RIYADH: The Middle East’s economic resilience is currently being tested by the ongoing conflict, with Fitch Ratings issuing a warning that “significant risks” stemming from the hostilities could trigger broader rating downgrades across the region. The ratings agency noted that no Middle East issuer has seen a downgrade since the conflict escalated in late February. However, several ratings have been placed on Rating Watch Negative or had their outlooks revised lower, reflecting heightened uncertainty linked to the war and the effective closure of the Strait of Hormuz.
“The persistence of significant risks around the conflict that, if crystallized, could lead to broader rating downgrades,” Fitch stated in a report released on May 28. This disruption has already led Fitch to increase its 2026 base-case Brent crude oil price assumption to $87 per barrel from the previous $70. This revision is based on expectations that the Strait of Hormuz will begin reopening around July, following an effective closure of approximately five months.
Prior to the conflict, this vital waterway transported around 15 million barrels of crude oil per day and 5 million barrels of oil products, accounting for roughly 20 percent of global oil consumption. It also carried a significant share of global liquefied natural gas (LNG) and fertilizer shipments. Fitch highlighted that supply-chain disruptions have been exacerbated by damage to Qatar’s LNG infrastructure and volatile funding conditions across the region.
In an adverse scenario, should flows through the strait not return to near-normal levels until late in the third quarter or early in the fourth quarter, oil prices could average around $100 per barrel in 2026, according to the agency. While higher oil prices might support some Gulf hydrocarbon producers, Fitch cautioned that the benefits depend on their capacity to export through alternative routes that bypass the strait.
Saudi Arabia and the UAE have benefited from pipeline infrastructure enabling substantial hydrocarbon exports to avoid the waterway. Oman, conversely, remains the most insulated Gulf economy as its exports do not rely on the strait. Fitch identified Oman as the only GCC sovereign for which it improved 2026 growth and fiscal forecasts in its latest assessment.
Despite the ongoing disruption, sovereign credit profiles across the Gulf have largely maintained stability. “Most GCC sovereigns have proved resilient since the start of the war,” Fitch observed, noting that apart from placing Qatar and Ras Al Khaimah on Rating Watch Negative, the conflict has not resulted in rating or outlook changes for Fitch-rated GCC sovereigns. However, the agency warned that a prolonged conflict or a renewed escalation of hostilities could severely test the resilience of sovereign ratings and have broader implications for the region’s credit landscape.
Among corporate sectors, Fitch pinpointed airlines, hotels, chemicals, and homebuilders as facing the most significant risks. Airlines are grappling with aviation disruptions and elevated fuel costs, while hotels are experiencing weaker occupancy due to security concerns and travel disruptions impacting tourism demand. Chemical producers continue to contend with rising feedstock costs and supply-chain challenges.
“A longer period of hostilities may reduce the attractiveness of the GCC as a destination for residential housing investment,” the report stated, cautioning that some homebuilders could face pressure if investor sentiment deteriorates. Banks across the Gulf also face risks from deteriorating asset quality and tighter liquidity conditions if the conflict persists.
“The two main transmission channels to the banking sector from the conflict are liquidity and asset quality,” Fitch explained. Weaker performance in sectors such as infrastructure, tourism, aviation, logistics, and real estate could strain loan portfolios, particularly in the UAE and Qatar. Dubai’s property market remains a key area of focus. Fitch noted that property prices in the emirate have surged approximately 60 percent over the past four years and were already anticipated to undergo a moderate correction due to new supply entering the market. A prolonged conflict and potential expatriate outflows could deepen this adjustment and weigh on banks with significant real estate exposure.
Nevertheless, the agency affirmed that Gulf banks continue to be supported by robust liquidity buffers and government backing. “Funding and liquidity are rating strengths for the region,” Fitch asserted, adding that government and government-related deposits constitute 20 percent to 30 percent of banking-sector deposits across the GCC. Fitch estimates that about 85 percent of GCC bank ratings and many government-related corporate ratings depend on sovereign support, implying that any negative action on sovereign ratings would likely ripple across the wider financial system.
Looking ahead, the agency advised investors to monitor efforts to bring the conflict to a lasting end, along with its impact on growth, inflation, energy markets, supply chains, and financing conditions. Sector-level consequences for tourism, aviation, real estate, infrastructure, and financial institutions will also remain crucial indicators of the region’s capacity to withstand a prolonged geopolitical shock.
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