There war in the Middle East has so far had impacts limited to ratings of the countries involved in the conflict – Israel and Lebanon – beyond the huge human losses and losses economic impacts not indifferent, but they exist regional risks which could lead to a worsening of the region’s credit parameters. That’s what I estimate S&P Global Ratings in a report dedicated to the countries involved in the war in the Middle East.
The rating on Israel is currently two steps below of the October 7, 2023 level, reflecting weaker fiscal and growth expectations through 2025, as well as significantly increased security risks. As for the Lebanonalthough it remains by defaultits economic and recovery prospects are also believed to have weakened.
The escalation of the conflict
From mid-September 2024, the military focus of Israel appears to have moved further north than Gaza. In fact, we have witnessed an upsurge in the Israeli struggle against Hezbollah in Lebanon southern and to Beirut and Iran’s missile attack on Israel.
“That means a further intensification of the ongoing war since October 2023, beyond our previous expectations,” says the rating agency, which sees “the risk of broader regional ramifications for sovereign debt and worsening creditworthiness.”
The prospects
S&P continues to hold unlikely the emergence of a direct and prolonged conflict between Israel/United States and Iran. However, the latest round of escalation has led the agency to consider likely than the conflict persist until 2025increasing the risk of negative developments, with potential impacts on the region’s sovereign ratings. The agency, in particular, assesses the current level of pressure in the area as moderate, but believes that high stress factors could emerge.
Risk factors and impacts for the area
In the report S&P briefly summarizes a number of hypothetical regional stresses which could cause a worsening of credit parameters of the area. In particular, they are taken into account 4 scenarios in relation to the degree of stress taken into consideration:
- modest stress which would occur with a direct and indirect conflict between Israel of short duration (less than 3 months) and would imply a limited impact on the area’s ratings;
- moderate stress which foresees an expansion of the Iran-Israel conflict, also at a temporal level, and would have impacts on economic growth, energy and trade, but would still be manageable on a fiscal and credit level;
- high stress which would materialize with the persistence of intense and prolonged attacks between Israel and Iran, such as to have macroeconomic impacts on the entire Middle Eastern area, putting its stability at risk;
- severe stress which would occur with the full involvement of allied forces (United States and Gulf countries) and would imply a surge in energy prices, risks for exports, lasting impacts on the regional economy and greater stress on the fiscal and credit side.
Among the risk factors that could lead to a worsening of the situation in the regionS&P cites possible blockages of commercial sea traffic and the surge in energy prices caused by an attack on oil infrastructure, in addition to the increase in social and security costs and the impact on tourism.
