Credit fundamentals across Middle East and North Africa (MENA) sovereigns have shifted to negative from stable as open military conflict and maritime trade disruptions weaken regional economic conditions, according to Moody’s Ratings.
The rating agency noted that the escalation of long-standing geopolitical friction into direct military conflict since late February has hit key economic sectors, with shipping restrictions through the Strait of Hormuz acting as the chief pressure point for Gulf hydrocarbon exporters.
While initial projections at the start of the year pointed to accelerating expansion across the region, revised forecasts show real GDP is set to contract in 2026, it stated.
“Nearly all hydrocarbon exporters in the Gulf have been forced to cut production because of disruption to shipping through the Strait, and Qatar's (Aa2 stable) liquefied natural gas (LNG) facilities have been directly damaged by Iranian strikes,” Moody’s stated, adding that trade flows are expected to remain impaired through autumn before normalising in early 2027.
Sovereigns with alternative export options, such as Saudi Arabia and Abu Dhabi, bypass the heaviest impacts, according to Moody’s, noting that both countries rely on pipelines to cushion export volumes, while higher crude prices help offset output drops.
Oman, with infrastructure sited east of the Strait, remains unconstrained.
The non-oil economy across the Gulf faces broad-based pressure. Sectors tied to economic diversification, including aviation, hospitality, logistics, retail, and real estate, are absorbing lower visitor numbers and delayed capital commitments.
“The UAE (Aa2 stable), including the constituent emirates of Abu Dhabi, Sharjah (Ba1 stable) and Dubai, as well as Qatar have already seen a sharp fall in tourism arrivals, and the conflict has set in motion a long-anticipated correction in the UAE's real estate market after a five-year boom,” Moody’s noted.
Fiscal exposure varies significantly across the region, noted Moody’s, citing Bahrain, Qatar, Kuwait, and Iraq facing the highest direct fiscal strain due to a heavy reliance on hydrocarbon revenues and a lack of alternative maritime routes.
However, sovereign wealth reserves provide substantial stability for key Gulf balance sheets: “Very large sovereign buffers mean the impact of expected fiscal deterioration on credit metrics will be transitory for Qatar and Kuwait, and we retain a stable outlook for both.”
“Very large sovereign buffers mean the impact of expected fiscal deterioration on credit metrics will be transitory for Qatar and Kuwait and we retain a stable outlook for both,” the report said, while highlighting that Bahrain and Iraq possess narrower cushions.
Regional financial support continues to bolster vulnerable balance sheets, exemplified by the $5.4bn currency swap agreement provided to Bahrain by the UAE in April.
Outside the Gulf, Moody’s stated that net hydrocarbon importers face indirect headwinds from higher energy import costs, currency fluctuations, and elevated foreign capital volatility, particularly across Egypt, Jordan, Morocco, Tunisia, and Turkiye.
Moody’s stated that a durable de-escalation and sustained reopening of shipping lanes could return the regional outlook to stable, whereas prolonged operational disruptions or structural hits to non-oil expansion would heighten credit risks.
