditional stability” of maritime trade routes. Any decline in the security of the Red Sea will immediately increase insurance costs and hinder supply chains that depend on the Suez Canal. Additionally, the increasing competition between Riyadh and Abu Dhabi implies that regulatory arbitrage and fiscal discipline will be essential to regional investment decisions.
Therefore, a successful 2026 strategy requires balancing the pursuit of high-yield diversification in the Gulf with systemic tail risks associated with a potential “Phase 2” of the Israel-Iran conflict and the resurgence of the Islamic State in the Levant.
