Combined assets of the country’s Islamic banks and Islamic banking windows rose 10.5% year-on-year to RO10.1 billion at the end of July 2026, according to the latest data from the Central Bank of Oman (CBO). Islamic banking now accounts for about 19.1% of total banking-sector assets.

The growth has been driven primarily by financing. Outstanding financing provided by Islamic banks and windows increased 10.9% year-on-year to RO8 billion by the end of July, while deposits rose 10.3% to RO8 billion.

Oman’s Islamic banking industry comprises two fully fledged Islamic banks and five Islamic banking windows operated by conventional lenders. The sector has expanded rapidly since the CBO introduced its Islamic Banking Regulatory Framework in 2012.

By the end of 2024, Islamic banking assets had already reached RO8.3 billion, representing 19.3% of the banking system.

Fast-growing Gulf market
The expansion has placed Oman among the faster-growing Islamic banking markets in the Gulf.

Moody’s Ratings said Oman recorded the highest compound annual growth rate among GCC Islamic banking markets over the past five years, at 12%, compared with about 10 per cent in Saudi Arabia, the UAE and Kuwait.

The ratings agency expects demand from both retail and corporate customers to continue supporting growth.

Corporate financing is becoming particularly important. At Oman’s two standalone Islamic banks, corporate financing represented 63% of total gross Islamic financing in 2025, while retail financing accounted for 37%.

Corporate financing grew at a compound annual rate of 12% between 2020 and 2025, compared with 8% for retail financing, according to S&P Global Ratings.

The trend reflects the expansion of Oman’s non-oil economy and demand for financing from companies operating in sectors targeted under the country’s economic diversification strategy.

Industry restructuring
The sector is also entering a period of structural change.

The CBO introduced an Islamic Banking Windows Conversion and Transformation Framework in July, establishing a phased process from 2026 to 2030 for Islamic banking windows operated by conventional banks to transition towards standalone Islamic banks.

The central bank says the reform is intended to strengthen governance, accountability and operational autonomy while giving institutions sufficient scale to compete regionally.

One potential consequence is consolidation. Bank Nizwa has proposed acquiring and merging Alizz Islamic Bank, a transaction that Moody’s said could create Oman’s largest standalone Islamic bank if completed.

The CBO is simultaneously seeking to deepen the Islamic capital market. Its initiatives include developing Wakalah certificates of deposit and Islamic government treasury bills, alongside efforts to accelerate domestic sukuk issuance.

Asia Al Raisi, the CBO’s deputy chief economist for investment and market operations, said a deeper domestic sukuk market could diversify funding sources, finance productive investment and attract a wider investor base.

From growth to depth
The next challenge for Oman’s Islamic finance industry is therefore less about expanding its headline balance sheet and more about building deeper and more liquid markets.

Industry executives speaking at the IFN Oman Forum said Islamic banking and sukuk had achieved considerable scale, but asset management, takaful and other capital-market products remained relatively small. Oman’s Islamic finance industry could reach about USD 45 billion in assets this year, according to industry estimates.

Asset quality will also require monitoring as portfolios mature. S&P estimated Islamic banks’ non-performing financing ratio at 3.6% at the end of 2025, with exposure to cyclical sectors such as real estate and construction accounting for about 12% of portfolios.

For Oman, the expansion of Islamic banking is increasingly tied to the wider economic transformation agenda. The CBO has identified deeper Islamic money markets, sukuk development, responsible digital innovation, stronger governance and greater financing for diversification sectors as priorities.

With assets now above RO10 billion, the sector has established a significant foothold in Oman’s financial system. Its next phase will depend on whether the country can convert that scale into deeper capital markets, broader investment products and stronger regional competitiveness.

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The ministry further said the deficit was 26% lower than the budgeted deficit of OMR 620 million (USD 1.61 billion), attributing the improvement primarily to higher oil and gas revenues.

Total revenues, on the energy front, amounted to OMR 8.481 billion (approximately USD 22 billion), including net oil revenues of OMR 6.640 billion (USD 17.26 billion). The average realized oil price stood at USD 72 per barrel, compared with the budget assumption of USD 60 per barrel.

“Average oil and condensate production reached 999,000 barrels per day, slightly below the budgeted level of 1.001 million barrels per day, reflecting Oman’s commitment to the voluntary production cuts agreed under the OPEC+ framework,” the Finance Ministry report stated.

