Kuwait turns to debt markets as Hormuz disruption hits revenue

• Borrowing to buffer finances
• CBK issues $500m in bonds
• Oil made up 80% of revenue

Kuwait is stepping up borrowing in local and international debt markets as disruptions to crude exports through the Strait of Hormuz threaten to widen an already large fiscal deficit and increase pressure on state finances.

Kuwait exported more than 2 million barrels per day of crude through the strait before war between Iran and the US-Israeli alliance began on February 28, but exports have halted in recent weeks, the TankerTrackers maritime intelligence platform reported this month.

Oil export earnings were expected to provide nearly 80 percent of Kuwait’s budgeted revenue in the current 2026-27 fiscal year that began on April 1, according to the finance ministry.

The Central Bank of Kuwait (CBK) issued KD150 million ($500 million) in fresh bonds on Wednesday. Analysts said the debt was nearly four times oversubscribed.

“There was a rush by banks for these safe sovereign bonds as usual because Kuwaiti banks have sufficient liquidity and they need to invest their funds,” said Ali Al-Anzi, manager of Kuwait’s Al-Manakh economic consulting centre.

Anzi said Kuwait is still selling petroleum products from its joint ventures abroad and crude oil from its strategic stocks in Asia.

“In case this conflict drags on, Kuwait will of course suffer much because oil provides more than two thirds of its income… I think this development will largely widen the deficit and this will force it to resort to increased borrowing,” he said.

The value of local bonds issued this fiscal year has reached KD700 million and around KD3.2 billion since Kuwait began enforcing a landmark debt law in March last year, CBK data shows.

A sell-off in US, European and Japanese sovereign debt has caused a renewed slump in Gulf government bond prices, AGBI reported.

Sovereign bonds volatile

Gulf sovereign bond yields have increased, tracking rising US treasury yields, although spreads between US treasuries and Gulf bonds have remained unchanged or tightened slightly.

Dollar-denominated Gulf sovereign bond prices have been volatile since the Iran war started, tumbling to milestone lows in mid-March before rebounding steadily to peak on or around April 21.

Kuwait, one of the world’s largest oil producers, also borrowed around $11 billion from global banks last year and $2 billion this month.

Releasing the 2026-27 budget in February, the finance ministry forecast revenue at KD16.3 billion and expenditure at KD26.1 billion, with a projected shortfall of KD9.8 billion.

The deficit is nearly 55 percent higher than the previous fiscal year’s shortfall of KD6.3 billion, the finance ministry said on its website.

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Kuwait’s 2025-26 spending was projected at KD24.5 billion and revenue at KD18.2 billion, creating a deficit of KD6.3 billion.

In March 2025, Kuwait revived a defunct debt law to finance its fiscal deficit and prevent any draining of its massive overseas assets, estimated by the sovereign wealth fund institute at over $1 trillion.

The International Monetary Fund urged Kuwait in February to extend a tax on multinational entities to all domestic companies in an effort to expand non-oil revenue and cut the budget shortfall.

“To mobilise non-oil revenue, the 15 percent CIT [corporate income tax] should be extended to all domestic companies, while the GCC-wide excise tax and 5 percent VAT should be introduced,” the IMF said.