Bahrain’s interest bill now tops this year’s maturities as the Iran war guts its oil revenue

Bahrain’s oil has stopped paying its bills. The Iran war has cut the region’s crude output by nearly two-thirds, stripping out the revenue that serviced its debt load, with Bahrain pumping 68k and 65k barrels per day in July and August and just 44k in 2Q, according to OPEC data (pdf). By comparison, Bahrain’s 1Q 2026 output was around 97k bbl / d — itself a drop from 4Q 2025’s 161k bbl / d average. Hydrocarbons provide about half of state revenue and exports, but form only 15% of the country’s GDP, S&P says.

This year’s debt payments are manageable, but the picture is less clear starting next year: Bahrain can cover the USD 1.1 bn of foreign-currency debt due in 2026, Oxford Economics Senior Economist David Stewart tells AGBI. “Beyond this year, the position becomes more difficult,” Stewart says, as repayments rise to USD 2.7 bn each in 2027 and 2028 and USD 4.5 bn in 2029, according to its June offering circular. S&P’s May forecast of a deficit of 8.4% of GDP assumed output of 130k bbl / d, roughly double what is flowing now. Bahrain’s real GDP shrank 3.8% y-o-y in 1Q 2026 on a 37% drop in oil activity.

Debt servicing now absorbs more than a third of revenue: Bahrain spent USD 2.8 bn (37% of revenue) on debt interest payments and its 2026 budget implies that number going up to USD 3.1 bn this year. That’s more than the USD 2.6 bn of external debt maturing in 2026. Behind those payments sits USD 60 bn of government debt, which Fitch put at 147% of GDP last year when it cut Bahrain’s rating to ‘B’ in February, before the war, on the expectation that the ratio would keep rising. The war has sped that up: the ratio could top 200% this year if exports don’t recover, Khalij Economics’ Justin Alexander says.

What markets are charging: The USD 1 bn 10-year bond that Bahrain sold in June at a 7.1% coupon now yields 8.3%, and Bahraini spreads sit 215-265 bps above Abu Dhabi’s, Arqaam Capital’s Nadim Amatouri says.

REMEMBER- That June deal drew more than USD 3.2 bn in orders, and it came two months after the UAE extended a currency swap line to steady Bahrain’s bonds. Bahrain probably drew on that line in July, and nearly a quarter of its public debt is now owed to its own central bank.