S&P Affirms Bahrain’s B/B Rating With Stable Outlook

S&P Global Ratings affirmed Bahrain’s sovereign credit rating at B/B with a stable outlook, citing continued expectations of regional financial support from Gulf Cooperation Council countries despite mounting economic pressures linked to the Middle East conflict.

The ratings agency said Bahrain continues to benefit from strong backing from neighboring Gulf states, even as the ongoing regional war disrupts shipping flows and infrastructure activity across the kingdom.

S&P’s baseline scenario assumes supply-chain disruptions in the Strait of Hormuz will gradually ease during the second half of 2026, although intermittent volatility is expected to persist.

The agency warned that even after maritime routes reopen fully, shipping activity and energy flows may take several months to normalize and could remain below pre-war levels through the end of the year.

“S&P could consider a positive rating action if regional tensions ease significantly and the government implements reforms that materially strengthen fiscal and external positions while enabling a substantial reduction in debt and interest costs,” the agency said in its report.

S&P expects Bahrain’s fiscal performance to remain weak throughout 2026, reflecting the kingdom’s continued dependence on oil revenues.

Oil accounts for roughly 50% of government revenue and exports, despite contributing only around 15% of GDP.

The agency noted that Bahrain reduced crude oil production in March as a precautionary measure and projected average oil output for 2026 at around 130,000 barrels per day.

As a result, S&P now forecasts Bahrain’s budget deficit to widen to 8.4% of GDP in 2026, compared with 6.9% in its previous review and an estimated 8.9% in 2025.

The revised outlook reflects lower expected oil revenues alongside rising financing costs amid tighter regional liquidity conditions.

S&P also sharply downgraded its economic outlook for Bahrain, forecasting the economy will contract by 3.3% in 2026, compared with its earlier forecast for 0.5% growth.

The agency attributed the deterioration to lower oil production, weaker manufacturing activity, and slowing non-oil sectors including tourism and real estate.

Aluminium Bahrain B.S.C., commonly known as Alba, was among the companies affected by Iranian attacks, according to the report, contributing to weaker industrial output.

The slowdown is also expected to spread into logistics, professional services, and Bahrain’s large financial-services sector, which accounts for roughly 18% of GDP.

However, S&P noted that some cross-border trade links remain supportive, particularly via the King Fahd Causeway connecting Bahrain to Saudi Arabia, which has enabled continued exports of certain refined products despite wider regional supply disruptions.

The agency also said Gulf tourism is likely to remain relatively resilient, with nearly 90% of Bahrain’s visitors historically arriving from neighboring GCC countries.

Despite the uncertain economic environment, S&P said it expects GCC countries to continue supporting Bahrain when necessary.

The agency highlighted a recent five-year currency swap agreement worth 2 billion Bahraini dinars (approximately $5.4 billion) signed on April 8 between the Central Bank of the UAE and the Central Bank of Bahrain.

S&P also pointed to Bahrain’s longstanding history of receiving timely financial assistance from Gulf allies during periods of economic stress.

Bahrain’s gross international reserves stood at approximately $6.5 billion as of March 2026, supported by $2.1 billion in capital-market issuances completed in February.

According to the agency, these reserves provide the government with sufficient flexibility to meet upcoming foreign-currency debt repayments averaging around $2.5 billion annually between 2026 and 2028.