Muscat – Corporate sectors across the GCC are unevenly exposed to the risks arising from the Middle East war, with the focus shifting from immediate operational disruption to prolonged uncertainty that could weaken business confidence, delay investment and slow a return to pre-war economic conditions, S&P Global Ratings said in a new report.

S&P said it expects profitability across most GCC corporate sectors to decline by the end of 2026 due to higher logistics costs. It also anticipates weaker discretionary capital expenditure and lower volumes of debt issuance in the capital markets.

The report examines the credit quality implications of a downside scenario for the US-Iran conflict.

“In our downside scenario, almost all GCC corporate sectors face severe impacts, though the effect on credit quality will depend less on companies’ balance sheet strength and more on their ability to sustain confidence, continue investing and circumvent logistics bottlenecks,” said Sapna Jagtiani, credit analyst at S&P Global Ratings.

S&P expects more defensive sectors, including utilities and telecommunications, to remain resilient. However, it said credit quality pressures are already emerging in industries with greater direct exposure to the conflict, including the ongoing disruption to shipping through the Strait of Hormuz, as well as weaker business confidence and delayed investment activity. These pressures are expected to intensify if uncertainty persists.

According to the report, the sectors most vulnerable include hospitality, aviation, real estate, transport, logistics, consumer discretionary and energy.

“We expect profitability across almost all sectors to decline in 2026 owing to higher logistics costs. We also expect companies to reassess discretionary capital expenditure, while volumes of capital market debt issuance are likely to fall,” Jagtiani said.

S&P identified hospitality as one of the hardest-hit sectors in the GCC, noting that hotel occupancy rates have fallen sharply since the outbreak of the conflict.

“While intermittent easing of tensions has reduced the risk of a prolonged decline in visitor arrivals, the sector remains highly sensitive to changes in traveller confidence. Many hotels in Dubai are closing temporarily for refurbishment or until demand improves. We expect occupancy to begin improving in the fourth quarter of 2026, but a return to pre-war levels is unlikely before the end of 2027,” S&P said.

In Saudi Arabia, the impact has been less pronounced as the kingdom remained open for Umrah and Hajj pilgrims. Oman, meanwhile, benefited from the diversion of some international travellers to Muscat, although hotel occupancy has still declined overall because of weaker regional tourism, the ratings agency noted.

For the consumer and retail sector, S&P said weaker disposable income and subdued consumer sentiment are expected to weigh on profit margins.

“In particular, we expect higher living costs and volatile energy markets to dampen demand for retail goods, luxury products and automobiles. In the short term, supply chain disruptions could reduce product availability. Markets with large expatriate populations or a heavy reliance on tourism, such as Dubai, face greater risks,” it said.

Under its downside scenario, S&P expects supply chain disruptions and weaker consumer confidence to affect most GCC markets, severely eroding profit margins. While demand for food, household products and personal care items is expected to remain relatively resilient and less sensitive to economic uncertainty, margins are still likely to come under pressure from higher transportation, freight and commodity costs.

S&P also warned that oil and gas supply chains are expected to continue facing significant disruption under the downside scenario.