Kuwait’s economic outlook is increasingly shaped by rising tensions in the Gulf. In recent weeks, the widening conflict involving Iran, the US, and Israel has spilled into the region, with drone strikes and other military incidents in Kuwait killing at least 10 people and prompting tighter security around key infrastructure. Disruption in the Strait of Hormuz has also pushed Brent crude above $100 a barrel. Kuwait has strong buffers but if the conflict drags on it could reflect negatively on investment and growth.
Last month, Kuwait’s Prime Minister Sheikh Ahmad al-Abdullah Al-Sabah invited international oil firms to invest in the emirate’s new offshore oil fields. It was an unusual move in a country where hydrocarbons have traditionally been a national prerogative.
That appears to be changing. Shortly before the prime minister’s announcement, the Kuwait Oil Company awarded a $1.5 billion, five-year development contract to US oilfield services provider SBL and signed France’s TotalEnergies to an exploration deal. Kuwait is also considering the sale of a $7 billion stake in its oil pipeline network.
Opening the oil sector to foreign investors is part of a broader push by the emirate. After almost a decade of subdued growth and political stalemate, Kuwait’s economy is beginning to regain pace.
Last year alone, the government awarded over $13 billion in projects, with another $36 billion reportedly in the pipeline. Some are new initiatives, others re-tendered deals for delayed public-private partnerships.
Since January, Kuwait has signed a slew of new contracts, including a $4.1 billion agreement with Saudi Arabia’s ACWA Power to expand the Al-Zour North power and water plant. China State Construction Engineering Corporation secured a $3.2 billion wastewater treatment contract and France’s Egis won a port management deal.
“We are already witnessing a faster rollout of large-scale infrastructure and development projects,” says Sulaiman Al-Marzouq, deputy CEO for Kuwait at National Bank of Kuwait (NBK), the country’s largest bank, “and this momentum is expected to build further in 2026 and beyond, particularly across energy, utilities, transport, and urban development.” NBK sees itself as a principal financier, arranger, and structuring partner in these ventures, including syndicated loans and project finance transactions.
Kuwait Finance House, the emirate’s largest Islamic bank, also intends to capitalize on long-term opportunities.
“There is strong growth potential in sectors that are fundamental to global economic infrastructure and energy needs,” says Khaled Yousef Al-Shamlan, Group CEO, “particularly oil and gas, large engineering procurement contracts, driven mega housing and infrastructure projects, and services.”
Following a two-years recession, the economy grew 2.6% in 2025 and is expected to reach 3.8% in 2026. Investor sentiment is improving, prompting foreign firms to increase their presence; Goldman Sachs opened a new office in October while French private equity firm Ardian plans to follow after Warfa, a Kuwait pension fund-owned investment company, took a minority stake.
Economic Reforms
After nearly a decade of political gridlock that paralyzed economic reform, Emir Sheikh Mishal Al-Ahmad Al-Jaber Al-Sabah dissolved Parliament in May 2024 and partially suspended the constitution. Since then, Kuwait has pushed through a series of new laws to support growth.
The most anticipated was the Financing and Liquidity Law, allowing the government to issue bonds and sukuks up to $98 billion: a move that led S&P Global to upgrade Kuwait’s sovereign rating to AA-. Access to debt markets will be critical for driving the country’s project pipeline.
“We see growing opportunities driven by upcoming regulatory reforms,” says Abdullah Al-Tuwaijri, CEO of Boubyan Bank, “including housing finance, alongside a visible pipeline of infrastructure and residential developments. We are also seeing momentum in tourism and service-related projects as well as increased interest from international investors.”
Early last year, the authorities eased land ownership rules to allow foreign entities licensed by the Kuwait Direct Investment Promotion Authority, listed companies, real estate funds, and investment firms to buy property previously restricted to Kuwaitis and Gulf Cooperation Council nationals. The government is also in the final stages of adopting a new mortgage law, which will let banks issue housing loans to meet the growing demand for homes.
“This should support consumer lending growth, improve affordability, and stimulate construction and real estate activity, creating a structurally anchored growth cycle for households and developers,” predicts NBK’s Al-Marzouq.
