The 2026 sovereign credit outlook for the Middle East region is stable thanks to the continued economic and credit resilience despite elevated geopolitical tensions and lower oil prices, according to a report by S&P Global Ratings.
Strong government balance sheets and increasing policy and fiscal flexibility across much of the region will act as protective buffers to potential shorter and longer-term external pressures.
S&P forecast average regional growth to accelerate slightly to about 3.5%, boosted by hydrocarbon production and strong nonoil activity, particularly in the UAE and Saudi Arabia. Notably, Qatar’s new liquefied natural gas (LNG) production is due to come on stream this year.
Heightened geopolitical risk is unlikely to disrupt credit channels except in the case of severe events, but could deter investment, reinforce fiscal dependence on oil, and maintain expenditure pressures, it stated in the report.
"Our forecasts are underpinned by the assumption that public sector initiatives focused on maximising oil and gas revenues - including infrastructure investments to increase capacity - will maintain growth in tandem with efforts to develop sustainable nonoil private sectors, most visibly in Saudi Arabia," said S&P in the report.
"However, these diversification efforts carry significant fiscal costs, which are amplified by lower oil prices. We assume a $60/bbl oil price in 2026. Our sovereign ratings in the region incorporate the potential for short-term increases in geopolitical stress and some oil price volatility," it stated.
"Key supportive factors remain, including substantial liquid government asset buffers and the region’s history of supporting financially weaker governments. We expect these factors to continue bolstering regional resilience," it added.
Government fiscal response mechanisms to lower oil prices have contributed to stronger ratings over the past two years. The average rating has risen to 'BBB' from 'BBB-', reflecting policy steps to enhance fiscal flexibility in the event of lower oil prices (and including the 'AA' rated UAE added in mid-year 2025).
While the sophistication of government financial planning and policy responses varies across nations, broadening revenue streams remains a common goal, said the top ratings agency in its report.
"We've observed that governments generally have greater financial flexibility than they did during the sharp oil price correction that began in 2014. This is because they've introduced new revenue streams including VAT and corporate tax and have become more transparent about budgeted expenditures that could be reduced if required. For most, fiscal breakeven oil prices have declined materially over this period. However, countries with less robust financial reserves and a greater reliance on commodity revenues, such as Bahrain and, to a lesser extent following
significant reforms to public finances, Oman, remain more exposed to prolonged periods of lower oil prices," it added.-TradeArabia News Service
