S&P Global Ratings has boosted its economic growth forecast for Oman to 3.5 per cent owing to favourable trade logistics that would help the sultanate maintain the strength of its energy industry amid the Iran war.
The outlook is more than double the previous 1.6 per cent real GDP growth estimate for the sultanate, the New York-based credit ratings agency said in a statement on Friday. It is higher than the 2.3 per cent growth posted by Oman last year.
Fitch predicts GDP will increase 2.5 per cent and 2.4 per cent in 2027 and 2028, respectively.
"Oman’s trade routes remain unobstructed, which will allow the country to grow its oil and gas production capacity," S&P analysts said.
Oman benefits from its favourable geographical position in the Gulf, because its energy exports do not rely on the Strait of Hormuz, which has been a flashpoint during the regional conflict. The nation's Duqm, Mina Al Fahal and Salalah ports all have direct access to the Arabian Sea.
S&P said Oman is to have the capacity to increase crude oil production to 1.2 million barrels per day, supporting real GDP growth through 2029.
"While non-oil growth could quickly be dampened given the geopolitical situation, [oil production and GDP] are likely to benefit from increased activity levels in the hydrocarbon sector," they said.
"Although some tourism indicators are softer year-over-year, overall non-oil activity in the first half of the year expanded by about 1.3 per cent year-over-year, supported by the trade and logistics, IT and financial services sectors."
S&P also kept Oman's long-term credit rating at investment grade, rating it BBB-, one spot above junk grade, with a stable outlook. Investment grade makes it easier to access capital markets and raise funds when the need to borrow arises.
"The stable outlook reflects our opinion that Oman’s fiscal and external buffers – which include liquid government assets in excess of 40 per cent of GDP and gross foreign currency reserves of close to 20 per cent of GDP – will support the sovereign against adverse geopolitical developments," S&P said.
But the agency said its forecasts will be dampened under a scenario of a prolonged escalation of attacks by Iran on Oman's energy and civilian infrastructure. The sultanate, much like other regional states, has been the target of Iranian strikes during the seven-month conflict.
"We could lower the ratings if Oman’s economic activity or fiscal position deteriorated in conjunction with an escalation of the Middle East conflict," S&P said. "Downside pressure could also emerge if conflict-related spending increases, reversing the government’s fiscal consolidation efforts."
Oman is also embarking on a major economic diversification programme as, much like its neighbours, it pivots away from its reliance on crude.
The hydrocarbon industry plays a key role in Oman’s modern and expansive infrastructure, including electric utilities, roads, public education and medical services, the US International Trade Administration has said.
The sultanate also has plans to build a new economic area centred on developing its artificial intelligence capabilities, as it aims to accelerate its technology sector to boost its economy.
Oman's co-operation with its Gulf neighbours has also boosted its standing. For example, the value of goods transiting through the Sharjah and Oman logistics corridor jumped more than 66 per cent in the first three months of operations as shippers looked to avoid the Strait of Hormuz, Sharjah Customs data showed this week.
"We expect Oman will remain resilient to regional geopolitical conflicts," the S&P analysts said. "The country has historically maintained good relationships with its neighbours, preserving its traditional role as a neutral player and mediator in the region."
S&P added that Oman's inflation will rise to 2.5 per cent this year, but would subsequently ease to between 1 per cent and 2 per cent "supported by a decline in food and transport costs as supply constraints ease".
