Gulf bank resilience hinges on Tehran talks

Gulf banking systems remain well placed to absorb near-term shocks from the US-Iran conflict, but their credit strength is now tied closely to whether the ceasefire holds and whether the Strait of Hormuz returns fully to dependable commercial use.

Fitch Ratings says the durability of the truce between Washington and Tehran will be central to the outlook for banks across the Gulf Cooperation Council, where lenders entered the crisis with strong capital, liquidity and profitability buffers. The June 17 Memorandum of Understanding extended the ceasefire agreed on April 8 and opened a 60-day window for the two sides to negotiate a broader peace arrangement.

The accord also requires Iran to use its best efforts to reopen the Strait of Hormuz to commercial shipping, a condition that carries direct implications for Gulf economies, oil revenues, trade flows and investor confidence. The waterway is one of the world’s most sensitive energy corridors, carrying roughly a fifth of global petroleum liquids consumption and a large share of liquefied natural gas trade, mainly from Qatar.

The immediate banking risk is not a balance-sheet shock, but pressure on operating conditions. Gulf lenders depend on confidence, government spending, hydrocarbon liquidity and cross-border funding markets. A stable ceasefire would support oil and gas exports, restore shipping schedules, ease insurance costs and help governments maintain spending plans that feed credit growth.

The risk picture would change if the 60-day negotiation period breaks down. A return to sustained hostilities could weaken non-oil activity, delay investment, disrupt transport and tourism, and push some borrowers into tighter cash-flow positions. Banks in smaller and more externally exposed markets would face sharper pressure if foreign funding becomes more expensive or deposit flows turn cautious.

Gulf banks have entered the period from a position of relative strength. Loan books across the region have benefited from years of high oil revenue, sovereign investment, population growth and infrastructure spending. Capital ratios remain comfortable by international standards, while profitability has been supported by elevated interest rates and expanding private-sector credit. Asset quality has also remained broadly stable, with problem loans contained in most major markets.

Sovereign support remains a key factor behind bank resilience. Many leading Gulf lenders are either state-owned, linked to ruling institutions, or systemically important to domestic financial systems. That gives investors confidence that governments would step in if liquidity stress became severe. Oil exporters with large financial reserves also have room to cushion disruption, although the depth of those buffers varies across the GCC.

Saudi Arabia and the UAE are better placed than some peers because of stronger fiscal capacity, deeper capital markets and larger banking systems. Qatar remains supported by its gas export base and substantial state-linked assets, but its reliance on LNG shipping through the Strait of Hormuz makes maritime stability crucial. Kuwait and Bahrain have narrower buffers, while Oman’s position depends heavily on continued fiscal discipline and market access.

The reopening of Hormuz has already helped ease energy-market anxiety. Oil flows have been moving back towards pre-war levels, and Brent prices have retreated from the sharp spikes seen during the height of the disruption. Kuwait has increased crude output after severe curbs, while UAE exports have benefited from resumed tanker movement and inventory drawdowns. Even so, logistics remain uneven, with insurers, shipowners and cargo buyers still watching security guarantees closely.

The banking channel is therefore indirect but important. Lower oil volatility supports government deposits, project awards, corporate liquidity and household confidence. It also reduces the risk that states will need to cut spending or delay payments to contractors. Any renewed threat to Hormuz would quickly revive concerns over energy exports, marine insurance, dollar liquidity and access to international debt markets.

Debt issuance is a key area to watch. Gulf banks and corporates have relied heavily on global investors for dollar funding. A prolonged security shock could push borrowers towards private placements, shorter maturities or domestic funding, raising costs and reducing flexibility. Stronger banks could absorb that shift, but smaller lenders would face tighter margins if deposit competition rises.

The ceasefire also has a political dimension for bank ratings. The MoU is not a final settlement, and its implementation depends on verification, shipping arrangements, sanctions relief and the handling of Iran’s nuclear programme. Tehran has insisted that its missile programme is not part of the negotiations, while Washington is seeking a broader framework that can reassure regional allies and energy markets.