Saudi Arabias Sovereign Credit Quality To Stay Resilient Amid Middle East Conflict: Moodys

RIYADH: Saudi Arabia’s credit quality will stay resilient amid the US-Israel conflict with Iran as the Kingdom can mitigate the Strait of Hormuz closure by rerouting a large share of its crude exports through alternate pipelines, according to Moody’s Ratings.

In its latest report, the agency set out that even if the Strait of Hormuz remains closed, Saudi Arabia and Abu Dhabi will be able to counter any residual loss of export volumes through higher oil prices on cargoes they can export through the alternative routes.

Traffic through the Strait has dropped more than 95 percent since the start of the conflict, with Iran threatening vessels in the region.

Oman is the only Gulf sovereign not directly affected by the closure of the passage,  as its oil and liquefied natural gas terminals are located outside the Gulf, facing the Indian Ocean.

In its latest report, Moody’s said: “In the short term, some Gulf oil exporters will be able to tap into their strategic crude reserves or floating oil storage facilities in Asia and Europe, while also continuing to receive export revenue from oil and LNG cargoes that are still seaborne outside the Strait.

“However, only Saudi Arabia and Abu Dhabi have pipelines, which can be used as alternative export routes that bypass the Strait and have a significant capacity compared to their pre-conflict crude exports.”

According to Moody’s, the Kingdom’s East-West Pipeline, known as Petroline, runs from Abqaiq in the oil-producing Eastern Province to the Red Sea Port of Yanbu.

This pipeline can transport a significant share of Saudi Arabia’s crude exports without transiting through the Strait of Hormuz.

Cargoes loaded in Yanbu can then reach global markets by transiting north through the Suez Canal to Europe or south through the Bab El Mandab Strait to Asia.

The nameplate capacity of the East-West Pipeline is 7 million barrels per day, equivalent to around 70 percent of Saudi Arabia’s OPEC-plus quota.

Abu Dhabi’s Habshan-Fujairah Pipeline can transport up to 1.8 million barrels per day of crude to the Fujairah export terminal in the Gulf of Oman. The pipeline has the capacity to carry around two-thirds of Abu Dhabi’s pre-conflict crude exports.

The report revealed that Kuwait, Bahrain and Iraq are the most exposed Gulf sovereigns because of already large fiscal deficits and no significant export alternatives that bypass the Strait.

According to Moody’s, the impact on sovereign credit quality among countries in the Middle East region will critically depend on how long the conflict lasts, particularly the Strait of Hormuz disruption, and the availability of financial buffers to support public finances, and the strength of their non-hydrocarbon economy.

“Kuwait, Abu Dhabi and Qatar’s exceptionally large financial assets will help preserve sovereign creditworthiness even in an extended Strait of Hormuz closure scenario, while Bahrain’s limited buffers may absorb only a relatively short‑lived shock,” added Moody’s.

Middle East countries that import oil, such as Turkiye, Egypt, and Jordan, will likely face challenges due to rising energy costs, supply chain issues, and a negative impact on tourism and foreign investment.