US Sanctions On Iran Likely To Hit Credit Rating, Could Benefit Saudi Arabia

The US decision to withdraw from the current nuclear deal with Iran is a new factor in the complex political re-alignment occurring across the Middle East.

Overall US policy in the region increasingly favours Israel, indirectly boosting the electoral performance of populist Shia candidates in Lebanon and Iraq.

The decision has also highlighted the risk of increased tension between Saudi Arabia and Iran as they vie for regional leadership.

It has been one factor behind the recent surge in the oil price – a welcome boost for Saudi Arabia ahead of the enormous ($2trn) Saudi Aramco flotation planned for later this year.

Saudi Arabia has a CBC* of a, generally in line with or slightly below the main rating agencies.  If oil price rises are sustained, there will be a positive impact on Saudi reserve values.

Iran’s nuclear program has been a perennial problem for Israel, but Iranian military involvement in Syria is the more immediate concern and source of direct conflict. One view is that Iran needs a friendly regime in Syria to support its projected (and Russian-backed) Iran-Iraq-Syria-Lebanon gas pipeline, and that this is the main reason for the increased Iranian presence.  On this view, the proposed Iranian pipeline is polarising the region along a new axis, pushing Saudi Arabia closer to Israel and Turkey.

Iran does not have a traditional credit agency rating, but bank-sourced data shows a historically stable CBC* of b+.  The Iranian economy will inevitably suffer from renewed US sanctions, so this is likely to deteriorate.  This strengthens Iran’s motivation for the gas pipeline which is intended to supply Europe via the Lebanon.  If it continues to pursue that route, there is a risk of further conflict with its regional rivals.


*Credit Benchmark Consensus (“CBC”): this is a 21-category alphanumeric scale based on bank-sourced one-year probability of default estimates.  It is similar to the scale used by the main credit rating agencies, so that a CBC of bbb is approximately equivalent to BBB reported by S&P and Fitch, and Baa2 reported by Moody’s

Sovereign Bond Risk Management

In the current low yield environment, many Sovereign bonds issued by different countries are priced at similar levels. However, this Read more

Introduction For Credit Portfolio Managers

Credit Benchmark is a market-led response to three of the most critical issues facing credit risk professionals: 1) The need to Read more

Sovereign Default Risk In Developing Economies

This paper examines the use cases for Credit Benchmark’s Consensus Probabilities of Default (Consensus PDs), in the context of more Read more

Impact Of BCBS Proposals On IRB Banks

The Basel Committee on Banking Supervision recently published wide-reaching proposals for reducing variation in Credit Risk Weighted Assets, with a Read more

Follow us on:

Credit Benchmark brings together internal credit risk views from over 40 leading global financial institutions. The contributions are anonymized, aggregated, and published in the form of consensus ratings and aggregate analytics to provide an independent, real-world perspective of credit risk. Risk and investment professionals at banks, insurance companies, asset managers and other financial firms use the data for insights into the unrated, monitoring and alerting within their portfolios, benchmarking, assessing and analyzing trends, and fulfilling regulatory requirements and capital.