Oil windfall cuts Oman budget gap but subsidy worries remain

• Omani crude up 10% in H1 2026
• Gas revenues increased 31%
• Government debt almost unchanged

Rising oil prices since the start of the Iran war have helped Oman almost eliminate its annual budget deficit, and the government forecasts it to shrink further if the conflict persists.

The windfall comes as spending on ministries, defence and subsidies increases, complicating government efforts to reduce debt.

The sultanate recorded a fiscal deficit of just OMR17 million ($44 million) in the first half of 2026, down from OMR259 million in the same period last year, according to the Ministry of Finance.

The average price of Omani crude increased by nearly 10 percent in the first six months of this year to $81 per barrel, up from $74 per barrel in the same period a year earlier, according to the National Center for Statistical Information (NSCI).

Total public revenues rose 13 percent to OMR6.6 billion, as oil revenues rose 10 percent year on year and gas revenues increased 32 percent over the period.

Government debt has remained almost unchanged at about OMR14 billion over the last two fiscal periods. However, officials are upbeat that higher oil prices will help reduce both the deficit and the outstanding debt.

“Certainly higher oil returns will be a relief towards the national debt payments as well as further reducing the deficits in the second half of 2026,” Emad Al Ajmi, director general at the Ministry of Economy, told AGBI.

Oman reduced its government debt to about 36 percent of GDP in 2025 from 68 percent in 2020, according to the Fitch ratings agency.

“We expect a budget deficit of close to 1 percent of GDP under our forecast of a Brent oil price of $63 a barrel in 2026 and 2027,” Fitch said in its report.

But subsidies and spending are the main concern: “Expenditures on subsidies and civil ministries need to be under control for the rest of this year. They are on the high side,” Khalil Al Harthy, financial analyst and ex-CEO of Taager Finance, said.

Civil ministry spending rose 8 percent year on year to nearly OMR2 billion in the first five months, while defence and security expenditure increased 9 percent to OMR1.32 billion.

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Subsidies for oil products, such as petrol at filling stations and jet fuel for Omani airlines, rose 168 percent to OMR102 million. Social protection and transport subsidies also went up 12 percent and 49 percent respectively.

The government plans to raise OMR850 million from bonds and local sukuk this year, up from OMR583 million last year to “help meet financing needs”, according to the ministry of finance.

Oil accounts for about 70 percent of government revenue for the sultanate, which is an Opec+ member. However, it expects its oil reserves of about 5 billion barrels to be severely depleted by 2060.

In the first six months of 2026, oil and gas led total exports, increasing by 16.5 percent to OMR8.63 billion, which made up 65 percent of Oman’s total exports.