Kuwait is preparing to issue dollar bonds as it grapples with severe economic fallout from Iranian attacks. The nation's oil export program has been effectively halted since late February, leading to a declaration of force majeure by Kuwait Petroleum Corporation and a reduction in production to meet only domestic refinery demand. This cessation of exports, combined with significant damage to oil facilities and power plants, has resulted in substantial budget deficits and dire economic forecasts, including a potential GDP contraction of up to 15.8% for 2026 according to Capital Economics.
The country has suffered extensive infrastructure damage, with one of the worst nights of retaliatory attacks hitting an oil facility and a power plant, causing injuries and significant damage in Al-Ahmadi governorate. Further attacks have repeatedly struck critical power and desalination plants. Analysts from Rystad Energy estimate the cost of repairing damaged oil storage, loading infrastructure, and associated industrial assets across the Gulf could reach $58 billion, with Kuwait bearing a significant portion.
While Kuwait possesses an immense sovereign wealth fund, managed by the Kuwait Investment Authority (KIA) and valued near $1 trillion, this financial strength primarily serves as a cushion against the immediate blow rather than a permanent solution to its export dependency. The new bond issuance, enabled by a recently introduced public debt law, signals Kuwait's need for more flexible fiscal tools in a volatile geopolitical environment. This move is critical given that, unlike its neighbors Saudi Arabia and the UAE, Kuwait lacks alternative oil export routes to bypass the commercially impossible and physically dangerous Strait of Hormuz.
The decision to pursue debt issuance marks a significant shift, especially considering that legislative reforms, including the public debt law, became possible after the country's parliament was suspended in May 2024. S&P recently upgraded Kuwait's credit rating to AA-/A-1+, acknowledging its sovereign assets and the new debt law as factors mitigating the rising budget deficits. However, the exact timing and terms of the dollar bond issuance remain to be seen as the country navigates the ongoing conflict and its economic repercussions.
