Even if the conflict in the Middle East is resolved quickly, and shipping disruptions ease, the risks facing the global credit environment have already shifted significantly, says Fitch Ratings.
In a new report, the rating agency said that conflict poses a “major risk” to its economic forecasts and assumptions, with the prospect of an ongoing global supply shock in energy representing a clear downside risk to credit conditions.
“This would result in direct feedthroughs to credits from higher energy input costs and indirectly through lower demand, higher inflation and tighter financing conditions,” it said — adding that this “could also have material negative ratings implications” across a range of sectors and regions.
Indeed, even if the conflict ends without flaring up again, and the Strait of Hormuz is fully reopened, the risk landscape has already changed, the report said.
Already, the episode has sparked an increase in global oil and European gas price assumptions from its base case, Fitch noted.
“Commodity prices and investments in the Gulf region could carry a long-term geopolitical risk premium, depending on the outcome of a diplomatic settlement,” it said.
Additionally, there are other major risks to global credit beyond the war, Fitch said.
The fracture between the U.S. and Europe over the handling of the conflict, “could also undermine transatlantic relations and the stability of the NATO alliance,” it said.
And, risks beyond geopolitics — including the prospect of AI-related disruptions, higher sovereign bond yields, a stronger U.S. dollar, and shifting rate expectations due to resurgent inflation pressures — could also “add pressure to funding and liquidity conditions,” it said.