S&P warns long war with Iran could sink Israel’s credit rating
Agency says outlook remains negative, meaning another downgrade is possible, citing ‘prospect of escalation’ in conflict; Fitch sees impact of Israel-Iran fighting contained
Sharon Wrobel is a tech reporter for The Times of Israel
Global credit rating agency Standard & Poor’s warned that a protracted war with Iran and a sharp escalation will put Israel’s credit rating at risk of further downgrades.
“Developments in the Israel-Iran conflict are testing S&P Global Ratings’ previous assumptions by increasing downside risk including due to the prospect of further escalation,” S&P analysts said. “Israel says its stated aim of destroying Iran’s nuclear capability could take at least two weeks, possibly longer… this points to a more protracted campaign than the 2024 retaliatory strikes.”
The S&P warning released late on Monday comes as Israel’s campaign against Iran’s nuclear program and Iran’s retaliatory missile barrages at the Jewish nation entered their fifth day.
Israel launched its campaign early Friday, saying it was acting against an imminent existential threat from the regime’s nuclear and ballistic missile programs. Washington held negotiations with Iran for some two months on the subject of its nuclear program before Israel attacked.
“The likelihood of a diplomatic solution appears increasingly distant,” S&P analysts assessed, adding that “thus far, developments suggest attacks and counterattacks are seeking to avoid drawing in third countries, such as the US or Gulf countries.”
“Developments in the Israel-Iran conflict are testing S&P Global Ratings’ previous assumptions by increasing downside risk including due to the prospect of further escalation,” S&P analysts said. “Israel says its stated aim of destroying Iran’s nuclear capability could take at least two weeks, possibly longer… this points to a more protracted campaign than the 2024 retaliatory strikes.”
S&P cautioned though that “if Iran follows through on threats to widen its retaliation, it could provoke a response from the US and others in the region, raising risks further.”
“A longer, more intense conflict increases the potential for military miscalculations,” the rating agency said.
In May, S&P reaffirmed Israel’s A/A-1 credit rating — which it downgraded twice last year — while keeping its outlook negative, meaning that the country could be facing further downgrades. A lower rating raises credit costs for the government, businesses and households.
The rating agency elaborated that the negative outlook reflected the “risk that the escalation of military conflict could substantially weaken Israel’s economy and fiscal and balance-of-payments positions.”
In a separate report, Fitch rating agency analysts estimated that the fighting will remain “contained between Israel and Iran, and will not persist for more than a few weeks.”
“Israel has strong defensive countermeasures and it appears that Iranian strikes have not had a material economic impact,” Fitch analysts noted. “We believe Iran’s capacity to retaliate against Israel via proxies in Gaza and Lebanon has been damaged by Israel’s military campaigns in those regions.”
“Both factors suggest it is likely that damage from Iran’s military response to Israel’s latest attacks will not be on a scale that would affect Israel’s rating,” according to Fitch.
The rating agency, which last year lowered Israel’s credit rating, in April affirmed the country’s A credit score, but maintained a negative outlook.
Fitch said risk for a downgrade will “depend on the course and outcome of the conflict, including whether the conflict remains restricted between Israel and Iran, or spreads.”
Times of Israel staff contributed to this report.
The Times of Israel Community.