Fitch: Regional Conflict Risks to Sovereign Ratings & Energy Flows 📉

The recent escalation in the Middle East poses significant risks to regional sovereign credit profiles, with the impact contingent on the conflict's duration and scope. • Overall Impact: Fitch’s baseline assumes a short-lived conflict (under one month). While most GCC sovereigns have substantial asset buffers, a protracted war could lead to rating downgrades, particularly for Israel (currently on Negative Outlook). • Energy & Infrastructure: The Strait of Hormuz is expected to be effectively closed, disrupting flows of ~20 million barrels of crude and refined products daily. • Sector Winners/Losers: Saudi Arabia and the UAE can bypass the Strait via pipelines. However, Bahrain, Kuwait, Qatar, and Iraq face higher risks due to heavy reliance on the route. • Economic Activity: Near-term hits are expected in tourism, aviation, and consumer activity. A potential outflow of expatriates could pressure GCC real estate markets. • National Context (Sri Lanka): While the report focuses on Middle Eastern sovereigns, the closure of Hormuz and resulting higher energy prices typically increase import costs for Sri Lanka’s energy sector and may disrupt tea exports to regional markets. _Note: Analysis based on Fitch Ratings provisional baseline as of March 2026._