Oman

Economic recovery to continue in 2025 buoyed by higher hydrocarbon production

Oman's economy will pursue its recovery in 2025, supported by a slight increase in hydrocarbon production (35% of GDP) despite lower energy prices. Oman's oil production is projected to rise by nearly 2%, following a 6% decrease in 2024 due to OPEC+ production cuts. If the OPEC+ restrictions are lifted, Oman's net oil exports could grow by nearly 3.5% year-over-year (y-o-y) in 2025. Natural gas production, on the other hand, is expected to increase by nearly 2% y-o-y in 2025, reaching approximately 45 billion cubic meters, in line with the start of production at the Mabrouk North-East project. As Oman's oil reserves are reaching maturity, the government is prioritising the expansion of the country's liquefied natural gas (LNG) capacity through new projects. On that score, Oman National Oil Company (OQ) signed with TotalEnergies for the Marsa LNG project in 2024. The project is an integrated initiative combining upstream gas production and downstream gas liquefaction.

Investment (25% of GDP) will also be sustained by a lower interest rate environment. This will be coupled with higher public investment (roads and ports) to achieve economic diversification targets set by the Vision 2040 programme, which should attract private domestic and foreign investment in non-hydrocarbon sectors such as finance, manufacturing (existing sectors based on natural resources, as well as new sectors based on tech and knowledge, and related to health and wellbeing), mining, logistics, tourism, and digitalisation.

Private consumption (around 25% of GDP) stands to benefit from a recovery in tourism, ongoing urbanisation and government initiatives to increase the Omanisation of the workforce. The objective is to replace expatriate workers with trained Omani citizens. Despite the government's announcement in 2020 to gradually phase out water and electricity subsidies by 2025, the latter have remained in place. According to the Minister of Finance, the budget for the 2025 fiscal year includes a total of RO 1.580 billion (approximately USD 4 billion) in subsidies for water, electricity, finance, and other areas. This will curb inflation despite rising imported food prices. The central bank will align policy with that of the US Federal Reserve.

Current account surplus to narrow on back of low energy prices; high spending will bite into budget surplus

In 2025, lower global energy prices could lead to a decline in Oman's energy export revenues (60% of total goods exports) despite an expected increase in oil and gas production. However, recovery of the global economy should allow the country's non-hydrocarbon exports to increase. These notably include metals, chemicals and plastics, which account for 15% of the country's exports. As a result, energy export revenues are expected to decrease by around 7% annually in 2025, while merchandise exports are expected to increase by nearly 5.5%. Second, economic diversification efforts under Oman Vision 2040 project will shore up demand for capital and intermediate goods imports. Tourism revenues, which are estimated to grow by 6.5% to around USD 4 billion in 2025, will play a part in narrowing the services deficit from 5.5% of GDP in 2024 to an estimated 5.3% of GDP in 2025. A lower expatriate population – the number dropped by 1% year-on-year at the end of December 2024, but still accounts for around 45% of the total population – will curb remittance ouflows from the country.

The fiscal surplus will decline in 2025 due to growth in government spending that will outpace revenue growth. Total hydrocarbon revenues (70% of total fiscal revenues) are projected to fall by nearly 13% y-o-y in 2025 compared with 2024. Meanwhile, non-hydrocarbon revenues will edge down by around 4.5%. During the same period, total fiscal expenditures are estimated to decrease by 3%. These expenditures are expected to be allocated primarily to current expenditures (i.e., defence and security, civil ministries etc.) and subsidies (i.e., electric subsidies that account for 4% of total expenditures). Despite its projected decline, the budget surplus will ensure that the public debt stock-to-GDP ratio continues to fall.

Stable domestic politics amid higher geopolitical tensions

Oman is an absolute monarchy, with the Sultan holding both executive and legislative power. The governance structure integrates traditional authority with modern reforms, with the Sultan serving as both head of state and head of government. Sultan Haitham bin Tariq al-Said was appointed to succeed Sultan Qaboos in 2020 upon the latter's death. Tariq al-Said has consolidated power and gained political legitimacy. Social programmes, low inflation, and the Omanisation programme are likely to support stability. However, the private sector's ability to generate employment opportunities, particularly for young people, will remain a key challenge for Oman to mitigate any potential social unrest.

Oman has historically maintained a neutral foreign policy with global and regional powers. Oman played a pivotal role in facilitating negotiations between Iran and the US regarding the former’s nuclear programme. Oman and Saudi Arabia enjoy a generally cooperative relationship, particularly in the economic and trade sectors, as both countries share concerns about economic diversification and regional stability. With the UAE, Oman has robust economic cooperation based on the collaborative use of their ports, such as the Dubai and Sohar ports, which serve as major trade hubs. About 14% of Oman's goods exports goes to the UAE, while nearly 25% of its goods imports comes from the UAE. In addition to trade, both countries collaborate on infrastructure development and disaster relief. The conflict in Yemen poses a significant security threat given the shared border. Oman’s neutral stance might be challenged as Saudi Arabia and UAE seek to expand their influence in southern Yemen. With Iran, Oman ensures the security of the Strait of Hormuz. Oman's strategic location at the entrance to the Strait enhances its role in regional security but renders it susceptible to geopolitical risks, particularly those stemming from tensions in the broader region.

Last updated: February 2025