S&P affirms Saudi credit rating, expects quick rebound after oil attacks

Saudi Arabia’s credit ranking has been affirmed by S&P Global Ratings at “A-/A-2” with a stable outlook, as the Kingdom is seen to rebound quickly from the biggest attacks yet on its oil facilities, the ratings agency said on Friday.

“The stable outlook reflects our expectation that Saudi Arabian oil production facilities that were hit in the September 14 attacks will be swiftly repaired,” S&P said, adding that the Kingdom has a strong net asset position on several fronts.

“The stable outlook also reflects our view that Saudi Arabia will maintain a pace of moderate economic growth and retain strong government and external balance sheets (net asset-stock positions) over the next two years, despite sizable fiscal deficits and heightened regional tensions.”

As geopolitical risks remain high, S&P said that the Kingdom’s ratings could be affected if it faces subsequent attacks on its oil facilities.

“The rating could come under downward pressure in a scenario in which Saudi Arabia's oil infrastructure was subject to repeated foreign attacks, weighing on economic, fiscal, and external performance,” S&P said.

Meanwhile, S&P pointed to possibly raising the Kingdom’s ratings if economic growth prospects improve beyond the current outlook, “for example as a result of a sustained and significant pick-up in oil prices and volume demand, possibly tied to the end of US-China trade tensions and a rebound of the global economy.”

Saudi Arabia’s oil production had been halved following the September 14 attacks on Saudi Aramco’s key oil-processing facilities in Abqaiq and Khurais. The Kingdom managed to quickly revive oil supplies to its customers by tapping into its strategic reserves, as pledged by Saudi Arabian Energy Minister Prince Abdulaziz bin Salman.

It also revived its production to about 11.3 million barrels per day (bpd), earlier than anticipated.

The ratings provider said it expects the Kingdom to ramp up security at its oil facilities, as well as steer away from a “fully-fledged direct military confrontation” with Iran, despite rising tensions after the latest attacks, which have been claimed by the Iranian-backed Houthi militia in Yemen.

“In the aftermath of the attacks on key oil facilities we expect Saudi Arabia to redouble its efforts to secure key oil production and processing facilities, increase storage capacity, and enhance attempts to develop Red Sea export routes that would help avoid the volatile Arabian Gulf,” S&P said.

“We expect that it will expedite plans to expand the East-West pipeline to the Red Sea port of Yanbu to an estimated 7.3 million bpd from its current output of about 5 million, thereby permitting oil exports to circumvent the volatile Strait of Hormuz,” it added.