Net gas revenues, on the other hand, totalled OMR 1.841 billion (USD 4.78 billion), supported by an increase in the average liquefied natural gas (LNG) selling price from the estimated USD 5.41 to USD 7.49 per unit.

“Non-oil revenues reached OMR 3.641 billion (USD 9.46 billion) by the end of 2025,” according to the report.

“Total public debt stood at OMR 14.6 billion (USD 36.41 billion) at the end of 2025, down by OMR 15 million (USD 39 million) from 2024, while all financing requirements were met and liability management operations were carried out without increasing the overall debt level,” it added further.

Talking about the Oman economy, the Gulf nation fared better compared to its regional peers in terms of showing resilience against the volatilities emerging from the US-Iran war, as the location of its major ports outside the Strait of Hormuz bottleneck, along with continued policy reforms, helped Muscat stay afloat.

As per the International Monetary Fund (IMF), favourable oil prices and continued commitment to fiscal discipline will generate sizable fiscal and external surpluses for the nation in the coming days.

An IMF team, led by Abdullah AlHassan (mission chief for Oman & Afghanistan), was in Muscat during June 7-15, 2026, to discuss economic and financial developments, the outlook, and the country’s policy priorities.

AlHassan told the Times of Oman, “Oman’s oil and natural gas infrastructure has remained largely unaffected, enabling Oman to increase oil production and exports amid regional supply disruptions. The banking sector remains well-capitalized and liquid, benefiting from strong buffers heading into the regional conflict and prudent oversight by the Central Bank of Oman (CBO).”

“The strong growth momentum continues. Real gross domestic product (GDP) growth accelerated in 2025 to 2.4% (from 1.6% in 2024), supported by both the hydrocarbon and non-hydrocarbon activities. Growth is projected at around 3.7% in 2026, driven by increased oil production, and 3% in 2027,” the senior official further added.

However, as per the IMF, a worrying point for Muscat will be the non-hydrocarbon sector, whose growth is expected to ease to 2.5% in 2026, reflecting the impact of the Iran war on tourism and construction.

However, the global monetary body sees the blip as a temporary one, as the growth in 2027 will again accelerate to 3.2% on the back of a broad-based recovery. Average inflation remained contained at 1% in 2025 before rising to 2.8% (year-on-year) during January-May 2026, driven by higher food and transportation prices.

In his final remarks, Al Hassan said, “Oman’s fiscal and external positions are set to strengthen, supported by higher oil revenues and continued fiscal discipline. After narrowing to 0.6% of GDP in 2025, reflecting lower oil prices and increased capital spending, the fiscal surplus is projected to widen to 4.5% of GDP in 2026 and 4.2% in 2027. Central government debt continues its downward trajectory, reaching 34.7% of GDP at 2025 end.”

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Hafeet Rail covers a distance of 238 kilometers, with the aim of developing a transportation system that will further deepen the economic integration between the two Middle Eastern countries. The project’s key infrastructural components include 2,500-meter-long tunnels, 36 viaducts, 21 over-bridges, 39 underpasses, and 881 culverts.

“Construction work is continuing at an accelerated pace at several strategic locations along the routes, such as Al Ain, Buraimi, Wadi al Jazi, and Suhar,” Hafeet Rail Company noted.

Given the fact that the route passes through urban and industrial areas, mountainous terrain, and deep valleys, the venture is deploying specialized engineering solutions, including large-scale excavation and the implementation of large engineering facilities such as bridges and tunnels, in addition to integrated flood protection systems, to ensure the system operates in a safe and sustainable manner.

Apart from connecting more than 12 passenger stations and cities across the two countries, the project will also link five major ports and more than 15 integrated freight facilities. While work has been ongoing in regions like Al Ain, Al Buraimi, Wadi Al Jizzi, and Suhar, significant excavation and backfilling works have been undertaken, totalling approximately 27 million cubic meters, in addition to over 100,000 cubic meters of concrete work.

As per the authorities, the project has achieved over 10 million safe work hours without any serious injuries, reflecting a commitment to safety and quality standards.

“The project also includes the construction of 60 bridges, some reaching heights of up to 34 meters, along with tunnels totalling approximately 2.5 kilometers in length, all within an infrastructure designed for the efficient transport of heavy goods,” Hafeet Rail Company said.

