Fitch Warns Iran War Poses Growing Threat to Middle East Economies and Credit Ratings

The ongoing Iran war is placing mounting pressure on Middle Eastern economies, with Fitch Ratings warning that prolonged instability and continued disruption to regional trade routes could trigger broader credit rating downgrades across the region.

In a report released on May 28, Fitch said no Middle East issuer has been downgraded since the conflict intensified in late February. Still, the agency noted that several ratings have been placed on Rating Watch Negative or had their outlooks revised downward as uncertainty surrounding the war continues to grow.

Fitch pointed to the effective closure of the Strait of Hormuz as a major source of concern. The strategic waterway, which previously handled about 15 million barrels of crude oil and 5 million barrels of oil products daily, accounts for nearly one-fifth of global oil consumption and serves as a critical route for liquefied natural gas and fertilizer shipments.

“The persistence of significant risks around the conflict, if crystallised, could lead to broader rating downgrades,” Fitch said.

The agency has already adjusted its outlook for energy markets. Fitch raised its 2026 base-case assumption for Brent crude oil prices to $87 per barrel, up from $70, based on expectations that the Strait of Hormuz could reopen around July after remaining largely closed for nearly five months.

Fitch warned that a more severe scenario remains possible. If shipping through the strait fails to return to near-normal levels until late in the third quarter or early in the fourth quarter, oil prices could average close to $100 per barrel in 2026.

The report noted that while higher crude prices may benefit oil-producing Gulf states, gains depend heavily on export routes that avoid the strait. Saudi Arabia and the United Arab Emirates have pipeline networks that allow a significant portion of oil exports to bypass the waterway. Oman was described as the most insulated Gulf economy because its exports do not rely on the strait, making it the only GCC sovereign for which Fitch improved 2026 growth and fiscal forecasts.

Despite the conflict, Gulf sovereign ratings have remained largely stable. Fitch said most GCC governments have demonstrated resilience since the outbreak of war, with Qatar and Ras Al Khaimah the main cases placed on Rating Watch Negative.

Corporate sectors face more immediate pressure. Airlines are confronting higher fuel prices and disrupted flight operations, while hotels are dealing with weaker occupancy as security concerns affect tourism. Chemical producers continue to struggle with supply-chain disruptions and higher input costs.

The agency also warned of risks to Gulf banking systems. According to Fitch, liquidity and asset quality remain the main channels through which the conflict could affect banks. Sectors such as tourism, logistics, aviation and real estate could weaken, placing pressure on loan portfolios, particularly in the UAE and Qatar.

Dubai’s property market was highlighted as an area of concern. Property prices have risen sharply over the past four years, and Fitch said a prolonged conflict combined with potential expatriate departures could deepen an expected market correction.

Even with these risks, Gulf banks retain strong liquidity and government support. Fitch estimated that government and related deposits account for up to 30 percent of banking-sector funding across the GCC, helping shield financial institutions from immediate shocks as the region navigates a volatile geopolitical landscape.