For banks, Kuwait’s reform agenda and expanding project pipeline are opening new lending opportunities.
“Total financing grew by 8.5% in 2025, and the market expects mid-high single-digit growth in 2026,” notes Al-Tuwaijri.
For NBK, the improving operating environment translated into “continued balance-sheet expansion and steady business volumes in 2025,” says Al-Marzouq. In 2026, he expects the focus to “shift from stabilization to acceleration,” with stronger project execution, increased private-sector investment, and more effective capital deployment.
Kuwait’s banks have strong fundamentals, with capital and liquidity above Basel III requirements. It also nurtures innovation, “to elevate service quality, operational efficiency, and customer engagement,” says Al-Shamlan.
Consolidation is another hot topic. In April, Sharia-compliant lender Warba bought a 32.75% stake in Gulf Bank for $1.6 billion. Gulf Bank is set to convert to Islamic finance in the coming months, and both are considering a merger that would create one of Kuwait’s largest Islamic lenders, with around $40 billion in assets. In 2024, Kuwait Finance House’s acquisition of Ahli United Bank created the world’s second-largest Islamic bank by assets.
Kuwait has also intensified its fights against money laundering and terrorism financing, increasing AML/CFT regulations and compliance measures aligned with global standards.
In February 2026, The Central Bank of Kuwait has reduced the daily limits on international cash transfers while the Ministry of Commerce has banned cash payments for purchase of gold and precious stones. Last year, the authorities also shut down over 70,000 inactive or non-compliant companies.
“Reforms are reinforcing the resilience and credibility of the financial sector,” says Al-Marzouq. “They strengthen our positioning as a trusted counterparty for regulators, global financial institutions, and clients alike while enhancing the overall competitiveness of Kuwait’s banking system.”
Work Still To Be Done
Despite the reforms of the past two years, Kuwait’s economy remains heavily dependent on hydrocarbons, which account for around 90% of government revenues. The country’s breakeven price sits at $90 a barrel, resulting in budget deficits almost every year for the past decade. With oil now trading around $70 a barrel, the draft 2025-26 budget forecasts a $20 billion deficit.
To finance past shortfalls, Kuwait has drawn from the General Reserve Fund, one of its two sovereign wealth funds. Now, it can access debt markets, but borrowing to cover every-day spending is not a long-term solution.
Despite the Vision 2035 development blueprint it adopted in 2017, progress on economic diversification remains slower than in neighboring Saudi Arabia or the United Arab Emirates. Kuwait continues to prioritize hydrocarbons, aiming to boost oil and gas production by a third to 4 million barrels a day by 2035 through offshore exploration and overseas investments. In February, the Kuwait Foreign Petroleum Exploration Company acquired a 20% stake in an offshore site in Brazil from Shell.
Back in 2020, a group of scholars from Kuwait University published “Before It’s Too Late,” a paper that sought to raise awareness of the need for economic diversification and fiscal overhaul among the public and decisionmakers. Assistant Professor of Finance Yaqoub Baqer Alabdullah was among the authors.
“The current economic model is not sustainable in the long term,” he argues, “particularly with approximately 90% of government spending classified as current expenditure. Structural reforms are essential to enhance fiscal resilience and support a more diversified, future-proof economic model.”
Meaningful transformation, however, will require deeper changes to the fiscal system and the emirate’s rentier culture. Despite a few private-sector jobs, mainly in banks and family-owned businesses, 85% of Kuwaitis still work in the public sector. Releasing government-owned land would be a critical step as strong demand for housing, especially with the upcoming mortgage law, will require new plots to build homes and supporting infrastructure like schools, hospitals, and mixed-use projects.
Whatever the future holds, Kuwait can count on one powerful advantage: the Kuwait Investment Authority (KIA), one of the world’s largest sovereign wealth funds. The KIA’s portfolio grew 18.4% from $846 billion in July 2024 to over $1 trillion in just one year. While the fund’s revenues are not counted in the national budget, they provide ample financial flexibility and shelter Kuwait from external shocks. But they also reduce the immediate pressure for reform.