Sohar Port, a deep-sea port in the Sultanate of Oman, located midway between Muscat and Dubai, along with its surrounding industrial zone, is expected to be among the project’s primary beneficiaries.

The rail link will reduce the time required to transport goods to Gulf markets, enhancing the port’s attractiveness as a regional logistics hub. It is also expected to attract new industrial investments to the Omani regions like Al Buraimi and Suhar and adjacent economic zones, particularly in domains like heavy and light industries and storage and distribution centers.

While the Hafeet Rail project will attract investments to the construction, engineering, and logistics sectors of both Oman and the UAE, it will also support the growth of small and medium-sized enterprises (SMEs) by expanding their participation opportunities in the project’s supply chains and services.

“The project will also enhance the competitiveness of local products by facilitating import, export, and distribution processes, thereby increasing the competitiveness of Omani companies in regional and global markets,” Hafeet Rail Company concluded.

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In his key message delivered during the inaugural Islamic Finance Sustainability & ESG Forum, held on May 20 at Muscat’s Crowne Plaza Hotel, Hussain al Lawati, CEO of the Development Bank, stated that Islamic finance in Oman has transformed from a late entrant into a substantial component of the Sultanate’s banking system.

By the end of November 2025, Islamic banks and banking windows held assets worth approximately RO 9.3 billion (USD 24 billion), accounting for 19.4% of total banking assets. Islamic financing stood at RO 7.5 billion (USD 19.4 billion), representing 22% of Oman’s total banking credit and financing.

Al Lawati, while participating in a panel discussion titled “The Way Forward: The Role of Islamic Banking & Finance for Sustainable, ESG Finance Under Oman Vision 2040”, said, “The discussion around sustainable Islamic finance can often become too focused on frameworks and reporting. Those have their place, but the real test is what the finance does. Does it help a manufacturer buy better equipment? Does it reduce industrial waste? Does it support an asset that creates long-term value for Oman? That is where Islamic finance has a natural advantage because it stays close to the asset, the activity and the purpose of financing.”

The forum came at a time when sustainable Islamic finance continues to gain traction both in Oman and around the world. Global sustainable sukuk issuance reached USD 21.5 billion in 2025, marking a 38% increase from 2024, reflecting stronger investor appetite for Shariah-compliant instruments aligned with sustainability goals.

Al Lawati also stressed that the challenge for the Islamic banking industry lies not only in the availability of finance but also in the quality of projects entering the market.

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The initiative has been designed to streamline the movement of goods between the two Middle Eastern countries by reducing operational costs, apart from accelerating customs and transit procedures, moves that will enhance supply chain efficiency across ports and border crossings.

According to details announced by the participating authorities from the two countries, the corridor now links Oman’s ports and industrial zones with Sharjah’s ports and land transit network through the Khatmat Malaha border crossing. It will now enable faster cargo movement to Sharjah Port in less than 70km from the border point.

“The new corridor has created a direct land-sea logistics integration between the two countries, supporting exporters, transport operators and logistics firms with smoother procedures and lower transportation costs,” reported Muscat Daily, quoting officials.

“The project is being implemented in cooperation with the Sharjah Roads and Transport Authority, Sharjah Ports, Customs and Free Zones Authority, and the UAE’s Federal Authority for Identity, Citizenship, Customs and Port Security,” it added further.

As per the officials from both countries, the corridor is expected to enhance the competitiveness of regional trade, reduce waiting time at border crossings, and facilitate quicker clearance procedures for trucks and cargo movement.

The infrastructure will also bring advantages like integrated land and sea connectivity, faster processing at ports and checkpoints, reduced transit time for trucks, and improved efficiency for commercial transport operations.

“The Khatmat Malaha crossing has been identified as a strategic logistics gateway linking Oman’s road network and industrial hubs with Sharjah’s maritime infrastructure, while Sohar Port continues to play a key role in supporting import-export activity and supply chain integration,” Muscat Daily noted.

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Qais bin Mohammed Al Yousef, Chairman of OPAZ, led the visiting delegation, which was hosted by Essa Kazim, Group Chairman of DP World, alongside Group Chief Executive Officer (CEO) Yuvraj Narayan and senior leadership from DP World GCC, including Chief Executive Officer and Managing Director Ahmed Yousef Al-Hassan.

The delegation met in Dubai and also visited the Al Rawdah Special Economic Zone site in Al Buraimi Governorate, where discussions centred around the latest project milestones and the subsequent infrastructure development.

