How long can markets hold their bet on Gulf resilience as war drags on?
A prolonged closure of the Strait of Hormuz and continued assaults on Gulf energy infrastructure are likely to lead to regionwide credit deterioration, experts say.
Ratings agencies have maintained their rosy outlook for the Gulf amid the US-Israel-Iran war, but that resilience hinges on the conflict remaining short-lived, with prolonged disruption likely to trigger downgrades, according to experts.
The United States and Israel first launched missile strikes on Iran on Feb. 28. Tehran has responded by bombing Israel, US assets in the region, and surrounding Gulf countries, including the United Arab Emirates and Saudi Arabia, the region’s two economic powerhouses. Thousands of flights have been canceled, and expatriates have rushed to evacuate the Middle East amid the conflict.
Desmond Lachman, a senior fellow at the American Enterprise Institute and former deputy director of the International Monetary Fund’s Policy Development and Review Department, said that despite the regional instability, Gulf countries’ strong fiscal buffers should allow them to withstand a period of lost oil production. But he warned that prolonged shocks would alter the outlook.
“A very prolonged closure of the Strait of Hormuz — like for a few months — would change the [ratings] picture, as the Iranians could inflict very serious damage on the oil-producing infrastructure of those countries,” Lachman added.
