Moody's Ratings has maintained the UAE's high credit rating, saying the nation's robust financial position and diversified economy have helped it create “strong shock-absorption” capabilities against the continuing regional unrest.
The Emirates' long-term local and foreign currency issuer ratings has been affirmed at Aa2 with a stable outlook, the New York-based agency said on Friday.
An Aa2 rating is the third-highest on the Moody's scale, only two notches below the top prime grade. Investment grade makes it easier to access capital markets and raise funding when the need to borrow arises.
Moody's cited the UAE's high per-capita income, effective policymaking and “shock-absorption capacity”, particularly against the fallout from the US-Iran war, all of which underpin the progress of its economic diversification, in addition to the federal government's very low debt burden.
“These credit strengths are balanced by elevated regional geopolitical risks evidenced by the ongoing conflict in the Middle East that has led to an effective closure of the Strait of Hormuz since early March,” analysts at Moody's wrote.
They added that, while oil production and export volumes from the Arab world's second-largest economy would remain below pre-conflict levels due to the strait's closure, higher crude prices – forecast by Moody's to average between $90 to $110 in 2026 – would more than offset these.
That would result in the UAE's real gross domestic product declining by about 7 per cent this year.
Hydrocarbon production is projected to drop by 23 per cent, while trade-driven sectors disrupted by the war would cause the non-hydrocarbon sector to fall 4 per cent, Moody's said.
Separately, Moody's also maintained Abu Dhabi's Aa2 long-term local and foreign currency issuer ratings and stable outlook, on the back of “exceptionally large financial assets”. Those buffers are estimated at about 300 per cent of GDP in 2025, the agency said.
Fitch Ratings last month also maintained the emirate's rating at AA, the third-highest on its scale, on “very strong fiscal and external metrics”.
Moody's expects the UAE capital's credit profile to remain resilient due to the development of the Habshan-Fujairah pipeline, which provides an alternative route for its energy exports, bypassing the Strait of Hormuz.
For Abu Dhabi's energy sector, Moody's reiterated the same fundamentals it stated for the UAE. And with the pipeline, government revenue is likely to exceed pre-conflict expectations, “providing the authorities with flexibility to increase spending on economic support measures, subsidies and defence”, Moody's analysts said.
Real GDP is set to decline by about 9.5 per cent in 2026, as hydrocarbon output drops 23 per cent and non-oil activity dips. In 2027, Moody's forecasts a sharp rebound of about 17 per cent, on expectations that trade flows through the strait will normalise and oil production gradually increases.
“We also expect Abu Dhabi's non-oil economy to remain relatively resilient, supported by sustained government spending and the continuation of ongoing diversification and infrastructure projects, which are set to support the sovereign's growth trajectory over the medium term,” Moody's said.
The UAE continues to reinforce its economic stability by introducing initiatives and legislation to encourage participation in its diversification mission, part of a strategy to prepare the nation for the economy of the future.
GDP grew 6.2 per cent year-on-year to hit Dh1.9 trillion ($517.2 billion) in 2025, anchored by the strength of the non-oil sector, government data showed last month. Non-oil business activity also picked up in May, despite the Iran war uncertainty.
The UAE's federal government “continues to benefit from a diversified revenue base and a strong record of fiscal discipline, supported by its balanced budget policy”, Moody's said.
Meanwhile, S&P Global affirmed Iraq's sovereign credit ratings at B-/B, which are below investment grade and highly speculative, with a negative outlook, as uncertainty remains high amid the war.
S&P, however, removed the country's long-term rating from CreditWatch negative, meaning it is no longer under review for a further near-term downgrade.
Analysts at the credit ratings agency said Iraq, whose hydrocarbon-dependent economy posted a sharp drop in oil output over March-May amid the conflict, will probably attain full-year 2026 crude production about 28 per cent lower compared to 2025.
“The negative outlook reflects multiple risks for Iraq stemming from the impact of the ongoing Middle East conflict over the next six to 12 months,” S&P analysts wrote.
Those risks include “more persistent disruptions to key export trade routes via the Strait of Hormuz, as well as the risk of physical infrastructure damage”.
