S&P said the ongoing conflict in Iran has strained credit channels in the region, and banks and financial institutions in the GCC face increased risks from capital outflows.
Based on net external debt outstanding, the rating agency identified banking systems in Bahrain and Qatar that may require external or government support in the event of significant capital outflows.
“In a severe stress scenario, Bahrain’s banks…may require liquidity support and greater stability of the regional component of the banking system’s external debt,” S&P said.
Other banking systems, including the UAE and Saudi Arabia, maintain net external positions and should be able to use their liquidity to withstand moderate capital outflows “assuming no prolonged hostilities,” S&P said.
increased exposure
While higher oil prices are expected to bring “some comfort” to GCC countries’ fiscal outlook in the near term, the extent of disruption to key trade routes and production could cause fiscal strain through reduced revenue, which could be particularly problematic for governments with weak balance sheets, large banking systems, and limited export options, S&P warned.
“We believe that the severity of the situation has moved from high to severe in our predefined scenarios, thereby increasing the likelihood of credit-quality events across all sectors,” the report said.
Oil and gas companies are already facing disruptions at regional ports, including in Oman and the UAE, he said.
A prolonged conflict poses significant risks to global oil markets and could impact volume flows and prices, the rating agency said. “We expect the impact on oil and gas companies to extend not only to producers, but to all organizations connected to the value chain, including shipping companies, port operators and downstream companies.”
In the near term, companies also face exposure to fluctuations in energy prices, supply chain disruptions, business interruptions, and higher security and insurance costs, S&P said.
“Companies with high-value, high-profile assets such as airports, ports, hotels and tourist attractions are at increased risk of physical disruption and cyber risks. There is also the potential for regulatory intervention in sectors such as utilities and telecommunications,” it said, adding that companies that rely on export routes through the Strait of Hormuz are particularly vulnerable to vulnerabilities in their operational networks.
(Writing: Bindu Rai; Editing: Sevan Scalia)
bindingu.rai@lseg.com
