Fitch cuts Saudi credit rating; oil prices drop

DUBAI: Rating agency Fitch downgraded Saudi Arabia’s credit rating to A from A+ yesterday, citing rising geopolitical and military tensions in the Gulf following an attack on its oil facilities and a deterioration of the kingdom’s fiscal position.

The Saudi finance ministry said it was disappointed by the “swift” downgrade and urged Fitch to reconsider it, arguing the move did not reflect the kingdom’s response to the Sept. 14 attack or its capacity to handle adversity.

The move – which places Saudi Arabia one notch above the assessment of peer rating agency S&P Global – is a blow to the largest Arab economy as it seeks investment to diversify away from oil and prepares a potential international sale of US dollar denominated Islamic bonds.

“In our view, Saudi Arabia is vulnerable to escalating geopolitical tensions given its prominent foreign policy stance, including its close alignment with US policy on Iran and its continued involvement in the Yemen war,” Fitch said yesterday.

“We have revised our assessment of the vulnerability of Saudi Arabia’s economic infrastructure to regional military threats as a result of the most recent attack,” Fitch said. Fitch is the first agency to change Riyadh’s credit rating- used by investors to assess the level of risk associated with a debt issuer – since the attacks. S&P Global Ratings last week affirmed its A-(minus) rating, saying however that its rating could come under downward pressure should the country’s oil infrastructure undergo repeated foreign attacks.

Meanwhile, oil prices fell more than one percent yesterday after Saudi Arabia said war with Iran would destroy the world economy and hinted instead at a non-military solution. Washington, Riyadh, Berlin, London and Paris blame Iran for attacks that damaged the Saudi oil sector on September 14 and forced the world’s largest crude exporter to sharply reduce production.

“In terms of geopolitical concerns, common sense is prevailing for now in Saudi Arabia,” noted analyst Naeem Aslam at traders ThinkMarkets, in reference to the comments by Saudi Arabia’s crown prince in an interview with CBS show “60 minutes” broadcast over the weekend. Mohammed bin Salman said a war would be catastrophic for global growth.

“Oil supplies will be disrupted and oil prices will jump to unimaginably high numbers that we haven’t seen in our lifetimes,” the prince said. “The region represents about 30 percent of the world’s energy supplies, about 20 percent of global trade passages, about four percent of the world GDP. Imagine all of these three things stop,” he said.

“Oil supplies will be disrupted and oil prices will jump to unimaginably high numbers that we haven’t seen in our lifetimes,” the prince said. “This means a total collapse of the global economy, and not just Saudi Arabia or the Middle East countries.” – Agencies

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