The credit profiles of the Gulf Cooperation Council (GCC) issuers remain resilient despite the Iran conflict exceeding 100 days, according to S&P Global.

The rating agency, in its base-case scenario, assumes disruptions in the Strait of Hormuz will ease in the second half of the year, but with possible periodic interruptions and a slower, less complete recovery in flows than previously expected. 

The longer disruptions persist, the broader and more entrenched the credit effects are likely to become as buffers erode and tighter financing conditions increasingly take effect, the report said.

Despite the conflict, S&P said negative rating actions in the GCC have been limited to specific corporate and infrastructure entities, including within Dubai’s real estate and hospitality sectors, and projects directly affected by military attacks. 

Ratings on GCC sovereigns remain resilient, supported by the high oil price environment, alternative export routes for some, and significant accumulated liquid assets.

Likewise, GCC banks’ credit profiles are underpinned by resilient performance and solid capital buffers.

Domestic funding outflows will remain manageable for GCC banks, given their strong liquidity and expected support from central banks and governments, the report said. 

Consequently, the impact on corporate issuers is more pronounced due to a weakening business environment and dampened economic growth prospects.  

However, S&P stated that there is a high degree of unpredictability regarding the duration and scale of the Middle East war and its potential effects on commodity prices, supply chains, economies and credit conditions. 

The US-Israel and Iran conflict began on February 28, impacting global crude supply following the closure of the Strait of Hormuz.

(Editing by Seban Scaria seban.scaria@lseg.com)