This paper presents a study of wellbore instability and ballooning in naturally fractured formations. A model containing two fractures is analysed numerically using a time-dependent, poroelastic approach to investigate the effects on wellbore stability and ballooning of (1) in situ stress ratios (σ H /σ h ), (2) rock matrix permeability (k r m ), (3) rock stiffness (Young's modulus, E), (4) mud cake build up, (5) fracture orientation and (6) fracture length. Results show that there is considerable difference in both wellbore instability and ballooning between a permeable rock matrix and the usual assumption of an impermeable one. In addition, the presence of fractures drastically changes the near wellbore stress distribution; and the common approach of increasing or decreasing mud weight for mitigation of wellbore instability may not only fail, but can even have an adverse effect.