The military conflict between Iran and Israel has heightened geopolitical and security risks across the Middle East, with some sovereign credit profiles potentially facing adverse effects if violence escalates, Fitch Ratings said on June 17.

Aviation, shipping, tourism, business and banking have all faced pressure in recent days as neither Tehran or Tel Aviv are interested in backing down from their offensive positions. 

The credit rating agency expects the conflict to remain contained between Israel and Iran for no more than a few weeks, with spillover effects remaining within the range that can be absorbed at Israel's 'A'/Negative rating level.

Brent crude oil prices rose to around $75 per barrel from approximately $65 before the conflict began, with Fitch expecting the geopolitical risk premium to remain contained at $5-$10 per barrel.

The agency noted that Israel has strong defensive countermeasures and Iranian strikes have not had a material economic impact, whilst Iran's capacity to retaliate through proxies in Gaza and Lebanon has been damaged by Israeli military campaigns.

Even if all Iranian exports were lost, they could be replaced by spare capacity from OPEC+ producers totalling around 5.7mn barrels per day, Fitch said. Iran produced approximately 3.3mn barrels daily in 2024.

Gulf Cooperation Council member states have all condemned Israel's attack on Iran, reinforcing Fitch's baseline view that relations between Iran and GCC states remain fairly good and Iranian moves against GCC targets are unlikely.

Some GCC sovereigns including Kuwait, Qatar, Saudi Arabia and the United Arab Emirates have large credit buffers that would cushion any increase in security risk effects.

The agency warned that Houthi forces in Yemen could escalate attacks in support of Iran, potentially aggravating disruption to regional shipping through the Suez Canal and reducing Egypt's canal earnings.

Jordan's tourism sector faces likely renewed drops in European tourism with negative effects on growth and fiscal receipts, though Fitch considers these risks contained under its baseline scenario.

Under more severe scenarios involving significant regional conflict broadening or Strait of Hormuz shipping disruptions, oil prices could remain higher for sustained periods with greater negative repercussions for Middle Eastern sovereign credit profiles.