Escalating conflict between Israel and Iran could strain the credit quality of Middle East and North Africa (Mena) sovereigns and banks, S&P Global Ratings said in a report published yesterday.
The report, titled ‘Israel-Iran Escalation Stresses Geopolitical Risk Scenarios For Regional Sovereigns And Banks,’ highlighted several factors that could pressure regional credit: disrupted transport routes, volatile energy prices, reduced tourism, capital outflows, increased security spending, and flagging consumer and investment confidence.
S&P cautioned that any potential rise in oil prices would only benefit the region if production remains consistent, global demand holds steady, and trade routes stay open.
“The conflict is testing S&P Global Ratings’ previous assumptions by increasing downside risk including due to the prospect of further escalation,” said S&P Global Ratings analyst Benjamin Young. “Thus far, developments suggest attacks and counter attacks are seeking to avoid drawing in third countries, such as the US or Gulf countries.”
Despite the heightened risk, “Gulf Cooperation Council banks display strong balance sheet resilience under our stress test scenarios although a complex, unpredictable, and protracted regional conflict would likely have adverse implications for their creditworthiness,” added S&P Global Ratings analyst Mohamed Damak.
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