S&P Global Ratings (S&P) says that it considers the gravity of the military conflict in the Middle East to have moved from high to severe in its pre-defined scenarios and consequently, the potential for events to weaken credit quality across sectors has increased.
Insurance sector
S&P anticipates that credit conditions for its rated insurers in the Middle East will remain broadly stable in the short term, supported by robust earnings in recent years leading to a buildup in capital buffers. However, the global credit rating agency also cautions that a prolonged conflict could dampen growth prospects and earnings for all insurers in the region.
S&P does not foresee a significant rise in insurance claims, since war-related risks are typically excluded from standard insurance policies.
Specialised insurance policies that cover war risks, such as those for marine and aviation policies, are generally heavily reinsured. S&P therefore does not anticipate any material direct claim-related impact on local insurers that write this business. However, it notes that a broader or extended conflict could result in a slowdown in growth and earnings prospects, and more importantly, significant fluctuations in asset prices, particularly in the event of substantial market volatility. Consequently, S&P expects that its ratings on GCC-based insurers with weaker capitalisation or substantial exposure to high-risk assets, particularly equities and real estate, may become strained in the event of a prolonged conflict.
Scenario
S&P’s base-case scenario remains that military confrontation will be relatively short lived. However, public statements of US military operations lasting up to one month and the nature of US and Israeli military objectives—including regime change—are far broader than those relating to the 12-day war in June 2025. The intensity and geographic reach of attacks are also far wider than those seen last year. The conflict is already affecting trade and supply routes, including the Strait of Hormuz, and energy prices and aviation, with airspace closed across the region.
For Iran’s regime, the conflict is near existential, meaning that it will likely continue to retaliate when and where it sees fit, having already targeted US military assets in the UAE, Jordan, Oman, Kuwait, Iraq, Qatar, Bahrain and Saudi Arabia. Iran is also likely to keep targeting critical infrastructure across the region, including airports and ports, with some civilian and military casualties.
Shipping disruption may cause multisector strain
The effective closure of the Strait of Hormuz has the potential to transmit credit strain across sectors. Shipping companies have started to cancel voyages amid threats from Iranian naval forces and sharp spikes in insurance costs. Depending on the severity and duration of the conflict, several channels may show signs of strain. These include:
Moreover, borrowing costs are likely to rise sharply—at least in the short term—and expose issuers that have significant or imminent refinancing needs.
Sovereigns
Significant geographic differences among regional countries will influence their vulnerability to supply-chain disruptions and the conflict in general. Higher oil prices would generally benefit hydrocarbon producers, although this will depend on how long the Strait of Hormuz is obstructed.
S&P considers a prolonged blockage of the Strait to be unlikely, given the substantial US military presence in the region. However, exposure to a closure is higher for Iraq, Bahrain, Qatar, and Kuwait, reflecting their reliance on this route.
Higher oil prices will bring some relief to the fiscal outlook of Gulf Cooperation Council (GCC) sovereigns—at least in the near term—assuming barrels can be exported. However, the extent of obstructions to key trade routes or to production has the potential to induce fiscal strain through weakened revenues, which could be particularly relevant for governments with weaker balance sheets, larger banking systems and limited export options. In contrast, Oman, the UAE, and Saudi Arabia can partially mitigate the impact through alternative export routes for part of their volumes, although transport and hydrocarbon production facilities may be at risk anywhere in the region.
“Given that the Iranian regime is fighting for its existence, we cannot rule out efforts to broaden the theater of retaliation outside of the Middle East and North Africa region (Cyprus has already been targeted), albeit constraints on Iran’s military reach are considerable,” the S&P report said.