S&P Affirms Saudi Arabia’s Rating at ”A+/A-1” with Stable Outlook Amid Regional Conflict
S&P Global Ratings affirmed its long- and short-term foreign and local currency sovereign credit ratings on Saudi Arabia at 'A+/A-1' with a stable outlook, according to an official statement. The transfer and convertibility assessment stood at 'AA-'.
The agency explained that the stable outlook reflects its view that Saudi Arabia will largely be able to withstand the pressures stemming from the Middle East conflict. This is based on the Kingdom's ability to reroute oil exports to the Red Sea—bypassing the Strait of Hormuz—utilize its significant oil inventories and refining capacities, and ramp up oil production once the conflict subsides.
The agency also noted that the outlook reflects continued momentum in non-oil growth and related revenues, alongside the government's ability to calibrate Vision 2030-related investment spending in a way that supports both the economy and the fiscal trajectory.
Downgrade Scenario
The agency stated it could lower the ratings if the regional conflict persists significantly longer and intensifies, materially impacting Saudi Arabia's growth, public finances, and external position. It could also downgrade the rating if government debt accumulation rises sharply, severely weakening the Kingdom's fiscal and external standing.
Upgrade Scenario
Conversely, S&P indicated it could consider a positive rating action over the next two years if the Middle East conflict subsides and if reforms and robust non-oil economic activity lead to sustainable economic diversification and higher GDP per capita, coupled with improved fiscal and external indicators.
Conflict Repercussions
S&P highlighted that the US and Israeli strikes on Iran, which began on February 28, 2026, were followed by a broader military conflict in the Middle East, punctuated by intermittent lulls and peace efforts before hostilities resumed.
Shipping traffic through the Strait of Hormuz in the Arabian Gulf remains well below pre-conflict levels, plummeting by over 50% since the fighting began. Before the conflict, the strait handled about one-fifth of global oil shipments, equivalent to roughly 20 million barrels per day.
As a result, global hydrocarbon supplies and prices have been impacted. The benchmark Brent crude averaged $97 per barrel from early March 2026 through the end of August, compared to $73 on February 27, 2026, just before the conflict broke out. Gas prices also surged sharply.
Bypassing Hormuz
Despite these challenges, S&P noted that Saudi Arabia has managed to partially mitigate the fallout from the de facto closure of the Strait of Hormuz by transporting hydrocarbons from the Kingdom's east to the Red Sea port of Yanbu in the west via the East-West oil pipeline, in addition to utilizing its global storage facilities.
Given its substantial maximum production capacity of around 12 million barrels per day, the Kingdom is well-positioned to increase output once the conflict begins to ease. Saudi Arabia also benefits from domestic and overseas storage and refining capabilities in Asia and the US, including Saudi Aramco-affiliated facilities such as S-Oil in South Korea and Motiva Enterprises in the US, providing an additional layer of flexibility.
The East-West Pipeline
Saudi Aramco's 1,200-kilometer East-West pipeline, which runs from Abqaiq in the east to the Red Sea port of Yanbu in the west, serves as a crucial bypass for the Strait of Hormuz. Following necessary upgrades, it can transport about 7 million barrels of crude oil per day.
Yanbu is located more than 1,500 kilometers away from Iran. From the port, crude can be exported eastward to Asia or westward via the Suez Canal and Egypt's SUMED pipeline. Converting a parallel gas pipeline to transport crude increased the line's capacity to about 7 million barrels per day, up from 5 million previously. This enabled Saudi Arabia to export an average of 6.9 million barrels per day between March and August despite the conflict, according to OPEC. Tanker loading capabilities at Yanbu were also enhanced.
Red Sea Threats
Since July 2026, eastbound shipping routes in the Red Sea via the Bab el-Mandeb Strait have faced threats from the Houthis in Yemen, who are allies of Iran. The Houthis have attacked Saudi Aramco facilities, including sites in Jazan on the Red Sea near the Yemeni border.
Reports on September 10 indicated that the Houthis attacked the East-West pipeline and seized control of the northern side of the Bab el-Mandeb Strait, along with the strategic islands of Mayyun (Perim), Hanish, and Zuqar within the strait.
The Houthi threat has forced crude-laden Saudi vessels bound for Asia to sail west through the Suez Canal and make the long voyage around Africa. This rerouting adds at least two weeks to transit times and incurs significant shipping costs, although lower insurance premiums help offset part of this increase.