The Middle East gas industry faces “greater and more immediate” risks than its oil counterpart, S&P Global Ratings said in a new report.

Gas producers in Israel are likely to face the most credit quality pressure due to increased security risks and production shutdowns, the ratings agency added.

S&P forecasts the oil market to be sensitive to physical risk in the Strait of Hormuz due to an escalation of the current conflict beyond Gaza and Israel.

The potential for increased US sanctions on oil exports from Iran, the region’s fourth-largest oil producer, will add to the complexity.

“If Saudi Arabia would be prepared to make up for the related shortfall in oil supply, that should lessen the impact,” the report stated.

S&P anticipates the conflict will largely be contained to Israel and Gaza and last no more than three to six months. However, further escalation beyond Israel’s borders could involve damage to pipelines or obstruction of shipping in the Strait of Hormuz.

“We believe if that were to happen, Israel’s gas exports could stop completely,” the report noted.

The ratings agency doubts that many Gulf Cooperation Council (GCC) producers can fill that gap as most of their gas production is already under contract.

“This could leave Egypt facing a long-term shortage at a time when supply is already tight,” the report added.          

(Editing by Brinda Darasha;