Daijiworld Media Network - Dubai
Dubai, Jun 1: Global ratings agency Fitch Ratings has warned that the ongoing Iran war poses significant risks to the Middle East economy and could lead to broader sovereign and corporate rating downgrades across the region if the conflict persists.
In a report released on May 28, Fitch said that although no Middle East issuer has been downgraded since the conflict escalated in late February, several ratings have been placed on Rating Watch Negative or had their outlooks revised downward due to growing uncertainty surrounding the war and the effective closure of the Strait of Hormuz.
The agency said the persistence of these risks could result in wider rating actions if conditions deteriorate further.
Fitch has raised its 2026 base-case assumption for Brent crude oil prices to 87 US dollars per barrel from its earlier estimate of 70 dollars. The revision is based on expectations that the Strait of Hormuz will gradually reopen around July after remaining effectively closed for nearly five months.
Before the conflict, the strategic waterway handled around 15 million barrels of crude oil and five million barrels of petroleum products daily, accounting for roughly 20 per cent of global oil consumption. It also served as a key route for global liquefied natural gas and fertiliser shipments.
According to Fitch, supply-chain disruptions have been worsened by damage to Qatar's LNG infrastructure and volatile funding conditions across the region.
In a more adverse scenario, where normal shipping through the strait is delayed until late in the third quarter or early in the fourth quarter of 2026, the agency estimates oil prices could average around 100 dollars per barrel.
While elevated oil prices may benefit some Gulf hydrocarbon producers, Fitch noted that gains depend on their ability to export through alternative routes that bypass the Strait of Hormuz.
The agency said Saudi Arabia and the United Arab Emirates have benefited from pipeline networks that allow substantial exports to avoid the waterway, while Oman remains the least exposed because its exports do not rely on the strait.
Oman was the only Gulf Cooperation Council sovereign for which Fitch improved its 2026 growth and fiscal forecasts.
Despite the disruption, most GCC sovereign ratings have remained stable. Apart from placing Qatar and Ras Al Khaimah on Rating Watch Negative, Fitch said the conflict has not led to significant rating or outlook changes among Gulf sovereigns.
However, the agency cautioned that a prolonged war or renewed escalation could challenge the resilience of regional economies and credit profiles.
Among corporate sectors, airlines, hotels, chemical manufacturers and homebuilders face the highest risks. Airlines are grappling with aviation disruptions and rising fuel costs, while hotels are witnessing weaker occupancy rates due to security concerns and travel disruptions.
Chemical producers continue to face higher feedstock costs and supply-chain challenges.
Fitch also warned that a prolonged conflict could reduce the attractiveness of the GCC as a destination for residential property investment, potentially affecting homebuilders and developers.
The banking sector faces risks from weaker asset quality and tighter liquidity conditions if the conflict continues. Sectors such as tourism, aviation, logistics, infrastructure and real estate could come under pressure, particularly in the UAE and Qatar.
Dubai's property market remains a key concern. Fitch noted that property prices in the emirate have risen by around 60 per cent over the past four years and were already expected to undergo a moderate correction due to increased housing supply. A prolonged conflict and potential expatriate departures could intensify that correction and affect banks with substantial real estate exposure.
Despite these challenges, Fitch said Gulf banks remain supported by strong liquidity buffers and government backing. Government and government-related deposits account for between 20 and 30 per cent of banking sector deposits across GCC countries.
The agency estimates that around 85 per cent of GCC bank ratings and many government-linked corporate ratings are dependent on sovereign support, meaning any downgrade of sovereign ratings could have wider implications across the region's financial system.
Fitch said investors should closely monitor efforts to end the conflict, along with its impact on economic growth, inflation, energy markets, supply chains and financing conditions. The performance of sectors such as tourism, aviation, real estate, infrastructure and banking will remain key indicators of the region's ability to withstand a prolonged geopolitical crisis.