The joint US–Israel strikes and Iran’s subsequent retaliation over the weekend have sharply heightened geopolitical risk and pushed energy prices higher. The unprecedented killing of Iran’s supreme leader Ayatollah Ali Khamenei and US (Aa1 stable) calls for regime change inject greater uncertainty into how the conflict could evolve and how long instability may last.

Although core energy infrastructure has not been directly targeted, marine traffic through the Strait of Hormuz has slowed to a near standstill as insurers withdraw coverage and operators avoid the area while hostilities continue. Several ports across the Middle East have also suspended operations after Iran struck infrastructure in the region. Significant portions of airspace across the Middle East are closed or severely restricted.

The overall credit outlook depends critically on whether any interruption to the Strait of Hormuz proves short-lived and whether alternative arrangements can preserve energy availability. In the near term, the existence of oil stored outside the Gulf, including in offshore tankers that sailed before the strikes, provides a buffer similar to that used after the 2019 attack on Saudi oil facilities, which helped prevent significant export losses at that time. OPEC+’s planned 206,000-barrel-a-day production increase from April offers additional, albeit limited, mitigation. 

Our baseline scenario is that the conflict is relatively short-lived, likely a matter of weeks, and that navigation through the Strait of Hormuz will then resume at scale. This scenario is unlikely to result in meaningful credit impact on the issuers we rate.

But any lengthy disruption to the Strait of Hormuz would drive a sustained rise in oil prices, deepen global risk aversion and likely generate wider credit-spread pressure across high￾yield markets. Such a scenario would heighten refinancing risks for issuers with near-term maturities, particularly in energy-intensive and cyclical industries that already face high input costs. It would also complicate the course of interest rates and central bank decision making.

Beyond the direct impact on energy flows, a disorderly political transition in Iran — whether through institutional breakdown, a power vacuum or civil conflict — would increase uncertainty over the trajectory of any regional conflict and the handling of Iran's military assets and stockpile of enriched uranium. These dynamics will keep risk aversion high even if physical disruption to energy flows ultimately proves short-lived.

Beyond the direct impact on energy flows, a disorderly political transition in Iran — whether through institutional breakdown, a power vacuum or civil conflict — would increase uncertainty over the trajectory of any regional conflict and the handling of Iran's military assets and stockpile of enriched uranium. These dynamics will keep risk aversion high even if physical disruption to energy flows ultimately proves short-lived.

Israel (Baa1 stable) faces higher security risks, although its economy and public finances have historically absorbed short conflicts. The credit impact would intensify if hostilities become protracted, dampening investment and increasing defence spending. Persistent airspace restrictions would further weaken tourism-related revenue.

Among the Gulf hydrocarbon exporters, Iraq (Caa1 stable) and Bahrain (B2 stable) would experience immediate fiscal and external￾balance pressure if energy exports prove to be meaningfully constrained, given their hydrocarbon revenue dependence, near exclusive reliance on the Strait for exports, and limited buffers. Kuwait (A1 stable), Qatar (Aa2 stable) and Abu Dhabi (Aa2 stable) have similarly large revenue dependency, albeit with sizeable fiscal and external buffers providing a degree of support if the effective strait closure proves temporary. Abu Dhabi and Saudi Arabia (Aa3 stable) also have partial alternatives to the Strait via pipelines, though these cannot replace full export volumes.

Hydrocarbon-importing sovereigns in the region — Egypt (Caa1 positive), Jordan (Ba3 stable), Lebanon (C stable) and Turkiye (Ba3 stable) — would feel the effects primarily through higher energy prices, worsening external imbalances and tightening of financing conditions. Oman, which does not rely on the Strait for its exports, could benefit from elevated prices and uninterrupted shipping.

Beyond the direct export channel, several sovereigns are particularly vulnerable to a repricing of risk premia. Iraq and Bahrain face the greatest risk given their weak fiscal positions, high gross financing needs and reliance on external confidence. For Lebanon (C stable), recent developments may further diminish prospects for the debt restructuring some investors had anticipated this year.

Extended airspace restrictions would also weigh on tourism-linked revenue and service-sector performance across the wider Gulf, including in economies otherwise outside the theater of direct conflict such as Egypt and Jordan.

Market-confidence effects are also beginning to emerge more broadly, including the temporary suspension of trading on the UAE
stock exchange, which adds to the pressures created by airspace closures, expatriate-labour concerns and weaker sentiment across the region’s service-oriented economies.

Iraq’s fragile economy, weak institutions and fragmented political landscape further heighten its vulnerability in the event of a
disorderly transition in Iran.

Global sector implications
A prolonged period of impaired maritime flows would challenge energy-intensive sectors across Europe and Asia, especially those with limited pricing power and immediate refinancing needs.

Infrastructure issuers—especially those with exposure to pipelines, LNG facilities or energy related transport in the region—could face operational risks. However, many project finance structures benefit from robust force majeure clauses, which mitigate short-term cash flow effects even in cases of physical damage.

Aviation, tourism and logistics companies would also face intensified strains as airspace restrictions, travel hesitancy and operational disruptions mount, particularly in Gulf hubs such as Dubai, Doha and Manama. Any indiscriminate retaliatory strikes in these centres would further undermine confidence in regions reliant on expatriate labour, raising the risk of population outflows and the operational challenges that accompany them.

An extended closure of the Strait of Hormuz would be credit negative for UAE ports, disrupting trade flows and reducing volumes, particularly for DP World Limited’s (Baa2 stable) Jebel Ali in Dubai and Abu Dhabi Ports Company PJSC’s (A1 stable) Khalifa Port in Abu Dhabi, which rely on the Strait as their sole maritime access point. Their geographic diversification would help soften the impact though.

Financial institutions would not face immediate credit deterioration from first-round effects, but second-round risks would grow in the event of sustained disruption. Banks would be exposed to weaker economic activity, reduced investor appetite and potential liquidity pressures, especially in systems reliant on nonresident deposits that are sensitive to geopolitical developments.

For Middle East insurers, the primary transmission channel would be through market risk on invested assets, as disruptions to oil and gas exports and tourism could depress local asset prices, particularly real estate. From an underwriting perspective, the direct impact is expected to be limited, because war risk is typically excluded from standard insurance policies.

Beneficiaries include defence contractors and energy producers with diversified export capacity.

What we are watching
As the situation evolves, several indicators will be essential in assessing whether the conflict remains contained or shifts into a more consequential phase for credit markets. These include:

» the duration of the de facto closure of the Strait of Hormuz
» the restoration or further withdrawal of marine insurance coverage
» observable changes in shipping behaviour
» the pace at which offshore storage is drawn down
» the utilisation of alternative pipelines
» funding-market conditions
» Iranian strikes on non-military assets — from energy infrastructure to commercial and residential areas — aimed at     maximising disruption
» the political signals emerging from within Iran regarding the succession process and strategic intent.

Together, these signals will help determine whether current market volatility fades as tensions stabilise or evolves into a sustained and more credit-damaging supply shock.