Bahrain's $60bn debt strains as oil output collapses to 66,000 bpd

Summary

• Bahrain's total government debt reached $60 billion as oil production collapsed after the Hormuz disruption
• Debt interest consumed 37 percent of state revenue in 2025 and is rising this year
• Economists warn a prolonged war without Gulf support could push Bahrain toward default

The latest

Bahrain's oil output has fallen to roughly 66,000 barrels per day in July-August, down from 179,000 bpd in 2025, according to OPEC's monthly report, gutting the revenue that services a $60 billion government debt pile. Economists told AGBI the kingdom will probably meet its immediate repayments, but servicing that burden becomes materially harder beyond 2026 as borrowing costs climb.

Details

• The debt stack: External government debt — international bonds, sukuk, and Gulf and regional development-fund financing — totalled $43 billion as of March 31, up from $37 billion in 2024, according to a June sovereign bond prospectus. A further $17 billion in gross domestic debt brings total government debt to $60 billion.
• The repayment wall: Of Bahrain's foreign-currency debt, $1.1 billion falls due this year, $2.7 billion in each of 2027 and 2028, and $4.5 billion in 2029, according to AGBI. The clustering means pressure builds precisely as oil revenue remains depressed.
• Interest burden: Debt interest payments totalled $2.8 billion in 2025, equivalent to 37 percent of annual revenue. Budget figures imply those costs rise to $3.1 billion this year, absorbing a larger share of a revenue base that oil has already shrunk.
• The default warning: Justin Alexander, director of Khalij Economics, said that if the war continues much longer and Bahrain fails to receive further support, it will default on its debt, adding that the kingdom holds few liquid assets it could realise at short notice.
• The counterview: David Stewart, senior economist at Oxford Economics, assessed that near-term repayments are manageable and the government can still borrow internationally, but judged that the way Manama is financing its deficit is weakening "financial buffers."
• Market pricing: Bahrain issued a 10-year, $1 billion bond in June with a 7.1 percent coupon; by September 18 it was yielding 8.3 percent. Spreads have widened to 215-265 basis points above Abu Dhabi's, according to Nadim Amatouri, director of credit research at Arqaam Capital, who called it fiscal deterioration.
• Ratings pressure: Fitch downgraded Bahrain in February, warning that very high government debt-to-GDP would keep rising. Fitch estimated the ratio at 147 percent last year; Alexander projected it could top 200 percent this year if exports do not recover. S&P Global ranked the ratio 13th highest globally.
• Growth contraction: Real first-quarter GDP shrank 3.8 percent year on year, driven largely by a 37 percent decline in oil activities, according to the finance ministry. S&P Global said hydrocarbons generate 15 percent of GDP and about half of exports and state revenue.
• Deficit forecast overtaken: S&P raised its budget deficit forecast in May to 8.4 percent of GDP from 7.6 percent, assuming output averaging 130,000 bpd. Actual output averaged 44,000 bpd in the second quarter, suggesting the deficit will probably exceed even the revised estimate.

Background

The US-Israeli war on Iran and Tehran's near-closure of the Strait of Hormuz cut Bahraini oil production sharply, striking a state budget that was already strained before the conflict began.

Between the lines

Two pressures compound each other. Falling output shrinks the revenue denominator while a widening spread over Abu Dhabi raises the cost of each new issue, so interest climbs from $2.8 billion to $3.1 billion even as the revenue it is measured against contracts. Alexander's default scenario is explicitly conditional on external support, placing the outcome partly outside Manama's own fiscal control.

What's next

Watch OPEC's monthly output figures for any recovery above the 130,000 bpd assumption underpinning S&P's deficit forecast, the $1.1 billion in repayments due this year, and further rating actions after Fitch's February downgrade.

Source: AGBI