The year opened with five Gulf Arab economies joining JPMorgan Chase & Co.’s emerging-market bond indexes. The spotlight stayed firmly on the region as Saudi Aramco’s $12 billion international bond debut in April was followed by preparations for its historic public offering at the end of the year. Gulf dollar bonds outperformed their emerging-market peers with returns of 15% this year.

At the same time, drone and missile strikes on Aramco’s facilities in September served as a reminder of the region’s political fault-lines and the potential pitfalls investors face.

“Geopolitical disruption risk has not disappeared,” Citigroup Inc. analysts including Edward Morse wrote in an emailed note. The headwinds have been “heavily discounted by markets, which look to us to be more vulnerable to disruption” than before the Aramco attack, they said.

Here’s a list of some of the biggest risks investors will be watching next year:

Gulf Rift

The possibility of a devastating war with Iran and its proxy militias across the region has prompted Gulf monarchies to undertake a strategic rethink. Any sign of reconciliation between Saudi Arabia and Iran, or an end to the embargo against Qatar, would give a powerful boost to the region’s investment case.

Despite faint hints of a thaw between Qatar and a four-nation bloc — comprising the United Arab Emirates, Saudi Arabia, Egypt and Bahrain — a patch-up in relations still seems far from guaranteed.

Qatar has held talks with Saudi Arabia, but no negotiations have taken place with the U.A.E. — and without them the 30-month split will be hard to heal. The emir of Qatar turned down an invite to attend the annual gathering of Gulf leaders held in Saudi Arabia in December, prompting a top U.A.E. official to say that the crisis with Doha “continues.”

Oil and Issuance

With Brent down about 20% since hitting a four-year high in October 2018, fiscal deficits for some in the region are widening and any further decline in oil prices in 2020 will deepen the pain, according to Fitch Ratings.

Global oil markets still face a surplus in 2020 even if OPEC and its partners deliver newly-announced production cuts in full, the International Energy Agency said in December. Supplies outside the group, led by U.S. shale, continue to grow much faster than world demand.

That will dial up the pressure to borrow, and Saudi Arabia, Oman, Bahrain and Egypt could lead bond sales in the Middle East and North Africa in what Abdul Kadir Hussain, the head of fixed-income asset management at Arqaam Capital in Dubai, predicts will be another strong year for issuance. Governments and companies in the region raised a record $111 billion selling debt this year, according to data compiled by Bloomberg.

Protests Percolate

High youth unemployment, poor governance and other deep-rooted problems that contributed to the wave of uprisings in the 2011 Arab Spring continue to threaten political stability in many countries across the region. Faced with these hurdles, governments in Iraq, Lebanon, Egypt, Algeria, Iran and Sudan will struggle to overhaul their economies with potentially unpopular programs, according to Krisjanis Krustins, a Hong Kong-based director at Fitch Ratings.

“Reforms to stabilize public and external finances in both oil importers and some exporters risk further social and political backlash,” Krustins said.

On the Brink

A disorderly default by Lebanon, one of the world’s most indebted nations, could rattle the region. So far the country has an unblemished record of bond repayment through war and political strife and all eyes will be on the government’s $1.2 billion note coming due on March 9.

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It may all come down to how far it can stretch its foreign reserves, while containing the worst currency crisis since it pegged the Lebanese pound over two decades ago.

“As those reserves diminish, the chance that investors face some variant of default, as in a haircut or reprofiling, becomes increasingly likely,” said Michael Cirami, a Boston-based money manager at Eaton Vance Corp.

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Perilous Pegs

Money managers will give rigid exchange-rate policies a wide berth in the event of any dollar weakness, according to Arqaam Capital’s Hussain. Free-floating emerging-market currencies will get a boost from greenback depreciation, not so their dollar-pegged Middle Eastern peers.

“In that environment, the region could become an underweight for global emerging-market investors,” Hussain said.

Kuwait

Some investors predict billions of dollars of inflows when MSCI Inc. adds Kuwait to its main emerging-market stock index in June 2020. It could prove a double-edged sword.

“The associated passive inflows will present a challenge given the high valuation of its stocks, low economic growth and too low a weight in the index for many active emerging-market investors to care,” said Hasnain Malik, the Dubai-based head of equity strategy at Tellimer.