S&P warns prolonged Middle East war could push oil above $100 and disrupt global trade

2026-03-08 - 19:57

The global credit rating agency S&P Global Ratings said the economic and financial repercussions of the ongoing conflict in the Middle East remain uncertain due to the unpredictable duration and scope of the war and its potential effects on energy markets and global supply chains. In an analytical report released yesterday, the agency noted that short-term disruptions may remain manageable, but warned that a prolonged escalation—particularly if it leads to the closure of the Strait of Hormuz—could trigger major disturbances in global trade, sharp volatility in energy prices, and declining investor and consumer confidence. S&P emphasized that the Strait of Hormuz is one of the world’s most critical trade chokepoints, with roughly 20% of global oil supplies and about 20% of liquefied natural gas shipments passing through the strategic waterway. Any prolonged disruption there could therefore have widespread repercussions for the global economy, reports Al-Rai daily. The agency noted that the effects of the conflict are already beginning to emerge through energy price volatility, disruptions to trade and supply chains, and weakening investor sentiment, which could place pressure on confidence-sensitive sectors in the region. Three Possible Scenarios S&P outlined three potential scenarios depending on how long and how intensely the conflict continues. Short conflict (around two weeks – low to medium credit impact): In this scenario, oil prices could range between $75 and $85 per barrel, with temporary disruptions to global energy flows. Around 15% of oil trade and 20% of LNG trade could be affected. Regional risk premiums may rise by 30–70 basis points, with limited pressure on sectors such as transport, logistics, hospitality and retail. Medium-term conflict (about one month – medium to high credit impact): Oil prices could increase to $85–$100 per barrel, while a partial or full closure of the Strait of Hormuz could disrupt exports of oil and gas. Shipping and insurance costs would likely rise, investor confidence could weaken, and regional risk premiums may climb to 100–150 basis points. Prolonged conflict (more than one month – high credit impact): This is the most severe scenario. Oil prices could exceed $100 per barrel throughout the conflict, with major disruptions to energy exports, heightened security risks, and repeated attacks on key infrastructure. Risk premiums could surge to 250–500 basis points, significantly affecting economic activity. Gulf Economies and Banking Sector According to S&P, most Gulf states possess strong financial reserves, enabling them to absorb short-term shocks. However, the level of impact will vary depending on each country’s reliance on exports passing through the Strait of Hormuz and the degree of economic diversification. Countries such as Saudi Arabia, United Arab Emirates and Oman may be better positioned to mitigate disruptions due to alternative export routes and diversified infrastructure. Economies more dependent on investment flows and investor confidence—such as Dubai—could face stronger pressure on growth and capital inflows. The agency also warned that regional banks may face capital outflows and deteriorating asset quality if the conflict escalates. Banking systems in Bahrain and Qatar may be more vulnerable to external capital withdrawals compared with other Gulf banking systems. Stress tests conducted by S&P suggest banks could experience outflows equivalent to 50% of interbank liabilities, 30% of non-resident deposits, and 10% of capital market liabilities. Nevertheless, the agency believes most Gulf banking systems still maintain sufficient liquidity, particularly with expected government support in countries such as Kuwait, Saudi Arabia, the UAE and Qatar. Potential Economic Pressures Under a severe scenario, non-performing loans could rise to around 7% of total loans, potentially resulting in cumulative losses of approximately $39 billion across 31 of the 45 largest banks in the Gulf region. However, S&P noted that regulatory intervention and government support could help mitigate such pressures, as seen in previous crises. Corporate sectors may experience limited credit pressure if the conflict remains short-lived, although higher shipping, insurance and energy costs would still affect operations. If the conflict continues longer, sectors such as logistics, transportation, tourism and real estate could face stronger headwinds due to reduced demand and rising costs. Meanwhile, oil and gas companies could benefit from higher energy prices, even though production or shipping volumes might temporarily decline. Infrastructure projects in the region—including power plants, desalination facilities and pipelines—are expected to remain relatively stable due to long-term contracts and fixed revenue structures. S&P also warned that real estate markets in key regional hubs could experience price declines if geopolitical tensions persist, as foreign investors and high-net-worth individuals reassess risks. Foreign direct investment flows into the Gulf may also slow if uncertainty remains elevated. Global Impact Globally, S&P said the conflict’s impact on emerging market assets has so far been limited, but could intensify if the war continues. Energy-importing Asian economies such as India, China, Thailand, Vietnam and Philippines are among the most vulnerable to rising oil and gas prices. The agency added that prolonged conflict could lead to tighter global financial conditions, driven by a stronger U.S. dollar and rising risk aversion, potentially pushing investors toward safe-haven assets and placing additional pressure on emerging markets.