S&P warns prolonged war with Iran could undermine Israel’s credit rating

The global credit agency S&P warned on Monday that a protracted war with Iran could potentially undermine Israel’s current credit rating.

“Developments in the Israel-Iran conflict are testing S&P Global Ratings’ previous assumptions by increasing downside risk including due to the prospect of further escalation,” S&P analysts stated.

“Israel says its stated aim of destroying Iran’s nuclear capability could take at least two weeks, possibly longer… this points to a more protracted campaign than the 2024 retaliatory strikes,” the analysts said regarding last year’s two direct missile confrontations between Iran and Israel.

“The likelihood of a diplomatic solution appears increasingly distant,” S&P stated. “Thus far, developments suggest attacks and counterattacks are seeking to avoid drawing in third countries, such as the US or Gulf countries.”

“A longer, more intense conflict increases the potential for military miscalculations,” the statement continued. Looking ahead, it warned of a “risk that the escalation of military conflict could substantially weaken Israel’s economy and fiscal and balance-of-payments positions.”

Israeli political and military officials have signaled that they seek a decisive and quick victory against the Iranian regime. The Israeli Air Force (IAF) has already established aerial superiority and operational freedom over the capital Tehran and much of Iranian airspace.

The world is now watching see whether U.S. President Donald Trump will order a strike on Iran, which could potentially significantly shorten the war with the regime.

Meanwhile, the Fitch rating agency expressed confidence in the Israeli economy, assessing that the current Iran war will remain “contained between Israel and Iran, and will not persist for more than a few weeks.”

“Israel has strong defensive countermeasures and it appears that Iranian strikes have not had a material economic impact,” Fitch analysts assessed. “We believe Iran’s capacity to retaliate against Israel via proxies in Gaza and Lebanon has been damaged by Israel’s military campaigns in those regions.”

“Both factors suggest it is likely that damage from Iran’s military response to Israel’s latest attacks will not be on a scale that would affect Israel’s rating,” Fitch predicted. The analysts noted that a potential Israeli credit downgrade will “depend on the course and outcome of the conflict, including whether the conflict remains restricted between Israel and Iran, or spreads.”

Israel's economy has faced many challenges since the Hamas massacre on Oct. 7, 2023

In February 2024, credit agency Moody’s issued its first-ever downgrade of Israel’s credit rating.

Last October, S&P downgraded Israel’s credit rating, citing “security risks for Israel” amid escalated confrontations with Iran and its Lebanese terror proxy Hezbollah.

However, Israel carried out significant strikes against Hezbollah’s leadership and military infrastructure, leading the group to pursue a ceasefire by the end of 2024.

The Iranian currency has been significantly impacted by the ongoing war with Israel. In contrast, the Israeli currency has remained robust, and the Tel Aviv Stock Exchange has seen gains despite the ongoing hostilities.