Oman sits at the crossroads of the Arabian Peninsula, East Africa, and Southeast Asia. Its location, stable internal politics, and good relations with neighbors make the country an attractive trade and investment partner. This is important because, although Oman’s economy has been strongly oriented toward oil and gas exports since the 1970s, Oman is set to run out of oil and gas reserves in less than two decades. Therefore, the country is working to diversify its economy through its Vision 2040 economic reform program. To support this aim, Oman established its sovereign wealth fund, the Oman Investment Authority, in 2020. The OIA injected 800 million Omani rials (around $2.08 billion) into the state’s general budget in 2023 and has helped to pay down corporate debt. It is unusual for a sovereign wealth fund to help pay down corporate debt, but since OIA’s primary goal is to maximize returns for its home country, in this case stabilizing the economy and contributing to fiscal sustainability will be prerequisites in attracting significant foreign direct investment. At the same time, Oman has implemented economic structural reforms, including introducing a value added tax in 2021. Such reforms helped to elevate Oman’s long-term sovereign credit rating from junk status to the investment grade of BB+ in 2024. These reforms serve to strengthen Oman’s position in attracting FDI, which was up by 21.6% year-on-year in 2023, and 17.4% in the second quarter of 2024 (year-on-year). While fiscal changes form part of the economic plan, making key Omani industries as attractive as possible as FDI destinations will translate into more equitable deals and help further integrate Oman into the global economy.
Attracting FDI
Omani state-owned enterprises are spread across sectors of the Omani economy – oil and gas, manufacturing, telecoms, aviation, infrastructure, and finance. These fall under the purview of the OIA since the chair of the OIA is also the minister of finance. The Omani government aims to privatize or partially privatize 35 state-owned enterprises by 2027. The government has allowed foreign investors to participate in some privatization efforts, while in others, for example, the partial divestment of the government’s ownership in telecommunications firm Omantel, it has restricted participation to Omani investors. And the Ministry of Finance has implemented programs such as the National Program for Financial Sustainability and Financial Sector Development, or Estidama, to help accelerate Vision 2040 and attract more FDI by making the financial sector more competitive.
The OIA is also leading investments into strategic energy projects. Green Energy Oman is an Omani-Saudi-U.S. consortium investing in renewable solar and wind energy with aims to produce 1.8 million tons of green hydrogen per year, which would make Oman the largest producer of clean energy in the world. Hyport develops green hydrogen and green ammonia in the Duqm Special Economic Zone (an 800 square mile free trade zone and logistics hub), and H20man in Dhofar governorate and Salalah Hydrogen in the Salalah Free Zone are similar projects. The Asian Infrastructure Investment Bank, of which Oman is a founding member, has committed $301 million for the development of maritime infrastructure at Duqm and helped build capacity in the rollout of Oman’s first railway; this backing has helped spark additional investment and cooperation opportunities.
United Kingdom
The United Kingdom is currently Oman’s largest investor, accounting for around half ($23.5 billion in 2022) and about $35.6 billion as of the third quarter of 2024. British companies have invested in energy, renewables, logistics, and tourism. This has been supported by a Sovereign Investment Partnership, signed in London in January 2022, aiming to strengthen economic relations and boost high value investments in Oman and the U.K. In September 2024, Douglas Alexander, the British minister of state for trade policy and economic security, visited Oman to discuss boosting bilateral trade and investment as well as advancing talks on a U.K.-Gulf Cooperation Council free trade agreement. Bilateral trade was just £1.6 billion (over $2 billion) from the second quarter of 2023 to the second quarter of 2024, so there is opportunity for growth.
United States
The United States is Oman’s second-largest foreign direct investor, with $7 billion in investments in 2022 and $13 billion invested in the second quarter of 2024. Additionally, the United States ranked as Oman’s largest trading partner in 2022, with total trade at $4.18 billion. The United States and Oman have had a free trade agreement in place since 2009, and the two countries signed a science and technology cooperation agreement in 2016. Priority sectors in Oman’s Vision strategy could attract more U.S. companies to participate in trade and investment relations, with the main competition coming from the UAE’s role as a reexporter and low-cost Chinese competitors.
