El Nino could add to credit pressures for weaker sovereigns and some corporate sectors
Source: Middle East Insurance Review | Sep 2026
It is increasingly likely that the planet is headed for a very strong El Nino this year, with the US’s National Oceanic and Atmospheric Administration (NOAA) assigning an 80% probability to a rise in Pacific Ocean temperatures in excess of 20C, says Fitch Ratings (Fitch).
In its report titled “Global Risk Outlook: 3Q26 AI Market Correction Emerging as Major Credit Risk”, Fitch says that by raising sea-surface temperatures, the climate phenomenon raises weather volatility, increasing the likelihood of droughts, floods and severe storms. It can negatively affect agricultural output and soft commodity prices, with areas around the Pacific Rim most affected.
El Nino will add to existing pressures for some countries and agribusiness sectors that are already challenged by input price inflation from the US-Iran war. In Latin America, fertiliser and diesel represent 50%-70% of agricultural input costs, and 30% of fertiliser supply is sourced from the Middle East, with those price rises having already materially compressed agribusiness margins this year.
Weak production would further pose demand risk for the region’s transportation issuers including toll roads, railroads and ports. Other sectors reliant on water supplies, such as hydro-dependent utilities in Asia and Australia, will also be directly exposed.
For sovereigns, food price shocks in countries where food is a large component of the consumer price index could influence interest rate decisions, complicating monetary policy calibration. They could also add to fiscal pressures where governments operate subsidy systems, while weighing on taxable economic activity. Vulnerable sovereigns are those both at risk of El Nino weather effects and at the sub-investment-grade, highly speculative end of the rating scale, with low headroom and few buffers. M