Moody’s confirms the UAE’s rating, and Standard & Poor’s keeps Iraq under pressure economy

Credit rating agencies Moody’s and Standard & Poor’s maintained their sovereign ratings for both the UAE and Iraq, but their assessment of the two countries’ prospects reflected a clear difference in the ability to confront the repercussions of the war and turmoil in the energy markets.

Moody’s confirmed the UAE’s long-term rating in local and foreign currencies at Aa2 with a stable outlook, noting the strength of the UAE economy, the high average per capita income and the diversification of the economic base, in addition to the strength of institutions and the decline in federal government debt.

On the other hand, Standard & Poor’s affirmed Iraq’s sovereign rating at “B-/B”, while maintaining a negative outlook, warning of the risks associated with the continuation of the conflict in the Middle East and disturbances in trade movement through the Strait of Hormuz.

Emirati flexibility

Moody’s explained that its assessment is based on a scenario that assumes the continuation of major disruptions to navigation through the Strait of Hormuz, without extensive damage to the UAE’s vital energy infrastructure.

The agency believed that the strength of the UAE’s creditworthiness is supported by the alternative oil export route via the Habshan-Fujairah pipeline, in addition to the huge financial reserves and potential support from the Abu Dhabi government, whose government financial assets exceed 300% of the gross domestic product.

It also expected the continued growth of non-oil revenues and the expansion of non-hydrocarbon economic sectors, which will enhance the state’s ability to reduce dependence on oil in the future.

Iraqi pressure

On the other hand, Standard & Poor’s warned of continued pressure on the Iraqi economy as a result of its heavy dependence on the oil sector.

The agency expected Iraq’s average oil production to reach about 2.9 million barrels per day during 2026, a decrease of approximately 28% compared to the pre-war average of four million barrels per day in 2025.

She pointed out that oil represents more than 90% of budget revenues and Iraqi goods exports, which makes public finances and the balance of payments vulnerable to being affected by any disturbances in exports or a decline in production.

The agency also expected Iraq’s real GDP to contract by 15% during the current year, despite its expectations that relatively high oil prices would contribute to alleviating some of the pressure if exports gradually recovered during the second half of the year.

Standard & Poor’s had placed Iraq’s sovereign rating on the negative watch list last March, before deciding to remove it from the list while maintaining the negative outlook.