Tuesday, Feb 14, 2012
SINGAPORE (Dow Jones)--Rising tension between Iran and the West is increasing political and economic risks for borrowers in the Middle East, Standard & Poor's Ratings Services said Tuesday, underlining another growing risk for credit markets already under pressure from financial strains in the euro zone.
The ratings firm warned that a severe disruption of oil supplies through the Strait of Hormuz--although very unlikely at this point--could send oil prices soaring to $150 per barrel, likely pushing world economies into a recession.
S&P said it doesn't expect any immediate action on its ratings on countries and corporate borrowers in the Middle East, which it said reflect developments related to Iran.
"Nevertheless, political pressures in the Middle East are acute, and any sudden deterioration in the situation could lead us to reassess this view," S&P said in a statement.
S&P noted Iran has threatened retaliation in the form of a blockade of the Strait of Hormuz--a key route for oil and gas out of the Gulf--in response to tougher sanctions, including a boycott of Iranian oil exports by the European Union.
"So far, these threats have been verbal, but analysts are not ruling out the possibility that the current exchanges of rhetoric could spark disruptions to trade flowing through the Strait, or even in an extreme scenario, military confrontation," S&P said.
Barring a diplomatic solution, S&P said it reckons Iran could respond to the sanctions and international pressure through low-level provocation, such as slowing shipping through the Strait of Hormuz and disrupting the timely supply of oil from the Gulf by imposing tanker inspections, boarding merchant ships, and otherwise obstructing shipping routes in its territorial waters.
This would likely keep oil prices elevated, as markets would increasingly view armed conflict as a real, if remote, possibility, it said. This scenario would benefit oil-producing sovereigns, including Saudi Arabia, United Arab Emirates, Qatar, Kuwait, Oman and Bahrain, but would put pressure on oil importers, such as Jordan, Egypt and Lebanon, S&P said.
S&P said it figures the chances of a severe disruption of oil supplies through the Strait of Hormuz are very low, but warned that a shock could potentially be devastating.
"Such a disruption of oil supply, should it continue over a period of several months, would in our view lead to a spike in oil prices, which would fuel inflation and upset a fragile economic recovery in both developed and emerging markets," said Jean-Michel Six, S&P's chief economist for Europe.
"The ensuing uncertainty would also likely unsettle financial markets, leading to higher bond yields, and once again add to refinancing difficulties for sovereigns on the periphery of the euro zone," Six said.
-By Arran Scott, Dow Jones Newswires; +65-6415-4042; arran.scott@dowjones.com
(END) Dow Jones Newswires
14-02-12 0417GMT
