Israel’s Credit Rating Takes a Dive: S&P Warns of Military Escalation with Iran

S&P has joined the ranks of major U.S. credit agencies downgrading Israel’s long-term credit rating, citing the looming specter of military confrontation with Iran. This move follows an apparent drone attack on key sites near Isfahan, suspected to be an Israeli response to recent aggression from Tehran.

The downgrade comes in the wake of heightened tensions and almost three months after Moody’s similarly lowered Israel’s credit rating due to ongoing conflict with Hamas. S&P has shifted Israel’s long-term rating from ‘AA-‘ to ‘A+’ and the short-term rating to ‘A-1’ from ‘A-1+’, reflecting a move from a “very strong capacity” to a “strong capacity” to meet financial commitments, albeit with susceptibility to adverse economic conditions.

S&P underscores the escalating risks Israel faces, particularly concerning its confrontations with Iran, Hamas, and Hezbollah, projecting these conflicts to persist through 2024. The outlook on Israel’s long-term ratings remains negative.

The financial strain of ongoing conflicts has prompted warnings from all three major U.S. credit agencies, with Fitch also expressing concerns. Despite the surprise attacks and subsequent tensions, Israel’s scheduled ratings review by S&P remains on track for May 10.

While no direct acknowledgment of Israeli involvement has come from Iranian officials, the events underscore the volatility in the region amid the ongoing conflicts between Israel, Hamas, and Iran.