Fitch Ratings has indicated that Middle Eastern sovereigns possess sufficient financial headroom to withstand a short-term regional conflict, but prolonged hostilities or damage to energy infrastructure could pose significant risks to credit ratings. The advisory comes in the wake of recent Israeli and U.S. strikes on Iran on February 28, which analysts suggest have already had a greater immediate impact than similar attacks conducted in June 2025. Hostilities are expected to continue across the region, heightening market and fiscal uncertainties.
Fitch’s baseline scenario assumes that the conflict will remain under one month, largely reflecting Iran’s reduced military capacity and the reluctance of the United States to become engaged in a protracted war. The agency cautioned, however, that attacks by Iran and its regional proxies could intensify in the short term, potentially affecting economic activity and infrastructure stability. The most immediate risk to sovereign ratings, according to Fitch, stems from potential disruptions to Gulf Cooperation Council (GCC) energy exports.
While some damage has occurred, the rating agency does not foresee major losses to energy infrastructure under its baseline assumptions. The Strait of Hormuz, a vital maritime corridor through which more than 20 million barrels of crude, refined products, and LNG pass daily, is expected to be effectively closed during the conflict due to physical blockages, insurance limitations, and security threats. Although Saudi Arabia and the UAE maintain alternative pipelines and hold strategic reserves outside the region, countries such as Bahrain, Kuwait, Qatar, and Iraq, which are heavily reliant on the strait for exports, could face temporary revenue and logistical disruptions. Higher energy prices may offset some of these losses, providing partial fiscal relief.
Fitch further noted that non-oil economic activity is likely to be affected in the near term, with suspended air travel, slower consumer spending, and potential expatriate departures impacting sectors such as housing and tourism. While these effects are anticipated to be temporary, the agency warned that countries seeking to position themselves as safe havens for international business could experience longer-term reputational damage if the conflict escalates.
Most GCC states benefit from substantial financial reserves and relatively lightly taxed non-energy sectors, which reduce fiscal vulnerability. Geopolitical risks are already incorporated into current sovereign ratings, with additional negative adjustments applied to Abu Dhabi and the UAE. Israel faces greater constraints, and Fitch noted that an extended conflict involving major mobilization of reservists could still trigger a downgrade, consistent with its Negative Outlook.
The agency emphasized that uncertainty remains high, as longer-term disruptions to energy exports or changes in Iran’s political stability could result in more severe consequences for regional credit profiles. Fitch’s assessment underscores the fragile balance between short-term resilience and long-term risks for Middle Eastern economies amid ongoing geopolitical volatility.
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