Spillover credit risk from the Middle East war could increase sharply as hostilities persist, S&P Global Ratings said in a report.
The report, “Scenario And Sensitivity Analysis: Credit Implications Of The Middle East War,” notes that short disruptions due to the conflict appear broadly manageable but extended stress—particularly a durable closure of the Strait of Hormuz—could drive major supply chain disruptions, volatility in energy markets, and rattle both investor and consumer confidence.
“Financial buffers should protect the credit quality of most Gulf Cooperation Council entities, but longer disruptions would increase pressures that would likely weigh more heavily on issuers with weaker balance sheets or a reliance on exports, and on confidence-sensitive economies and sectors,” said S&P Global Ratings analyst Zahabia Gupta.
The analysis deploys three stress scenarios reflecting duration and other underlying assumptions, to map potential outcomes and the resulting credit pressures on regional sovereigns, corporates, infrastructure, and banks, and broader emerging markets.
Scenario and sensitivity analysis: Credit implications of the Middle East war
|
Credit implications will be determined by the length and scope of the conflict
|
|
S&P Global Ratings’ scenario framework
|
|
Credit impact
|
Duration
|
|
1. About 2 weeks
|
2. About 1 month
|
3. Beyond 1 month
|
|
Low
|
Attacks on US military bases and other US and Israeli interests in the region result in limited damage to assets, including critical infrastructure (energy, airports, ports) and civilian assets in the Middle East region and Israel. Damage is mainly caused by defensive measures, such as missiles or drone interception, with rapid repair possible, and infrastructure remaining broadly functional.
|
Not applicable.
|
Not applicable.
|
|
Moderate
|
Partial or full closure of the Strait of Hormuz and/or damage to production facilities disrupt oil, LNG and other commodity exports leading to a temporary spike in their prices.
|
Sporadic direct attacks on critical infrastructure and civilian targets—assumed to be limited in scale or with rapid repair possible—shift consumer and investor sentiment and lead to partial evacuations.
|
Not applicable.
|
|
High
|
Not applicable.
|
An extended partial or full closure of the Strait of Hormuz and/or damage to production facilities significantly disrupts oil, LNG, and other commodity export volumes and causes a durable spike in their prices.
|
Full-scale regional war, including regular attacks on civilian targets, population displacement, lasting damage to critical infrastructure, and retaliation from GCC countries.
|
|
S&P Global Ratings’ energy price and volumes, financial, and economic scenarios
|
|
Duration
|
1. About 2 weeks
|
2. About 1 month
|
3. Beyond 1 month
|
|
Credit impact
|
Low-moderate
|
Moderate-high
|
High
|
|
Oil price
|
Brent oil at $75-85/bbl.
|
Brent oil at $85-100/bbl.
|
Brent oil at over $100/bbl for the duration of the conflict.
|
|
Energy production
|
Disruption to global energy supply for a limited period.
|
About 15% of global crude oil and 20% of LNG trade affected (with alternative routes and pipelines mitigating effects on crude oil).
|
About 15% of global crude oil and 20% of LNG trade affected (with alternative routes and pipelines mitigating effects on crude oil). Storage challenges and production shutdowns increase the risk of more severe consequences.
|
|
Financing conditions
|
Increase in risk premium of 30-70 basis points (bps) across the region.
|
Increase in risk premium of 100-150 bps across the region.
|
Increase in risk premium of 250-500 bps across the region.
|
|
Economic activity
|
Temporary disruption to logistics, transportation, hospitality, and consumer facing sectors such as real estate, retail, and leisure.
|
Disruption to logistics, transportation, hospitality, and consumer facing sectors such as real estate, retail, and leisure.
|
Significant disruption to logistics, transportation, hospitality, and consumer facing sectors such as real estate, retail, and leisure.
|
|
Banking system
|
Not applicable.
|
External capital outflows from the banking system (as per S&P’s stress test assumptions).
|
External capital outflows, local deposit outflows, stress on asset quality indicators, reduced government capacity to support banks (as per S&P’s stress test assumptions).
|
|
Source: S&P Global Ratings
|
In a separate statement, S&P Global Ratings believes there is a high degree of unpredictability around the duration and scale of the Middle East war, and its potential effect on commodity prices, supply chains, economies and credit conditions. As a result, its baseline forecasts carry a significant amount of uncertainty. As situations evolve, S&P will gauge the macro and credit materiality of potential shifts and reassess its guidance accordingly.
The international credit rating agency said that the extent of this conflict appears to be different, with some credit impact inevitable. The key question will be whether these effects remain localised or become more pervasive.