US-Iran tensions might affect Gulf sovereign ratings, says S&P

Bloomberg/Simon Dawson

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Tensions in the Arabian Gulf increased in May 2019 after exemptions from sanctions ended on countries buying oil from Iran.

Wednesday 12, June 2019 BY MUZORIWA KUDAKWASHE

S&P Global Ratings said that US-Iran tensions might affect its Gulf sovereign ratings due to an increase in sovereigns' funding costs, disruption to foreign direct investment (FDI) and  equity investments  flows as well as tourism and bank deposit outflows  which  could damage  economic growth prospects and harm governments' fiscal positions if assets were  deployed to offset these negative effects .

Prolonged tensions will likely make global oil prices more volatile and could weaken global economic growth, an increase in oil prices could offset some of the impacts of capital outflows and weaker economic growth.

Additionally, Abu Dhabi and Saudi Arabia have alternative export channels that could alleviate the impact of a blockade of the Strait on their economies.

The rating agency said that some GCC countries will likely be more affected than others, adding that certain sovereigns such as Abu Dhabi, Kuwait as well as Qatar and Saudi Arabia would likely be better cushioned by their large stock of government external assets.

S&P said that it has not changed any outlooks on Gulf-region issuers thus far because direct conflict between the US and Iran is unlikely.

TAGS : S&P Global Ratings , Oil, US-Iran tensions

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