GCC states can weather short-lived war, but energy risks loom

March 03, 2026 (MLN): Middle Eastern sovereigns have enough financial headroom to weather a short-lived regional conflict, Fitch Ratings said, but prolonged fighting or damage to energy infrastructure could threaten credit ratings.

The warning comes as recent Israeli and U.S. strikes on Iran on 28 February have already had a greater impact than similar attacks in June 2025, with hostilities expected to continue across the region.

Fitch’s baseline scenario assumes the conflict will last less than a month, shaped by Iran’s weakened military capacity and U.S. reluctance to become embroiled in a longer war.

 Attacks by Iran and its proxies could intensify in the short term, the agency said.

The most immediate risk to sovereign ratings comes from potential disruption to Gulf Cooperation Council (GCC) energy exports.

While some damage has occurred, Fitch does not anticipate major infrastructure losses in its baseline.

The agency expects the Strait of Hormuz through which over 20 million barrels of crude, refined products, and LNG flow daily to be effectively closed during the conflict due to physical blockages, insurance hurdles, and security threats.

Saudi Arabia and the UAE have alternative pipelines, and all key oil exporters maintain reserves outside the region.

 Nevertheless, Bahrain, Kuwait, Qatar, and Iraq heavily reliant on the Strait could see short-term export disruptions, though higher energy prices may offset some revenue losses.

Non-oil economic activity is also likely to be affected in the near term, with suspended air travel, slower consumer spending, and a potential exodus of expatriates impacting housing and tourism.

Fitch expects these effects to be temporary but cautioned that countries positioning themselves as safe havens for international business could suffer longer-term reputational damage.

Most GCC states have substantial financial buffers, while lightly taxed non-energy sectors limit fiscal vulnerability. Geopolitical risks are already factored into sovereign ratings, with additional negative adjustments applied to Abu Dhabi and the UAE.

Israel faces tighter constraints, and Fitch said an extended conflict involving major reservist mobilization could still trigger a downgrade, consistent with its Negative Outlook.

Fitch emphasized that uncertainty remains high, with longer-term disruptions to energy exports or shifts in Iran’s political stability potentially causing more severe impacts on regional credit profiles.

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