The no-ceasefire bill is coming due: Six months into the US-Iran war and the Hormuz disruption that came with it, the fiscal and macro fallout is getting tighter. Fitch Solutions\u2019 BMI now expects the Saudi economy to contract this year, Iraq\u2019s government is warning it may not make payroll on time, and the Egyptian Cabinet is reaching for electricity tariff hikes it spent the spring promising to avoid. The common thread is a strait that was supposed to start reopening by summer but hasn\u2019t, draining revenue from the region\u2019s oil exporters and forcing net importers to cover an annual fuel bill that is growing everyday Hormuz remains shut.<\/p>\n
BMI now expects Saudi economy to contract<\/p>\n
Fitch Solutions\u2019 BMI now expects<\/a> the Saudi economy to contract 1.3% in 2026, reversing an earlier 1.1% growth call, after the Strait of Hormuz disruptions lasted longer than its models assumed. The announcement came after the Saudi General Authority for Statistics released 2Q data showing that the Kingdom\u2019s real GDP already contracted<\/a> 4.8% y-o-y, marking the Kingdom\u2019s first annual contraction since 4Q 2023 and its steepest since the pandemic.<\/p>\n The swing comes down to one variable: Hormuz. BMI had expected shipping through the strait to begin normalizing in July. It now sees disruptions lasting until late 3Q. On that timeline, oil production is forecast to fall 12% this year, with a 25% y-o-y drop in 3Q alone, before a partial recovery in 4Q. The non-oil side took a harder hit in 2Q than expected too, prompting BMI to cut non-oil growth to around 1% from 2%, with exports bearing the brunt.<\/p>\n What holds up: BMI is clear that the contraction is concentrated in oil, not spread across the economy. Consumer spending remains resilient on rising real wages and continued job creation. The non-oil sector, now more than half of GDP, kept expanding through 1H. Saudi Arabia is one of just two Gulf states, alongside Oman, still expected to post non-oil growth this year.<\/p>\n BMI sees 7.6% growth next year, which would be one of the Kingdom\u2019s strongest years in two decades. Saudi GDP has exceeded 7% only twice since 2006, IMF data shows. The projection assumes Hormuz reopens fully, driving a 24.4% rebound in oil output alongside recovering non-oil exports, higher investment, and consumption growth pushing non-oil GDP close to 5%.<\/p>\n Where BMI sits against the field: The IMF is holding its full-year 2026 call at 1.7% growth (2.6% non-oil) and sees a 5.5% rebound in 2027, both contingent on Hormuz normalizing. A Reuters poll last month also trimmed<\/a> 2026 growth to 1.4%. But with 2Q already 4.8% down, 1H is tracking negative, and those full-year forecasts now rest on a sharp second-half recovery that has not begun.<\/p>\n And Iraq is sounding the payroll alarm<\/p>\n Baghdad is now saying out loud what we flagged in May<\/a> as its central vulnerability during the war: It may not be able to pay its people on time. \u201cThere is a very large gap now between revenues and spending on monthly requirements, mainly wages to civil servants, services and government offices. This means salaries will not be paid on time,\u201d government spokesperson Haidar Al Aboudi said last week<\/a>.<\/p>\n It\u2019s all about Hormuz: Iraq\u2019s state oil company Somo put 1H 2026 export earnings at c. USD 18.5 bn on average flows of 1.5 mn bbl \/ d (thanks to a land corridor to Syria and its Turkey-bound pipeline). That is, however, just about a third of pre-war exports and a fraction of the USD 154 bn in average annual oil revenue Baghdad had recorded across 2023-2025. The war has cost Iraq some USD 45 bn by one government aide\u2019s estimate, and the deficit ran to c. USD 5 bn in the first four months of the year alone.<\/p>\n REMEMBER- We flagged back in May that the first real test for recently-appointed Prime Minister Ali Al Zaidi wasn\u2019t whether he could reform Iraq, it was whether he could make payroll<\/a>. Two months on, the Finance Ministry is still weighing domestic borrowing to bridge the gap and hoping to steer clear of foreign markets after burning through reserves to sustain government spending.<\/p>\n One update cuts (slightly) against the gloom. Iraq and Turkey signed an agreement<\/a> over the weekend to move crude through the Kirkuk-Ceyhan pipeline at some 750k bbl \/ d. The agreement, which comes a few days after Al Zaidi left Ankara without an agreement<\/a> on the pipeline, is a one-year stopgap, temporarily replacing the over 53-year-old arrangement that lapsed on 27 July as the countries work towards a comprehensive framework meant to lift capacity past the 1 mn bbl \/ d mark. The pipeline can theoretically carry about 1.5 mn bbl \/ d, but damage during war, limited maintenance upkeep, and legal disputes meant it was working under-capacity for the last few years.