Oman

Growth supported by diversification and shifting regional dynamics

After recording relatively stronger growth in 2026, the Omani economy is expected to expand at a more moderate pace in 2027, with its composition continuing to shift gradually toward non-hydrocarbon activities. Higher hydrocarbon production (around 30-35% of GDP) is expected to make a significant contribution to growth this year. While the gradual unwinding of OPEC+ production cuts is supporting output across Gulf producers, Oman is particularly well positioned to benefit from the current regional disruptions. Unlike several major Gulf exporters, much of Oman’s export infrastructure has direct access to the Arabian Sea, bypassing the Strait of Hormuz. This allows production and exports to continue with relatively limited disruption, enabling Oman to partially offset production losses elsewhere in the Gulf region. Total oil production increased by approximately 11% year-on-year (YoY) to 198 million barrels in the first half of 2026, while average daily production rose to 1.094 million barrels from 989,200 a year earlier. Rising crude oil prices have also been supportive as the average price of Omani crude increased to USD 80.90 per barrel in the first half of 2026, from USD 74 during the same period in 2025. Other sectors such as manufacturing (around 10% of GDP with petroleum, chemicals, basic metals, etc.), logistics and services are expected to support the non-hydrocarbon economy, despite some pressure on tourism (nearly 3% of GDP) and construction stemming from regional geopolitical tensions. Hydrocarbon output is expected to stabilise in 2027 due to capacity restrictions, which should lead growth rates to revert to more moderate levels. As a result, any further increase in OPEC production quotas is unlikely to significantly affect production growth. Private consumption (40% of GDP) should remain resilient, supported by contained inflation and stable employment conditions, although persistent geopolitical uncertainty could weigh on consumer confidence. Investments (25% of GDP) should remain an important driver of domestic demand, underpinned by infrastructure projects and the implementation of Vision 2040 alongside increasing private investment in manufacturing, logistics, renewable energy, tourism and other diversification-related activities. As the state's fiscal space is limited, private sector participation will be essential to support and sustain planned investment projects. Manufacturing investment is becoming increasingly concentrated in the Duqm Special Economic Zone, particularly in petrochemicals, downstream industries, food processing and other industrial activities. At the same time, ongoing expansion of the ports of Duqm, Salalah and Sohar, together with their associated logistics zones and warehousing facilities, is strengthening Oman’s position as a regional trade and logistics hub, supported by its strategic location outside the Strait of Hormuz. Renewable energy is also emerging as a key area of investment, with large-scale green hydrogen, solar and wind projects being developed, particularly in Duqm and Dhofar. Meanwhile, continued investment in integrated tourism developments, hotels, resorts and related infrastructure is expected to support the expansion of the tourism sector over the medium term.

Inflation is expected to remain relatively contained over the coming period despite a temporary increase in price pressures in 2026. The recent acceleration has been largely driven by higher food and transportation costs amid regional supply disruptions, while geopolitical tensions continue to pose upside risks through higher energy prices, freight costs and imported inflation. These pressures are expected to gradually ease in 2027 as supply conditions normalise, which should allow inflation to moderate. At the same time, relatively subdued domestic price pressures should help prevent a more persistent inflationary trend. On the monetary policy side, the Omani rial's peg to the US dollar is the key policy anchor. Consequently, the Central Bank of Oman is expected to broadly follow the US Federal Reserve’s monetary policy cycle to preserve the peg and limit potentially destabilising capital outflows.

Prudent balanced public finances and a resilient external position

Oman’s fiscal outlook is expected to remain broadly favourable over 2026-2027, supported by strong hydrocarbon revenues, prudent fiscal management and continued efforts to strengthen non-oil revenue collection. The fiscal outturn is likely to be more favorable than budgeted for in 2026 as oil and gas revenues continue to benefit from stronger-than-assumed hydrocarbon prices and production levels. On the other hand, the authorities are expected to maintain relatively elevated expenditure levels, reflecting ongoing investments in infrastructure, economic transformation projects and the implementation of Oman Vision 2040 priorities. As a result, the fiscal deficit is expected to remain in 2026 but could narrow substantially below the official projection (-1.3% of GDP), potentially approaching balance, should hydrocarbon market conditions remain supportive during the remainder of the year. Public debt is expected to remain contained, while the strengthened fiscal position (including liquidities valued at 40% of GDP) provides additional room to absorb potential external shocks. Looking ahead to 2027, fiscal policy is likely to remain guided by the dual objectives of improving fiscal sustainability and supporting economic diversification. Continued investment in logistics, manufacturing, renewable energy and tourism development is expected to keep expenditure growth relatively firm. At the same time, ongoing improvements in tax administration and the gradual expansion of non-hydrocarbon economic activity should provide increasing support to government revenues. Assuming oil prices moderate from current levels but remain broadly supportive, the fiscal balance is expected to remain close to equilibrium, but with a small deficit still likely. Consequently, Oman should be able to maintain its relatively strong fiscal position by regional standards, while preserving moderate public debt levels and fiscal flexibility over the forecast horizon.

Oman’s external position is expected to stay favourable through next year, supported by higher hydrocarbon production, resilient energy export revenues and continued growth in non-hydrocarbon exports. Export performance should also benefit from the country’s strategic position as a regional logistics and trade hub, particularly as regional trade flows increasingly use Omani ports and logistics infrastructure. Continued foreign direct investment inflows are expected to provide further support to external accounts. Foreign investment inflows reached OMR 2.6 billion during the first quarter of 2026, while the total FDI stock increased to OMR 32.2 billion (around 6% of GDP in 2025), reflecting sustained investor confidence in the Omani economy despite regional tensions. Investment activity remains concentrated in the hydrocarbon sector but is increasingly extending to manufacturing, logistics, renewable energy and other diversification-related industries, which should help expand export capacity and generate additional foreign exchange earnings over the medium term. Furthermore, recent investment promotion efforts have facilitated projects worth around OMR 460 million, supporting the development of new growth sectors in line with Oman Vision 2040. Nevertheless, the external surplus is expected to gradually narrow as hydrocarbon revenues moderate and import demand strengthens alongside robust domestic investment activity. Despite the moderation, the current account balance should retain its small surplus, reflecting the continued contribution of non-hydrocarbon activities, sustained foreign investment and improving export diversification. Foreign reserves are expected to reach USD 20 billion (around 5 months of imports) by end-2026, while the Oman Investment Authority holds an estimated USD 20 bn in foreign assets, providing additional external buffers.

Regional tensions are the main risk factor

Oman’s geopolitical risk profile is more favourable than that of many regional peers, reflecting its longstanding policy of neutrality and balanced diplomatic relations across the Gulf region. The authorities are expected to continue pursuing their pragmatic foreign policy, maintaining constructive ties with Western partners, China and regional actors, thereby reducing the likelihood of direct involvement in regional conflicts. Oman’s role as a mediator and its reputation as a neutral interlocutor should continue to support political stability and investor confidence. Nevertheless, the external environment is expected to be challenging in 2026 and 2027. The principal geopolitical risk stems from renewed tensions in the Gulf and the wider Middle East. While Oman benefits from the presence of major ports outside the Gulf and has so far avoided significant disruption to hydrocarbon production and exports, a deterioration in regional security conditions could adversely affect the country’s economy. On the domestic front, political risks are expected to be contained under Sultan Haitham bin Tariq Al Said, who has ruled since 2020. The main challenges are likely to be economic rather than political and include maintaining the pace of fiscal reforms, reducing reliance on hydrocarbon revenues and generating sufficient private-sector employment opportunities for a growing workforce.

Last updated: September 2026