Risks to some issuer ratings in Gulf Cooperation Council (GCC) states could increase under a hypothetical scenario in which traffic through the Strait of Hormuz is disrupted through most of 2027, Fitch Ratings says in a new report.

The persistence of the US-Iran conflict, limited progress on talks to end the crisis and US moves to shift the confrontation towards economic containment of Iran have raised the risk of a more extended disruption of traffic through the Strait. The conflict could also become more damaging and disruptive for credit as it persists, says the report: GCC Cross-Sector Exposures May Be Tested by an Extended Iran War Scenario.

Very large sovereign financial buffers in Kuwait, the UAE and Abu Dhabi, and Qatar have been key in limiting the impact of the conflict on ratings. 

Buffers would still provide a substantial cushion in a scenario involving a prolonged conflict, but extended disruption could begin to weigh on the credit profiles of some GCC sovereigns, particularly those that do not have alternative ways to export energy products, such as pipelines bypassing the Strait or oil shuttling. Sovereign rating actions could affect other issuers whose ratings are linked to their sovereign, the report says.

A more persistent conflict could also raise the risk of population outflows, or, in the case of a re-escalation of military exchanges, of severe asset damage that could negatively affect companies and energy exports. Weaker demand, more persistent disruption, and increased financing challenges would also add to the risks facing corporates in some sectors, potentially with consequences for their ratings, according to the report. -TradeArabia News Service