Moody's Ratings (Moody's) has said that its outlook for credit fundamentals for sovereigns in the Middle East and North Africa (MENA) has changed to negative from stable.
In a report on regional credit conditions, Moody’s said that the escalation of long-standing geopolitical tensions in the Middle East into an open military conflict since late February 2026 is materially weakening regional credit conditions through disruptions to trade flows and the impact of elevated security risks on sentiment-sensitive sectors. Growth will slow and become more uneven across the region as trade disruption and confidence shocks weaken earlier momentum
At the start of the year, Moody’s expected MENA region growth to accelerate in 2026 on higher oil production and further progress on large-scale investment projects and pro-business reforms. However, the Middle East conflict has since disrupted that baseline, with early indicators pointing to a real GDP contraction.
Hydrocarbon exporters
For hydrocarbon-exporting Gulf sovereigns, the main transmission channel is the impairment of shipping through the Strait of Hormuz, which will weigh on growth, as well as fiscal and external positions. However, over the next 12-18 months, large fiscal and external buffers and/or alternative export routes will mitigate the credit impact for most.
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. Nevertheless, the economic impact will be less severe for those with alternative export routes – notably Saudi Arabia (Aa3 stable) and Abu Dhabi (Aa2 stable). Oman (Baa3 stable), whose ports and energy infrastructure lie to the east of the Strait, is the only sovereign that has so far faced no material constraints on exports.
In the longer term, the full impact will depend on how quickly trade flows normalise and whether the conflict durably damages the economic models of the Gulf sovereigns, weakening their prospects for diversification away from the hydrocarbon sector.
Moody’s said, “In our central scenario we assume that even if the conflict continues, it will not lead to further material damage to energy or other civilian infrastructure in the Gulf region. However, we expect trade flows will remain disrupted through autumn and will not return to pre-conflict levels before early 2027. This will lead to a significant contraction of economic activity for the region's hydrocarbon exporters.
Hydrocarbon importers
For the hydrocarbon-importing sovereigns outside the Gulf, the transmission is mainly indirect through elevated global energy prices, supply-chain disruptions, and sentiment-driven shifts in short-term foreign capital flows.
Moody’s said, “Meanwhile, the shock to non-hydrocarbon activity in the Gulf will be broad-based because the conflict affects sectors that have become central to the region's economic diversification strategies. Aviation, hospitality, retail, logistics (centred around maritime transshipment flows), real estate and construction will be affected by reduced tourism inflows, supply chain disruptions, weaker confidence, and delayed investment decisions.
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. Together with Bahrain (B2 negative) and Kuwait (A1 stable), these Gulf sovereigns have been most directly impacted by Iran's military responses and have all or most of their ports located inside the Gulf.
In comparison, Saudi Arabia and Oman's exposure to Iran's military responses has so far been more limited. Recovery in non-oil growth will likely take longer and depend on the durability of the ceasefire, the pace of normalisation of non-oil trade flows, and a lasting improvement in confidence and security conditions — all of which remain highly uncertain.
Gulf region
Moody’s also said, “Although not part of our baseline, a lasting change in perceptions of the Gulf region's security and overall stability would undermine its non-oil economic model and hurt its long-term growth and diversification prospects. Such a scenario would become more likely the longer the underlying tension between the US/Israel and Iran remains unresolved, raising the prospect of periodic re-escalation and the risk of further collateral damage to the region's economic assets and infrastructure. This risk is one of the key factors underpinning the region's negative outlook.”
Impact on non-Gulf states
For most hydrocarbon importers outside the Gulf, the growth impact will be more indirect but still negative. Egypt (Caa1 positive), Jordan (Ba3 stable), Morocco (Ba1 positive), Tunisia (Caa1 stable) and Turkiye (Ba3 stable) are exposed through varying combinations of higher energy import costs and weaker external demand as well as tighter global financing conditions, and supply chain disruptions.
Lebanon's (C stable) exposure is more direct because of Israel's military operations in the country since the start of the conflict.
Moody’s said, “On balance, we expect a relatively modest slowdown in the MENA region outside the Gulf bar Lebanon.”