RIYADH: The Middle East’s economic resilience is being tested by the Iran war, with Fitch Ratings warning that “significant risks” from the conflict could trigger broader rating downgrades across the region.
The ratings agency said no Middle East issuer has been downgraded since the conflict escalated in late February, but several ratings have been placed on Rating Watch Negative or had 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 crystallised, could lead to broader rating downgrades,” Fitch said in a report released on May 28.
The disruption has already prompted Fitch to raise its 2026 base-case Brent crude oil price assumption to $87 per barrel from $70 previously. The revision is based on expectations that the Strait of Hormuz will begin reopening around July after remaining effectively closed for about five months.
Before the conflict, the waterway carried 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, as well as a significant share of global liquefied natural gas and fertilizer shipments. Fitch said supply-chain disruptions have been compounded by damage to Qatar’s LNG infrastructure and volatile funding conditions across the region.
In an adverse scenario, where flows through the strait do 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, the agency said.
While higher oil prices may support some Gulf hydrocarbon producers, Fitch noted that the benefits depend on their ability to export through routes that bypass the strait.
Saudi Arabia and the UAE have benefited from pipeline infrastructure that allows substantial hydrocarbon exports to avoid the waterway, while Oman remains the most insulated Gulf economy because its exports do not rely on the strait. Fitch said Oman is the only GCC sovereign for which it improved 2026 growth and fiscal forecasts in its latest assessment.
Despite the disruption, sovereign credit profiles across the Gulf have largely remained stable.
“Most GCC sovereigns have proved resilient since the start of the war,” Fitch said, noting that apart from placing Qatar and Ras Al Khaimah on Rating Watch Negative, the conflict has not led to rating or outlook changes for Fitch-rated GCC sovereigns.
The agency cautioned, however, that a prolonged conflict or a renewed escalation of hostilities could test the resilience of sovereign ratings and have broader implications across the region’s credit landscape.
Among corporate sectors, Fitch identified airlines, hotels, chemicals and homebuilders as facing the most significant risks. Airlines are contending with aviation disruptions and higher fuel costs, while hotels face weaker occupancy as security concerns and travel disruptions weigh on tourism demand. Chemical producers continue to grapple 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 said, warning that some homebuilders could face pressure if investor sentiment weakens.
Banks across the Gulf also face risks through deteriorating asset quality and tighter liquidity conditions if the conflict drags on.
“The two main transmission channels to the banking sector from the conflict are liquidity and asset quality,” Fitch said. Weaker performance in sectors such as infrastructure, tourism, aviation, logistics and real estate could place pressure on 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 risen about 60 percent over the past four years and were already expected to undergo a moderate correction due to new supply entering the market. A prolonged conflict and potential expatriate outflows could deepen that adjustment and weigh on banks with significant real estate exposure.
Even so, the agency said Gulf banks remain supported by strong liquidity buffers and government backing.
“Funding and liquidity are rating strengths for the region,” Fitch said, adding that government and government-related deposits account for 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, meaning any negative action on sovereign ratings would likely ripple across the wider financial system.
Looking ahead, the agency said investors should 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 key indicators of the region’s ability to withstand a prolonged geopolitical shock.
