Israel-Iran escalation raises geopolitical risk in the region, Big Three credit agencies S&P Global Ratings and Fitch Ratings said in statements to their investors late Monday.
While the conflict has raised geopolitical and security risk in the region, and "some sovereigns' credit profiles could be adversely affected if the violence escalates or spreads, the effects of the conflict can currently be "absorbed in Israel's A/Negative rating," Fitch said.
The implications for credit ratings will depend on the "course and outcome of the conflict," Fitch added, stating that this includes whether it remains a conflict between Israel and Iran or spreads.
The escalation is "testing S&P Global Ratings' previous assumptions by increasing downside risk, including due to the prospect of further escalation," S&P said.
The agency added that the structure of Israel's economy can cushion the impact of the security situation, saying that because the economy is centered on hi-tech service exports, many employees can work from home.
"The negative outlook on our 'A' long-term sovereign credit rating on Israel reflects the risk that the escalation of military conflict could substantially weaken Israel's economy and fiscal balance-of-payments," S&P said.
Increasing disruption of energy, transport will harm confidence
Escalation between Israel and Iran could pressure regional credit by disrupting key transportation routes, impacting energy prices, reducing tourism, increasing security spending, weakening consumer and investment confidence, and capital outflows, the agency added.
S&P also said that its sovereign ratings factor in short-term increases in geopolitical stress, "but the transmission channels we identify could affect countries in the region in different ways."
Fitch also noted that Houthi forces in Yemen could escalate attacks in support of Iran, which the agency said could aggravate disruptions to regional shipping.