<\/p>\n Egypt goes for electricity rate hikes \u2014 and fuel may follow soon<\/p>\n Hedging against prolonged war? That appears to be the main driver behind the Egyptian Cabinet\u2019s recent decision to hike household electricity tariffs, despite pre- and post-war pledges earlier this year<\/a> to hold off further increases in 2026. The decision will hike tariffs by an average of 12%<\/a>, and comes as the fuel import bill rises amid continued Hormuz disruptions, with the government now looking to hedge 65% of its fuel imports<\/a> against further global price shocks<\/p>\n Egypt has gone through several tariff hikes over the last few years, as part of a reform drive that aims to bring subsidies on electricity to zero. The new structure will keep the lowest consumption bracket unchanged, and most residential users\u2019 bills would still be well below full cost recovery, with the government still expected to absorb around EGP 100 bn annually due to the gap between volatile fuel-pegged production costs and retail tariffs. The FY 2026-27 budget set aside EGP 104.2 bn for electricity subsidies<\/a>, up 39% from the previous fiscal year.<\/p>\n Egypt faces tough choices to manage its energy bill: The government is now weighing two bitter pills \u2014 reinstate its capped fuel pricing mechanism or freeze pump prices and force heavy industry to cover the shortfall. The government will decide by late September whether to return to its automatic fuel pricing mechanism, which limits pump hikes to 10%, or maintain its current \u201ccost-recovery\u201d framework, a government official tells EnterpriseAM.<\/p>\n Another hike is unavoidable at current market prices and conditions, former Egyptian Natural Gas Holding Company head Medhat Youssef tells us. One alternative could be replacing some natural gas consumption with more high-sulfur mazut, Youssef told us. The government turned to mazut alongside gas<\/a> earlier this year to maintain power generation during supply disruptions.<\/p>\n ICYMI- The government raised pump prices by up to 17.1% in March<\/a> under the exceptional cost-recovery system, exceeding the automatic mechanism\u2019s usual ceiling. It then raised natural gas prices for energy-intensive industries by USD 2 per mmbtu<\/a> in May and began reviewing a more flexible industrial gas-pricing formula<\/a>. Prime Minister Moustafa Madbouly said last month<\/a> that quarterly automatic pricing would return this quarter, but the latest discussions suggest the government could instead hold pump prices and recover more of the gap from industrial users.<\/p>\n MEANWHILE- War tailwinds are narrowing for Egypt\u2019s fertilizer exports. The Investment Ministry has reportedly<\/a> scrapped the 10% export duty on nitrogen fertilizers over the weekend, following a 39% drop in export prices to around USD 550 per ton from nearly USD 900 in April and a sharp slowdown in shipments over the past two months. The levy was first introduced as a USD 90-per-ton fee in May<\/a> and was later reduced to just 10% of the shipment\u2019s value later in June<\/a> in response to the shrinking war margins that drove the initial duty. Egypt\u2019s nitrogen-fertilizer exports rose 39.7% y-o-y to USD 1.4 bn in 1H 2026 following the earlier price surge as Gulf flows of the fertilizer slowed down.<\/p>\n \n\tRelated<\/p>\n","protected":false},"excerpt":{"rendered":"The no-ceasefire bill is coming due: Six months into the US-Iran war and the Hormuz disruption that came…\n","protected":false},"author":2,"featured_media":233870,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[14],"tags":[147,655,154,94,14963,8741,50],"class_list":["post-233869","post","type-post","status-publish","format-standard","has-post-thumbnail","category-iraq","tag-economy","tag-egypt","tag-energy","tag-iraq","tag-macroeconomics","tag-policy","tag-saudi-arabia"],"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@iran\/117031380428249617","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/posts\/233869","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/comments?post=233869"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/posts\/233869\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/media\/233870"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/media?parent=233869"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/categories?post=233869"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/iran\/wp-json\/wp\/v2\/tags?post=233869"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}