Commentary

Mideast Ceasefire, but for How Long? Implications for Key Corporate Sectors of a Conflict Reignition

Energy, Natural Resources

Summary

Approximately 20% of the globe's oil and liquefied natural gas (LNG) supply is transported through the Persian Gulf and the Strait of Hormuz into markets primarily in Asia but also in Europe and the U.S. A reignition of the conflict between Iran and Israel would exacerbate economic and political instability in the region and have potential effects on the global economy considering the risk of a major disruption in oil and LNG supplies from the region.

Key Highlights:
-- Considerable uncertainty remains around whether a recent ceasefire between Israel and Iran will hold.
-- Should the conflict reignite, we believe it is unlikely that Iran will attempt to meaningfully disrupt maritime traffic in or around the Strait for an extended period.
-- In a scenario where the conflict reignites and temporarily escalates, potentially including a brief closure of the Strait, we expect a mixed but largely minimal effect on most of our key corporate sectors.
-- Some sectors and issuers could even benefit from a restart of hostilities, such as non-OPEC+ producers, which would benefit from energy price increases.

"Given uncertainties about adherence to a ceasefire and the potential for the war to reignite, and in view of the direct involvement of the U.S., we continue to monitor the situation closely," said Andrew O'Conor, Senior Vice President, Corporate Ratings. "In a `what if' scenario, should the conflict reignite and temporarily escalate, potentially including a brief closure of the Strait, we expect a mixed but largely minimal effect on most of our key corporate sectors, except for non-OPEC+ producers, which would benefit from an oil and LNG price increase."

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