Country Risk in MENA

Bahrain (BHR)

Bahrain is rated medium-high overall, with fiscal weakness and regional security exposure remaining the principal vulnerabilities. Political violence is medium-high, legal & regulatory risk and political interference are medium, while supply-chain disruption is medium-low. The Sunni monarchy retains tight political control over a majority-Shia population, and political opposition remains heavily restricted. Large-scale unrest has not returned to the levels seen during the Arab Spring, but sectarian grievances and the wider U.S.-Iran conflict have increased security sensitivity. Bahrain’s close defence relationship with the U.S., including the presence of the U.S. Fifth Fleet, provides strategic support but also raises exposure to regional retaliation. The economy’s dependence on the Gulf and on Saudi connectivity means that a prolonged regional conflict can quickly affect trade, tourism and confidence.

The economic outlook has deteriorated markedly. The IMF’s latest 2026 data point to a small contraction in GDP, around -0.5%, and inflation of roughly 2.4%, while war-related government estimates have at times been more pessimistic. Bahrain’s central fiscal weakness remains substantial: the IMF projects a fiscal deficit above 10% of GDP and gross public debt around 152% of GDP. Sovereign non-payment risk remains medium-high, while the government’s inability to provide stimulus has been downgraded from medium-high to medium. The country continues to benefit from implicit and explicit support from Gulf partners, particularly Saudi Arabia and the UAE, which reduces immediate refinancing risk but does not eliminate the need for fiscal consolidation. Exchange transfer risk is medium-low, supported by the dinar’s U.S.-dollar peg, although foreign-exchange reserves remain modest relative to regional peers. The risk of doing business is medium-low, reflecting developed infrastructure and a relatively open investment regime. Banking-sector vulnerability is medium-high, as the financial sector is large relative to the domestic economy and remains exposed to property, sovereign risk and regional liquidity conditions. Bahrain’s diversification into finance, tourism, logistics and manufacturing provides resilience, but high public debt and the current Gulf security shock leave the country vulnerable to a prolonged period of elevated borrowing costs or weaker regional support.

Egypt (EGY)

Egypt’s overall risk level remains high. The breakdown of the U.S./Iran MOU and restart of moderate hostilities threatens tourism and Suez canal traffic and the impact has been amplified by the Houthi attacks on shipping in the Red Sea. Egypt is also concerned about the July 29 drone attack on its Damietta port. This will likely mean that the 2026 GDP forecast of 4.2% by the IMF is too high, while inflation will likely overshoot the projection of 13.2%. Nevertheless, Egypt has the buffer of sound long-term FDI inflows and loans, with the IMF still pleased with reforms in the July review. The Egyptian Pound has also recovered from the April lows and the adjustment YTD is modest. The sovereign non-payment risk thus remains at a medium high rating as the government debt/GDP is coming down multi-year. The risk of doing business is medium high and the inability of government to provide fiscal stimulus remains at high.

Meanwhile, the political violence risk rating remains very high, with political interference and legal & regulatory risk at high. Egypt has seen tension late spring over generation Z supporters wanting more freedom of expression. Additionally, the authorities remain concerned about the fragile peace in Gaza and the risk that it could spill over into domestic tensions. Meanwhile, Egypt and Israel relations remain tense, with Egypt joining others in criticism of Israel’s actions in Gaza and the West Bank. However, relations are recovering between Egypt and the UAE after previous UAE disappointment over limited Egyptian support during the spring phase of the Iran war. The UAE has a huge USD35bln Mediterranean resort being built in Egypt.

Iran (IRN)

The Islamic Republic of Iran maintains its very-high overall country risk rating, as the stalemate persists over finding a resolution to the ongoing U.S. conflict with Iran. Hardliners have derailed the previous MOU with the U.S. due to concerns that too much control was being given up for the Straits of Hormuz and given the fear of further U.S./Israel attacks. While tactically the hardliners are open to some negotiations this comes with military strength to improve Iran’s negotiating position. A volatile Trump administration can make it difficult to reach a more Iran friendly ceasefire deal and reopening of the Straits of Hormuz, though economic pressure still makes this the most likely outcome. Political interference and legal & regulatory risk had been re-affirmed at a very-high risk rating, as domestic suppression remains significant during the current war phase and after the January 2026 uprising. The political violence rating has therefore also remained high, both due to the war; population suppression and cost of living concerns. The risk of doing business also remains high, while supply chain disruption remains at high. On the economic front, the IMF have signalled yet another contraction for Iran’s GDP growth this year, forecasting -6.1% in 2026 with an expected rebound at 3.2% in 2027. The ongoing conflict has hurt infrastructure, but also curtailed oil exports due to the intermittent U.S. blockade. The non-oil sector is on a similar path due to destroyed infrastructure and weakened investment. Inflationary pressures are set to persist, with the IMF projecting a steep rise to 68.9% in 2026. Sovereign non-payment risk is high rating, as export revenue has been hurt by the war and a current account deficit of 1.8% of GDP is projected for 2026.