China
In 2022, China invested $21.74 million in Oman. However, in recent years, Chinese investment has gathered pace, reaching $6.6 billion in 2024 to make China Oman’s third-largest foreign direct investor. This rapid spike is due to major Chinese investments into Omani energy (especially oil, gas, and a $540 million investment into a solar project), petrochemical projects, and Omani infrastructure projects. Bilateral trade was $40.45 billion in 2024. Oil and gas sector ties offer greater long-term potential if Oman is able to expand Chinese investment from Oman’s oil and gas sectors to more renewable energy industries over time. For Beijing, Oman will remain a geostrategically important country with a growing array of complementary trade and investment opportunities.
United Arab Emirates
The UAE was Oman’s fourth-largest investor in 2022, with Emirati FDI estimated at $2.38 billion. However, investments have been bolstered by a partnership agreement signed in 2022 between the OIA and Abu Dhabi-based investment and holding company ADQ. Emirati FDI in Oman is expected to increase even further following a 2023 announcement of an investment partnership that is expected to reach $35 billion across multiple sectors. That would put the UAE easily on a footing with the U.K. as a lead investor with the added advantage of more bilateral trade, which was $14.03 billion in 2022.
Both investment and trade ties look set to expand further due to the Oman-Etihad rail project, whereby Mubadala and Etihad Rail are working alongside the Omani Asyad Group Company. The project will link Sohar in Oman to Abu Dhabi in the UAE, creating the kind of infrastructure project that can easily plug into other networks in the region and beyond, especially with partners across the Indian Ocean, potentially creating a positive multiplier effect. In April 2024, Sultan Haitham bin Tariq al-Said made his first trip to the UAE since becoming head of state in 2020; he signed multiple agreements, including on sustainability, education, and investment, as part of greater efforts to enhance investment and trade ties. This appears to be part of trend of the Sultan travelling to neighbors only when inking major investment and infrastructure deals.
Saudi Arabia
The greatest potential for Oman appears to be in developing investment relations with Saudi Arabia, since the kingdom is not currently among Oman’s top 10 investors. This would help balance out any dependencies and support Oman’s relative economic autonomy. In February 2021, Saudi Arabia and Oman held a joint investment forum under the theme “Partnership and Integration,” and the Public Investment Fund allocated $5 billion to Oman in 2023. Oman and Saudi Arabia signed a memo of understanding to finance the construction of an integrated economic zone in Oman’s Al Dhahirah governorate, which borders Saudi Arabia, and more could be done in attracting investment into Salalah and Duqm. Oman and Saudi Arabia signed an agreement in 2023 to increase the appeal of such special economic zones in both countries.
In December 2021, the Muscat Stock Exchange signed an agreement with the Saudi stock exchange, Tadawul, to strengthen bilateral cooperation. Since that agreement, senior level trade and investment delegations have increasingly made visits to Oman. Over 1,200 Saudi companies operate in Oman, and bilateral trade reached 2.7 billion Omani rials (a little over $7 billion) by the end of 2022. The challenge will be to convert a top trading relationship into world-leading and long-term investments in Oman.
Like Oman-UAE ties, significant infrastructure projects may reduce friction in local and international trade and provide for more reasons for direct contact at the head of state level. For example, the sultan’s first foreign visit since assuming power was to Saudi Arabia in July 2021. He arrived in Neom to discuss the Yemen war and economic cooperation, and Saudi Arabia and Oman established a joint coordination council to oversee agreements. In December 2021, Saudi Arabia and Oman opened the first land border crossing between the two countries. A 450-mile road stretches from the Al-Batha road intersection near Riyadh through to the Rub Al-Khali desert (part of the Empty Quarter) to the Ibri roundabout in Al Dhahirah governorate in Oman. Ongoing infrastructure developments in the Gulf states will also benefit Oman by opening up or expanding new markets and increasing trade efficiencies. GCC free trade agreements with major trading states and blocs, including the United States, European Union, or China, could significantly boost investment ties with Oman and GCC state trade relations globally. They could be further enhanced with bilateral investment treaties, which would go a step further than free trade agreements in protecting and promoting foreign investments between countries. Until these are concluded, Oman is replicating economic diversification strategies similar to the UAE’s Comprehensive Economic Partnership Agreement strategy by focusing on areas of competitive advantage, including heavy industry at Duqm and Salalah, medical exports, and a GCC hub for the semiconductor industry.
Maintaining Balance
In dealing with present and emerging opportunities, economic decision makers in Muscat will have to carefully balance the potentially unequal gains made between Oman and stronger partner economies, especially where there are elements of intense competition, such as in renewable energy. The Omani government will further have to manage the ongoing shift in the balance between public and private enterprise and support for strategic sectors while maximizing advantages associated with rising investment, new technology, infrastructure, and trade routes.
