Moody’s turns negative on the whole MENA region as Hormuz disruption reshapes the credit map

Moody’s has cut its outlook for MENA sovereign credit to negative from stable, extending region-wide the alarm it first rang in April, when it moved only Bahrain and Iraq to negative. The trigger is the same one that has dominated our coverage since late February: The war has choked shipping through the Strait of Hormuz to a trickle, forcing nearly every Gulf exporter to cut production, raising the import bills for energy importers, and pushing the region toward a real GDP contraction in 2026. It’s a sharp reversal from the acceleration that several institutions had penciled in at the start of the year.

Qatar and Kuwait keep stable outlooks despite fiscal deterioration — their reserves are deep enough to take the hit. Saudi Arabia and Abu Dhabi have so far come out relatively insulated: Their pipelines partly bypass the strait, so higher oil prices partially offset lower volumes. Oman, whose ports sit east of the chokepoint, is the only Gulf country to have seen little impact on its exports.

Bahrain and Iraq, the two Moody’s had flagged in April, remain the most exposed. Both entered the war with weak fiscal starting positions, and each has seen huge drops in foreign-currency reserves. Moody’s expects the GCC to backstop Bahrain if needed, pointing to the USD 5.4 bn currency swap line the UAE extended in early April as a template, but Iraq has no such safety net. Worse, Iraq relies on hydrocarbons for half its GDP and 90% of government revenues, with no meaningful export route that bypasses the Strait.

Looking ahead, the war is hammering the sectors on which the Gulf has been building its post-hydrocarbon economy, including aviation, hospitality, retail, logistics, real estate. The UAE and Qatar have already seen tourism arrivals drop sharply, and Moody’s says the shock has kicked off a long-anticipated correction in Dubai’s property market after a five-year boom.

The impact is indirect but just as real for energy importers. Egypt, Jordan, Morocco, Tunisia, and Turkey all face higher energy import bills, weaker external demand, and more punishing global financing. Both Turkey and Egypt saw foreign capital flight in the first months of the war, but Turkey’s exposure runs deeper: Its central bank drew heavily from foreign reserves to defend the TRY and control inflation rates. Egypt’s central bank has kept its thumb off the sale.

What’s next: Moody’s now sees a slow, bumpy road to any durable settlement, with renewed Houthi threats to Red Sea shipping raising the risk that even Saudi Arabia's alternative route gets compromised. The agency doesn’t expect Hormuz flows back to pre-conflict levels before early 2027, and warns that the longer US-Iran conflict festers, the greater the danger it durably dents the Gulf’s appeal as a destination for capital, talent, and tourism.