Growing US-Iran tension is a ‘risk’ to GCC sovereigns, says Fitch

Elevated tensions between the US and Iran have raised the prospect of disruptions to oil and gas shipments in the Gulf region, Fitch Ratings said in a recent report.

A conflict that causes "serious" disruptions as a tail risk that would have a significant negative impact on budgets in the region, although large buffers would cushion the impact for the richer sovereigns, it said, adding an escalation could also affect ratings of sovereigns.

In the event of a complete month-long halt of oil and gas shipments through the Strait of Hormuz, Fitch estimates that annual fiscal deficits would rise by one to three percentage points of GDP in most Gulf-based oil exporting countries rated by it. The highest impact would be on Kuwait, Qatar and the Iraqi federal government, which would have little capacity to divert their exports.

Saudi Arabia and Abu Dhabi could continue some exports through pipelines that bypass the Strait, reducing the fiscal impact. Oman's export infrastructure is located outside the Strait.

Higher oil prices could offset some of the fiscal effect of lower export volumes for Saudi Arabia and Abu Dhabi.

"We estimate that oil prices would have to rise by $50-80 a barrel to offset the budget impact for each month the Strait were closed," the report said.

Meanwhile, any sustained rise in oil prices would strain the fiscal and external finances of the oil importers in the MENA region, including Lebanon and Tunisia.