Iraq (IRQ)

Iraq remains one of the highest-risk markets in the group, with an overall rating of very high. Political violence, legal & regulatory risk, supply-chain disruption, political interference and the risk of doing business are all rated very high. The state continues to operate through a fragmented political system in which militia-linked groups, patronage networks and competing federal and regional authorities exercise considerable influence. Islamic State remnants remain a security threat, while the U.S.-Iran conflict has increased the danger of missile, drone and militia activity on Iraqi territory. Relations between Baghdad and the Kurdistan Regional Government also remain vulnerable to disputes over oil production, customs and revenue sharing. Corruption, weak contract enforcement, opaque procurement and the influence of armed groups create an exceptionally difficult operating environment. Iraq’s dependence on hydrocarbons has made the current regional conflict particularly damaging. The country normally exports most southern crude through the Strait of Hormuz, leaving public finances exposed when shipping is interrupted. Baghdad is therefore seeking to diversify export routes via Turkey’s Ceyhan terminal and possible pipelines toward Syria and Jordan, while also targeting a substantial expansion in production over the next six years. The government has discussed raising capacity toward 8-10 mln barrels per day and is courting U.S. investment in major oil and power projects. Implementation will depend on security, infrastructure and OPEC constraints. Sovereign non-payment risk is rated high and the government’s inability to provide stimulus is medium-high. Oil provides close to 90% of state revenue and the public wage and pension bill is exceptionally large, meaning lower export receipts rapidly translate into fiscal pressure. Exchange transfer risk is medium-high. Iraq holds more than USD100 bln in foreign exchange reserves, but much of its oil revenue passes through U.S.-linked financial channels, while Washington has tightened pressure on Iraqi banks and trade flows used to facilitate payments to Iran. Banking-sector vulnerability is rated medium-low because financial intermediation remains shallow, but operational weaknesses, sanctions exposure and heavy state dependence remain considerable. Iraq’s large resource base provides substantial long-term opportunity, but conflict, governance weaknesses and extreme dependence on oil keep country risk firmly at very high.

Jordan (JOR)

Jordan remains medium overall, supported by institutional continuity but constrained by high debt and regional instability. Political violence, legal & regulatory risk and political interference are all medium-high, while supply-chain disruption is medium-low. King Abdullah II continues to preside over a comparatively stable political system, but the country remains exposed to instability in Israel and the Palestinian territories, Syria, Iraq and the wider Middle East. Public opinion is highly sensitive to developments in Gaza and regional conflict, while unemployment and living-cost pressures create persistent domestic frustration. Jordan’s security services and institutional continuity have contained large-scale unrest, but restrictions on political activity and the state’s extensive role in the economy support the medium-high governance ratings.

The IMF expects GDP growth of around 2.7% in 2026 and inflation of approximately 2.5%. Tourism, services and remittances provide support, but the U.S.-Iran conflict has raised fuel, food, freight and insurance costs and weakened regional travel. Jordan imports most of its energy, making a prolonged period of high oil prices particularly difficult. The current-account deficit is forecast at around 7.4% of GDP in 2026. The risk of doing business is medium, while banking-sector vulnerability is medium-low. Banks remain profitable and well capitalised, and the exchange-rate peg to the U.S. dollar continues to anchor monetary credibility. Sovereign non-payment risk, exchange transfer risk and the government’s inability to provide stimulus are all medium-high. Net public debt excluding the Social Security Corporation remains above 80% of GDP, and gross government and guaranteed debt is much higher, limiting fiscal flexibility. Jordan’s IMF Extended Fund Facility has remained broadly on track and foreign-exchange reserves cover around eight months of imports, reducing near-term liquidity risk. The country nevertheless remains dependent on grants, concessional finance and support from Gulf and Western partners. Jordan’s strong institutions and external backing offer some resilience, but high debt, regional security exposure and structural unemployment prevent a lower overall risk assessment.

Qatar (QAT)

Qatar is rated medium-low overall. Political violence is rated medium-low, legal & regulatory risk medium-low and political interference medium. The monarchy remains domestically stable, with strong administrative capacity and little organised political opposition. Qatar also continues to use its diplomatic relationships with the U.S., Iran and other regional actors to position itself as an intermediary. However, the U.S.-Iran conflict has brought direct security risk to the Gulf and exposed Qatar’s dependence on the Strait of Hormuz. The country’s energy infrastructure has been attacked and shipping through the Gulf has been severely disrupted, creating a much more challenging backdrop.

