Fitch downgrades Saudi Arabia to ‘A’ on regional tensions

Fitch Ratings said on Monday that it would downgrade its long-term foreign-currency issuer default rating of Saudi Arabia to ‘A’ from ‘A+’, the agency’s upper medium investment grade.

The outlook for this rating is stable.

The credit ratings agency said that the downgrade reflects the rising geopolitical tensions in the Gulf, concerns regarding the Kingdom’s balance sheet, and ongoing infrastructure challenges in the wake of the September 14 drone and missile attacks on Saudi Arabian oil installations.

“In our view, Saudi Arabia is vulnerable to escalating geopolitical tensions given its prominent foreign policy stance, including its close alignment with US policy on Iran and its continued involvement in the Yemen war,” the agency said.

Fitch added that although Saudi Arabia was able to fully restore oil production by the end of September, the agency believes that there is a risk of further attacks – which could result in economic damage.

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.

Fitch said that a positive revenue action could be triggered by an event that could trigger a sustainable fiscal surplus (such as an extended rise in oil revenues), or/and a sustained easing in Arabian Gulf geopolitical tensions.