RIYADH: The Middle East and North Africa’s exposure to the latest US tariffs will be largely indirect, driven by weaker global growth prospects and softening energy prices rather than direct trade effects, a new analysis showed.
In its latest report, Moody’s Investors Service noted that the Trump administration’s exclusion of oil and gas from the tariff scheme limits the immediate impact on MENA economies.
This comes as US President Donald Trump imposed a 10 percent universal import tariff and duties of up to 145 percent on Chinese goods — prompting Beijing to retaliate with tariffs of up to 125 percent — while granting a 90-day pause on steeper tariffs for dozens of other countries.
Moody’s views align with an April report by global consulting firm PwC, which stated that Middle Eastern economies will not face a direct impact from the tariffs, but will be affected through indirect channels.
“Exemption of oil and gas from the new US tariff scheme limits the size of the region’s affected exports to a relatively small share of GDP (gross domestic product), except for Jordan,” Moody’s said.
The report added that second-order consequences, such as declining demand, lower investor risk appetite, and cheaper oil, are more likely to weigh on credit conditions.
“The second-round impact, due to weaker global demand, will be tempered by a relatively limited reliance of the MENA region’s growth on non-energy exports,” it added.
The analysis further noted that the oil market has already priced in expectation of weaker global growth. Brent crude declined to around $65 per barrel in April — about 20 percent below the average price recorded in 2024.
Moody’s cautioned that if significantly low oil prices persist, they could strain the fiscal and external balances of oil and gas-exporting countries in the GCC region.
Prolonged low oil prices could also force Gulf Cooperation Council governments to slow the rollout of infrastructure projects tied to economic diversification efforts, dampening near-term growth prospects for the domestic non-hydrocarbon sector.
“The sovereigns that are most exposed to lower oil prices are those with the largest government oil revenue as a share of GDP and the highest (fiscal break-even) oil price that balances their government budgets, especially Kuwait, Iraq, Saudi Arabia and Bahrain,” Moody’s said.
It added: “While the starting point for Saudi Arabia and Kuwait, which has virtually no government debt, will be a very strong government balance sheet, Bahrain’s debt already exceeds 130 percent of GDP and, unlike its higher-rated GCC neighbors, it has no significant government financial assets and very limited foreign-currency reserves to buffer the impact of lower oil prices.”
The US-based agency added that issuers in the Middle East with weak credit quality, substantial financing needs, and limited buffers may face heightened liquidity pressures amid increased market volatility and tighter credit conditions.
Amid ongoing uncertainties surrounding global growth prospects, the International Monetary Fund noted earlier this month that short-term growth in the Middle East will be driven by expansion in the non-oil sector, projecting regional economic growth of 2.6 percent in 2025 and 3.4 percent in 2026.
Banking sector
According to the latest study, growth prospects for the banking sector could come under pressure if economic activity slows and lending margins are compressed.
Should the new US tariffs weigh on the global economy and drive down oil prices, regional business confidence may weaken and government spending could decline, ultimately dampening loan growth prospects for GCC banks.
“Weaker growth could also erode asset quality as GCC banks have a large concentration in real estate and contracting. Both sectors are sensitive to investor confidence and government spending,” said Moody’s.
The report further noted that a potentially faster decline in global interest rates could squeeze banks’ margins.
GCC banks’ loan books remain heavily weighted toward the corporate sector, where loans are typically floating-rate, which could exert pressure on bottom-line profitability.
“Saudi Arabia is an exception with an evenly split book between corporate and retail. However, GCC banks in general and large banks in particular are well-positioned to withstand market volatility given their resilient financial profiles, diversified balance sheet, strong market access and healthy capital buffers,” said Moody’s.
The analysis added that corporates will also feel the impact of weaker global demand, lower energy prices, and potentially reduced government spending.
A significant global slowdown could further dampen demand for real estate in the GCC, particularly in the UAE, which has seen a sustained property market boom over the past four years.
The agency concluded that sovereign wealth funds in the region may need to increase borrowing to preserve their capacity to finance and implement economic diversification mandates.
