Banks and financial institutions across the GCC face heightened risks of capital outflows as the ongoing Iran conflict strains regional credit channels, according to S&P Global Ratings.
The agency highlighted banking systems in Bahrain and Qatar as particularly vulnerable, noting they may need external or government backing in the event of substantial outflows due to their net external debt positions. In a severe stress scenario, S&P said Bahraini banks could require liquidity support or more stable regional funding sources to shore up external debt exposures.
By contrast, banking sectors in the United Arab Emirates and Saudi Arabia remain in net external asset positions and are likely able to absorb moderately large capital outflows using internal liquidity buffers—provided the conflict does not persist.
Rising exposure
Although higher oil prices may offer short-term fiscal relief for GCC sovereigns, S&P cautioned that disruptions to major trade routes or energy production could erode revenues and strain public finances—especially in countries with weaker balance sheets, sizeable banking sectors, and limited export diversification.
The agency said the situation has escalated from “high” to “severe” under its stress scenarios, increasing the likelihood of credit deterioration across sectors.
Energy companies are already experiencing port disruptions in Oman and the UAE. A prolonged conflict could further unsettle global oil markets, affecting both supply volumes and prices. S&P expects the fallout to extend beyond upstream producers to the broader value chain, including shipping firms, port operators, and downstream businesses.
Corporates more broadly face heightened exposure to volatile energy prices, supply-chain interruptions, operational setbacks, and rising security and insurance costs in the near term. Firms with high-profile assets—such as airports, ports, hotels, and tourist landmarks—are particularly exposed to physical damage and cyber threats. Regulatory intervention may also affect sectors such as utilities and telecommunications.
Companies dependent on export routes through the Strait of Hormuz are especially vulnerable to operational disruptions and network risks, S&P added.
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