The ongoing tariff conflict is expected to have minimal direct effects on banks in the Gulf Cooperation Council (GCC). However, a new analysis from Fitch Ratings points out that the indirect repercussions, such as declining oil prices and weaker global economic conditions, could create substantial obstacles.
As trade disputes intensify, especially between the United States and China, concerns are growing regarding their impact on oil demand and public spending in the GCC, which relies heavily on oil revenues.
According to Fitch Ratings, the majority of GCC exports to the United States are hydrocarbons, which are not subject to tariffs. Non-hydrocarbon exports, which do face a 10% tariff (and 25% for aluminium and steel), represent a small portion of total trade, thereby shielding banks from immediate tariff-related impacts.
The more pressing danger lies in falling oil prices and lower global demand, which could lead to diminished government spending—a vital component for banking operations within the GCC. Fitch emphasized that “lower oil prices and weakened global economic performance could result in constrained government expenditures, significantly impacting banking conditions in many GCC nations.”
In March 2025, Fitch reduced its projected global GDP growth to 2.3% for 2025 and 2.2% for 2026, highlighting a risk of a sharper economic slowdown. This announcement followed a similar update from the International Monetary Fund, which in April 2025 revised its global growth expectations to 2.4% for 2025, attributing these changes to trade interruptions. A sluggish global economy could lead to lower commodity prices, particularly for hydrocarbons, which constitute 60-90% of government income in GCC countries, as per data from the World Bank.
Fitch underscored that oil market stability and pricing largely depend on global economic activity and Opec+ production decisions, with the group holding more than 6 million barrels per day as spare capacity as of January 2025.
Prior to the escalation of tariffs, Fitch had anticipated non-oil GDP growth for the GCC to exceed 3.5% in 2025 and 2026. Nevertheless, a sustained decline in oil prices could significantly reduce budget revenues, hindering non-oil economic activities and public expenditure. This would also stifle lending growth prospects for GCC banks, which Fitch predicted would remain close to 2024 levels in its Middle East Banks Outlook 2025. As of April 14, 2025, Brent crude was trading at $64.72 per barrel, already under pressure, with Goldman Sachs forecasting a potential drop to $58 by 2026 if the trade disputes continue.
Corporations in the GCC might encounter challenges as well. Tariffs are likely to elevate operational costs and inflation, negatively impacting profitability and cash flow, especially in sectors reliant on trade. Additionally, uncertainty around interest rates, particularly potential delays in US Federal Reserve rate reductions, may increase borrowing costs, dampening loan demand. “If businesses struggle, a rise in non-performing loans could emerge, exerting pressure on bank balance sheets,” remarked Dr. Khalid Al Mansour, an economist at the Gulf Research Centre. This scenario could heighten credit risk and pose challenges to banks’ asset quality.
Despite these challenges, GCC banks are relatively well-prepared. Many have enhanced their capital buffers in recent years, benefiting from healthy earnings driven by higher oil prices and favorable interest rates. Liquidity remains strong, and economic activity is robust, particularly in Saudi Arabia and the UAE. “GCC banks are equipped to handle moderate shocks, but a persistent slump in oil prices could test even the sturdiest banks,” a banking analyst explained.
Bahrain’s banking sector appears to be the most at risk, with Fitch rating the operating environment at ‘b+’/negative, constrained by the country’s B+/Negative sovereign rating. Bahrain’s significant debt load and dependence on a high break-even oil price—estimated by the IMF to be $95 per barrel—make it vulnerable to fluctuations in the oil market.
In contrast, Saudi Arabia (A+/Stable), the UAE (AA-/Stable), Qatar (AA/Stable), and Kuwait (AA-/Stable) possess stronger sovereign credit ratings and reserves, allowing for continued governmental spending. Oman (BB+/Positive) stands out with a positive outlook, reflecting its recent fiscal reforms.
The UAE and Saudi Arabia currently have the highest bank operating environment ratings (‘bbb+’/stable), followed by Qatar and Kuwait (‘bbb’/stable). “The diversification initiatives in Saudi Arabia and the UAE act as a buffer, but oil continues to be the linchpin of their economies,” Al Mansour noted. As global trade tensions escalate, GCC banks face a complicated landscape where fluctuations in oil prices, rather than tariffs, will determine their future prospects.