S&P Global — 15 October 2024
Daily Update: October 15, 2024
Prolonged Middle East Conflict Puts Sovereigns Under Pressure
By Nathan Hunt
Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy
The conflict in the Middle East is already affecting sovereign ratings. According to analysts at S&P Global Ratings, Israel has been downgraded two notches since Oct. 7, 2023, reflecting weaker fiscal and growth prospects for an economy on a war footing. Lebanon, meanwhile, remains in default, and its economic and recovery prospects have been weakened by Israeli military actions in southern Lebanon and Beirut. The question is whether a broader regional war involving Iran or other parties might lead to further sovereign downgrades. S&P Global Ratings examined the circumstances that could trigger this in “Widening Middle East Conflict Poses Risks For Regional Sovereign Ratings.”
Israel’s military has shifted focus in the last few months, engaging in fewer military actions in Gaza and looking instead at Hezbollah in southern Lebanon. As Israel targets nonstate Iranian allies such as Hezbollah and Houthi rebels in Yemen, Iran has begun to respond militarily, notably with the Oct. 1 missile attack on Israel.
S&P Global Ratings has four possible regional stress scenarios for the conflict: modest, moderate, high and severe. Under the modest stress scenario, interstate hostilities between Iran and Israel would have a duration of less than three months, and Israel’s actions in southern Lebanon would reduce Hezbollah attacks. Under moderate stress, retaliatory attacks between Israel and Iran would affect economic growth, energy prices and key trade routes briefly and remain manageable. Under a high stress scenario, the conflict between Iran and Israel would intensify, affecting energy prices, security expenditure, tourism flows and capital outflows, with blockades of trade routes possible. Finally, under a severe stress scenario, allies would be drawn into the conflict, with lasting impacts on energy prices, economic stability and fiscal health.
A lack of direct conflict between Israel and Iran does not necessarily indicate modest or moderate stress. Should Iranian proxy military forces in Iraq, Syria and Yemen step up their disruptions of trade routes, the conflict could rapidly escalate. The Strait of Hormuz is the central trade route for about 25% of daily global oil production, and attacks on oil facilities in the region could affect energy prices globally. For example, the 2019 attacks on an Abqaiq plant in Saudi Arabia temporarily cut off about 50% of Saudi oil production and led to some of the biggest price spikes in three decades.
S&P Global Ratings believes that the risks of material economic disruption have increased for Israel and Lebanon and that lingering aftereffects are more likely to persist into 2025. Geopolitical turbulence is already factored into sovereign credit ratings, but a wider conflict in the Middle East could precipitate further downward rating pressure.
Today is Tuesday, October 15, 2024, and here is today’s essential intelligence.
Listen: CERAWeek Podcast | Season 2 | Ep. 02 — Overcoming Green Hydrogen Scalability Challenges
In this episode, Jimmy Rojas, CEO of EVOLOH, shares how his upbringing in Costa Rica and passion for education led him to MIT and the world of hydrogen technology. He discusses EVOLOH’s innovative approach to reducing green hydrogen production costs by using low-risk technologies and localized supply chains. Jimmy also reflects on his participation in the Agora Pod program at the Innovation Agora. He offers insights into the potential of green hydrogen and advice for aspiring engineers and entrepreneurs — a valuable listen as we look ahead to CERAWeek 2025.
—Listen and subscribe to the podcast from S&P Global
Hotter-Than-Expected Inflation Data Fuels Concern Fed Rate Cuts Were Too Bold
Inflation cooled less than expected in September, leaving the US Federal Reserve's goal to curb annual inflation growth to 2% elusive and fueling concern that it was too aggressive at the start of its rate-cutting cycle. The consumer price index, the market's preferred inflation gauge, rose 2.4% from a year earlier, while "core" CPI, which strips out volatile food and energy prices, increased 3.3%. Economists expected each to be about 10 basis points lower, according to Econoday. The data came just over three weeks after the Fed voted to cut interest rates by 50 basis points as it shifts its focus from reining in inflation to preventing jobs market weakness.
—Read the article from S&P Global Market Intelligence
Q3 Bank Reports To Show Weak Loan Growth And Modest Deposit Improvement
Weak loan growth is posing a headwind once again as US banks get ready to post third-quarter results, with hopes still hanging on rate cuts to spur credit demand in future periods. Loans across domestically chartered US banks inched up just 0.4% from June 26 to Sept. 25, according to weekly data from the Federal Reserve, and were up 0.5% after seasonal adjustment. Bank credit growth has been anemic for more than a year, with total outstanding loans and unused commitments across the industry up just 1% from the year prior at June 30, according to semi-annual data compiled by S&P Global Market Intelligence.
—Read the article from S&P Global Market Intelligence
Ship In Red Sea Damaged By Unknown Projectile, UKMTO Reports
A ship in the Red Sea near Eritrea was damaged after being hit on Oct. 10 by an unknown projectile, the UK Maritime Trade Operations reported on X, formerly Twitter. The incident occurred 70 nautical miles southwest of Hudayah, Yemen, marking the first attack since Oct. 1, according to UKMTO posts. The unnamed ship was near where two additional projectiles exploded but was able to proceed to its next port of call, with the crew safe, UKMTO stated in a later update. No party was named as responsible.
—Read the article from S&P Global Commodity Insights
Libyan Oil Output Poised For Boom After End To Political Standoff
Libya's latest political crisis wiped out 570,000 b/d of its crude oil production in September, but with the standoff now resolved, output could come roaring back to surpass even pre-crisis levels, according to industry sources. In late August, the North African country's eastern faction closed oil fields, ports and installations amid a row over the leadership of Libya's central bank, following efforts by the western government in Tripoli to replace central bank governor Siddiq al-Kabir.
—Read the article from S&P Global Commodity Insights
Mainland China Autonomous Vehicle Development On A Different Track
China's autonomous vehicle (AV) sector is experiencing significant growth on its own and compared to other markets. In mainland China, there is extensive road testing being conducted in several cities. Major tech companies such as Baidu, Pony.ai and WeRide are leading the charge in testing and deploying AVs across various cities. Expansion is bolstered by initiatives from the Chinese government, such as establishing pilot zones, issuing licenses and developing regulations and standards.
—Read the article from S&P Global Mobility
Webinar: Beyond ESG With Building Capacity for Nature (Oct. 16, 2024)
Investors, corporates and market stakeholders are increasingly recognizing that nature-related concepts, from biodiversity to natural capital to ecosystem dependencies, are inseparable from a robust climate strategy. As we look ahead to the United Nations Biodiversity Conference (COP16) at the end of October, our next Beyond ESG webinar will explore the critical question of how companies and investors can gain the knowledge and capacity to understand, manage and disclose on nature-related risks and opportunities.
—Register for the webinar from S&P Global Sustainable1