We have published about our thoughts on the Kingdom of Bahrain’s sovereign bonds in the middle of this US-Israel war with Iran, which is just one of several since last year.
But what about its much larger neighbors – the Kingdom of Saudi Arabia and the Sultanate of Oman?
The Kingdom of Saudi Arabia’s “A” credit rating continues to be the bar to surpass in the region. But despite the high credit standards attributed to the kingdom, its sovereign bonds continue to pay generous yields not too far off from bonds rated BBB.
On tackling the issue of exporting oil, the country has alternative options for moving crude—such as the East-West pipeline that allows exports to bypass the Strait of Hormuz—though this route cannot absorb the full volume typically channeled through the strait.
Nonetheless, Saudi Arabia’s financial resilience is underpinned by its sizable foreign-exchange reserves, which stood at roughly USD 476 billion as of end-January 2026, providing a substantial cushion against external or geopolitical shocks.
Iran remains Saudi Arabia’s main competitor on the geopolitical front. Any further deterioration or destabilization within Iran would shift the regional balance significantly in Saudi Arabia’s favor. Should Saudi Arabia manage the current environment effectively and remain a stabilizing force, it could emerge with increased geopolitical leverage, along with meaningful strategic and economic advantages.
The Sultanate of Oman’s credit narrative continues to strengthen, with the country’s bonds now expected to perform broadly in line with the wider emerging-market complex. Market confidence has already been evident in the significant rally of Omani bonds since 2020.
Consistent fiscal reforms have sharply reduced public-sector leverage, culminating in the restoration of full investment grade status last year. As a result, sovereign spreads have compressed and now trade at relatively tight levels—around 107 bps over US Treasuries on average.
Oman’s enduring advantage in this conflict is the geographic placement of its major ports, which sit outside the Strait of Hormuz and open directly onto the Indian Ocean. This is an important safeguard for trade flow, particularly in this situation where Iran has threatened to attack shipping vessels passing through the strait.
While tourism arrivals may see softer numbers as the war rages on, firmer oil prices and the possibility of higher production levels should help offset any weakness on that front.
Saudi Arabian and Omani sovereign bond prices have inched only slightly lower since the beginning of hostilities. This shows the confidence that investors have over these two Gulf nations.
We prefer to stick to bonds with remaining tenors of 2 to 5 years, as higher oil prices and inflation expectations have contributed to much of the volatility seen in longer-duration bonds.
In summary, both Saudi Arabia and Oman continue to offer compelling reasons for investors to maintain exposure to their sovereign bonds. Saudi Arabia’s deep reserve buffers, alternative oil transportation channels, and growing regional influence help anchor its stability. Oman’s strengthened fiscal position, improved credit standing, and strategic trading routes reinforce its resilience.
Together, these factors support our constructive stance on their debt despite ongoing geopolitical uncertainties.
To know more about how to invest in the bonds listed above, contact your wealth specialist or relationship manager.