“The Al Rawdah Special Economic Zone is being developed close to the UAE-Oman border, with direct connectivity to Sohar Port and Jebel Ali Port. The zone is expected to attract investment across logistics, warehousing, light manufacturing, food processing, pharmaceuticals, medical supplies, plastics, mining and industrial services to support the industrial objectives of Dubai Economic Agenda D33 and Oman Vision 2040,” reported TradeArabia.

“The Al Rawdah Special Economic Zone will support investment, drive industrial growth and strengthen regional supply chains. Our regular engagement with OPAZ reflects the close coordination that defines this partnership and our commitment to delivering a world-class economic zone that creates real opportunities for business and lasting economic value for the Sultanate of Oman and the UAE,” Kazim said.

“The Al Rawdah Special Economic Zone is an important project that reflects the strength of economic cooperation between the Sultanate of Oman and the UAE. Through our discussions with DP World, we reviewed practical models for enhancing the competitiveness of economic zones, supporting supply chains and attracting quality investments. We look forward to continued progress in developing Al Rawdah as a competitive platform for growth and investment,” Al Yousef, the OPAZ Chairman, remarked.

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GCC countries saw USD 55.04 billion of primary issuances through 95 deals in the first quarter, up 5.64% from the first quarter of 2019. The region’s debt market, particularly in Saudi Arabia, has expanded in recent years as economic diversification efforts have increased investor demand for fixed-income instruments.

“As for issuance preferences, the first quarter of 2026 saw an increased appetite for conventional issuances in the GCC, representing 65.2% of total issuances. This aligns with issuance preferences from the first quarter of 2025, when more conventional bonds were issued,” said Markaz.

The UAE placed second with issuances of USD 13.57 billion in 36 offerings, followed by Qatar with USD 4.2 billion, Bahrain with USD 2.1 billion, Kuwait with USD 1.98 billion, and Oman with USD 650 million.

A December report by Kamco Invest indicated that GCC debt maturities are expected to remain high in the coming five years, with the UAE and Saudi Arabia having the highest maturities at USD 171.8 billion and USD 174.5 billion, respectively, between 2026 and 2030.

Issuance by corporate issuers increased 5.7% year-on-year to USD 34.58 billion, or 62.8% of total issuance, while sovereign issuance rose 5.5% to USD 20.46 billion, or 37.2% of the total. Government-related corporate entities saw a sharp decline in the first quarter, issuing USD 2.65 billion, which is 60.9% less than a year earlier.

The financial sector followed with USD 19.45 billion from 64 issuances, representing 35.3% of the market.

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While the latest figures show an uptick from the tally of RO 29.02 billion, recorded during the same period in 2024, annual inflows declined to RO 2.36 billion from RO 3.56 billion a year earlier. This indicates a slowdown in new capital entry despite the expansion in total investment stock.

Breaking down the numbers from Oman’s National Centre for Statistics and Information, the oil and gas continued to dominate, accounting for 80.9% of total FDI inflow (translated to RO 25.41 billion, with inflows of RO 2.53 billion). The manufacturing sector came second with investments of RO 2.67 billion, although it registered a decline in inflows of RO 127 million.

“The financial intermediation sector followed with total investments of RO 1.50 billion, recording a drop in inflows of RO 69.1 million. Other sectors posted mixed performance, reflecting varied investment dynamics across the economy. Investments in real estate, rental and business activities reached RO 584.3 million, with a decline in inflows of RO 14.4 million, while the transport, storage and communications sector attracted RO 312.5 million, supported by modest inflows of RO 2.5 million,” reported Oman Daily Observer.

Among other sectors, the electricity and water sector recorded investments of RO 318.7 million, with inflows increasing by RO 25.8 million. The trade segment saw investments of RO 281 million, with inflows rising by RO 4 million, signalling steady activity in domestic commerce.

Hospitality, especially hotels and restaurants, saw investment inflows worth RO 112.8 million, with a marginal decline in inflows of RO 700,000. The construction sector registered RO 99.1 million, and “other activities” collectively attracted RO 85.7 million, with inflows rising by RO 2 million.

The United Kingdom remained the largest investor in the Sultanate, accounting for 52.3% of total FDI, valued at RO 16.42 billion. The United States and Kuwait took second and third positions, with amounts of RO 8.45 billion and RO 1.36 billion, respectively.

