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07 January 2020

Rising geopolitical tensions have escalated Gulf event risks, S&P

A potential intensification of proxy geopolitical conflicts will further undermine confidence and investment in the region.

Bahrain’s sovereign ratings is also more vulnerable to outflows given the high external financing needs/Bloomberg

by Kudakwashe Muzoriwa

S&P Global said that the killing of Iranian general Qassem Soleimani and the ongoing fallout has rapidly escalated event risk in the Arabian Gulf region.

Bahrain, Qatar and Oman’s sovereign ratings are the most vulnerable to protracted and escalating geopolitical tensions across the region.

S&P said, “We view Bahrain and Qatar as more vulnerable to outflows given their high external financing needs, relating to their respective banking sectors.”

“Oman’s reliance on external debt is a key contributor to our negative outlook on the ‘BB/B’ sovereign rating; a higher risk premium in the event of escalating conflict could further pressure already-rising debt-servicing costs,” added S&P.

Similarly, Iraq’s ‘B-‘rating already incorporated a high degree of political risk and further escalation may destabilise the country’s security situation which was improving.

However, S&P said that this development does not alter the rating base-case assumption that any military action by either side will not lead to a fully-fledged direct military confrontation.

S&P Global said that Abu Dhabi, Kuwait, Saudi Arabia as well as Qatar again should be better cushioned by their large stocks of deployable government external assets.

In a report, the rating agency stated that if a protracted and wider conflict emerges, the fiscal benefit of potentially higher oil prices for Gulf sovereigns will likely be offset by the adverse effect on capital outflows and weaker economic growth.


RELATED STORIES: S&P Global US-Iran tensions sovereign ratings




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