The IMF now projects Qatar’s real GDP to contract by 8.6% in 2026, with inflation around 3.9%. The shock is concentrated in LNG. Reuters reported in August that Qatari LNG exports had fallen by about 96% since the conflict began, with only a small number of cargoes leaving compared with the same period a year earlier. Damage to LNG facilities and constraints on Hormuz have caused major revenue losses and disrupted deliveries to customers. Supply-chain disruption and the risk of doing business are both rated medium-low, although current operating conditions are clearly more adverse. Qatar’s substantial buffers nevertheless prevent this from becoming a sovereign-financing crisis. Sovereign non-payment risk is medium-low, while exchange transfer risk has been deteriorated from low to medium-low and the government’s inability to provide stimulus remains low. The Qatar Investment Authority’s large foreign assets, low funding stress and the Qatari riyal’s credible U.S.-dollar peg provide a substantial buffer. Banking-sector vulnerability is the main structural weakness and is rated medium-high, reflecting banks’ reliance on foreign wholesale funding and their exposure to state-linked activity, property and construction. A prolonged loss of LNG revenue could tighten liquidity and reduce deposits, but the state retains significant capacity to support the sector. Qatar remains financially strong, although the conflict has exposed the strategic vulnerability created by concentrated LNG exports and dependence on Hormuz.

Tunisia (TUN)

Tunisia remains rated medium-high overall, with political centralisation and constrained external financing continuing to weigh on the outlook. Political violence, legal & regulatory risk and political interference are all medium-high. President Kais Saied has continued to centralise power following the weakening of parliament, the judiciary and independent institutions, while opposition politicians, journalists and civil-society figures have faced arrests and prosecution. In August, hundreds of demonstrators again called for Saied’s resignation and the restoration of democratic institutions, with economic frustration increasingly reinforcing political grievances. Shortages of water and medicines, unemployment and pressure on household incomes continue to fuel dissatisfaction. The legal and regulatory environment remains unpredictable, particularly where political or state-linked interests are involved.

The IMF projects GDP growth of around 2.1% in 2026 and average inflation of approximately 6.5%. Tourism and agriculture provide support, but investment remains weak and Tunisia is highly exposed to energy prices because it imports a substantial share of its fuel. The Middle East conflict has therefore worsened inflation and external-financing pressure. Supply-chain disruption is rated medium and the risk of doing business is medium. Sovereign non-payment risk remains medium-high, while exchange transfer risk and the government’s inability to provide stimulus have both moved from medium-high to high. Tunisia remains largely cut off from a full IMF programme and relies heavily on domestic banks and bilateral or multilateral financing. Public-sector wages and subsidies limit fiscal flexibility, while foreign-exchange reserves remain adequate but vulnerable to a deterioration in tourism receipts or energy imports. Banking-sector vulnerability is rated medium. In August, cash circulating outside the formal banking system reached a record level, highlighting weak financial intermediation and public distrust. Tougher cheque rules and limited digital-payment adoption have also contributed to liquidity pressures. Tunisia has avoided a sovereign default, but financing requirements remain substantial and the state’s increasing reliance on domestic banks raises the risk of crowding out the private sector. Modest growth and tourism receipts provide some support, but political centralisation, weak investment and constrained external financing keep the risk profile firmly at medium-high.

West Bank and Gaza (PSE)

The West Bank and Gaza remain rated high overall, with conflict and severe economic disruption continuing to dominate the assessment. Political violence and legal & regulatory risk are rated very high, while supply-chain disruption and political interference are high. The conflict has caused unprecedented destruction in Gaza and has also weakened economic conditions across the West Bank through movement restrictions, labour-market disruption, settlement-related tensions and reduced access to Israeli employment. A ceasefire agreed in late 2025 created a fragile window for humanitarian relief and reconstruction, but the political settlement remains unresolved and the possibility of renewed large-scale violence is substantial. The Palestinian Authority’s institutional and fiscal position has also weakened, while competing political authorities and external security controls create a highly fragmented legal and regulatory environment.

The scale of economic damage remains exceptional. The World Bank estimates that Gaza’s reconstruction and recovery needs are around USD71.5 bln. Unemployment in Gaza reached roughly 78% in 2025 and more than 90% of the working-age population had no employment, while the West Bank also suffered a sharp deterioration in labour-market conditions. The risk of doing business is medium-high and supply-chain disruption is high because movement of goods depends on crossings, security approvals and damaged transport infrastructure. Sovereign non-payment and exchange transfer risk are both medium-high, while the government’s inability to provide stimulus is high. The Palestinian Authority has limited control over monetary and fiscal policy and depends heavily on donor support and transfers of clearance revenues. Banking-sector vulnerability is medium: banks remain important channels for salaries, remittances and humanitarian transactions, but they face rising credit risk, operational disruption and uncertainty over correspondent relationships. Reconstruction could eventually create a powerful source of activity, but only if security, governance and financing conditions improve materially. As of August 2026, humanitarian, political and security risks dominate all conventional economic considerations, leaving the territory highly dependent on external aid and a durable political settlement.

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