China (RO 887.3 million), Qatar (RO 763 million), UAE (RO 626.2 million), Bahrain (RO 528.5 million), Netherlands (RO 525.1 million), Switzerland (RO 329.7 million) and India (RO 275.2 million) all continued to pump capital into Oman.

“The data reflects Oman’s continued ability to attract long-term foreign capital, supported by sectoral diversification and an evolving investment environment, even as inflow levels fluctuate in response to global economic conditions,” Oman Daily Observer concluded.

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According to a monthly bulletin by the Ministry of Economy, Oman’s non-oil GDP rose to RO 28.70 billion, marking a robust increase of 3.1%, compared with petroleum activities, which grew at a slower pace of 1.1% to reach RO 12.02 billion. Sustained activity expansion occurred across sectors like manufacturing, logistics, tourism and services. Inflation, on the other hand, remained contained at an average of 1.69% during January-February 2025/2026, indicating stable price levels that supported household consumption and business planning.

Foreign direct investment (FDI) stocks (total accumulated value of cross-border investments) increased to RO 31.38 billion by the end of Q4 2025, up 8.1%, reflecting continued investor confidence in the Sultanate’s long-term economic outlook. However, FDI inflows declined sharply by 33.7% to RO 2.36 billion, suggesting short-term caution amidst global economic uncertainty and tighter financial conditions due to volatile geopolitics.

Oil market trends, on the other hand, weighed on the broader outlook, with the average crude price falling by 13.1% to USD 63.3 per barrel by the end of February 2026, reflecting softer global demand and increased supply. However, with the Middle East conflict at its peak, which has also resulted in crude oil prices exceeding USD 100 per barrel, the impact on Oman’s economy in the coming days remains to be seen.

Discussing trade metrics, while the overall trade balance recorded a surplus of RO 255.9 million at the end of January 2026, there was a significant contraction of 51.5% compared to the same period in 2025. Imports increased by 10.9% to RO 1.58 billion, driven by higher domestic demand and ongoing project activity, while non-oil exports rose by 15.3% to RO 613 million, underscoring improving export diversification.

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In fact, according to Saad al-Kaabi, Qatar’s energy minister, if the ongoing conflict forces Gulf energy producers to ⁠shut down exports within weeks, it could drive oil to USD 150 a barrel. In response to the US-Israel joint strikes on its territory, which were launched on February 28, Tehran has stopped the traffic of tankers moving through the Strait of Hormuz, which handles roughly one-fifth of global daily oil supply. The conflict has also resulted in the disruption of output, as refineries and liquefied natural gas (LNG) plants are facing shutdowns.

“Every day the Strait stays closed, prices will go higher. The belief in the market was that Donald Trump might pull back at some point because he doesn’t want to have high oil prices, but the longer that takes, the clearer it is how much is at risk,” said Giovanni Staunovo, commodity analyst at UBS, while interacting with Reuters.

As per a White House official, the Donald Trump administration will likely announce measures to combat rising energy prices from the conflict.

In fact, the Treasury granted waivers on March 5 for companies to buy sanctioned Russian oil stored on tankers to ease supply constraints that have resulted in Asia-based refineries cutting fuel processing. As per the ship-tracking firm Kpler, about ⁠30 million barrels of Russian oil are available and loaded on vessels in the Indian Ocean, Arabian Sea region and Singapore Strait, including volumes in floating storage.

Meanwhile, spot Middle East crude premiums have spiked to multi-year highs in the first week of March, a trend that also suggests higher costs for regional refiners, with the latter struggling to find immediate alternatives and facing potential output cuts, resulting in the global hike for crude prices.

Along with Brent crude futures and West Texas Intermediate, benchmark Dubai’s cash premium jumped to USD 19.63 per barrel, the reported highest from 2018. Premiums for Oman and Murban crude also soared, hitting USD 19.15 and USD 17.87 per barrel, respectively.

“Dubai spreads have surged as crude exports remain stranded within the Middle East Gulf, making price discovery nearly impossible. We expect Strait of Hormuz disruptions to continue through at least mid-March. There are concerns that Dubai price assessment will be nearly impossible once Oman- and Fujairah-loading Murban shipment volumes are exhausted this cycle,” said Richard Jones, a crude analyst at ⁠Energy Aspects, while interacting with Reuters.

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