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Saudi hit by ratings downgrade as reverberations from attacks spread
miDDle east
SAUDI Arabia has taken some pretty bad eco- nomic hits from the drone and missile attacks, widely blamed on Iran, that wiped out half of its oil production capacity and the latest severe blow came on September 30 as rating agency Fitch downgraded the kingdom’s credit rating to A from A+, citing rising geopolitical and mili- tary tensions in the Gulf. With Riyadh perhaps surprised and underwhelmed by US President Donald Trump’s restrained response to the pre- dawn September 14 drone and cruise missile attacks on Washington’s big Gulf ally, analysts have questioned whether the Saudis might move to at least ease strained relations with Teh- ran and that prospect appeared to become that much more likely on September 30 when Iran announced it had received messages from Saudi Arabia through third countries.
Ali Rabiei, spokesman for Iranian President Hassan Rouhani, told journalists that Tehran welcomed the communication but that a “public message” from Riyadh such as on ending “the attack on Yemen”, where Saudi-backed forces are fighting the Iran-aligned Houthis, was required as well. “If Saudi Arabia is really pursu- ing a change of behaviour, Iran welcomes that,” Rabiei said. “Part of the Hormuz peace plan [as communicated at the United Nations General Assembly in New York last week by Rouhani] is also working with neighbours like Saudi Arabia, so Iran welcomes the process.”
“Unimaginably high numbers”
Rabiei did not comment on the contents of the messages from Saudi Arabia, but news of them broke around about the same time the kingdom’s de facto leader Saudi Crown Prince Muhammad bin Salman warned in US television interview that oil prices could spike to “unimaginably high numbers” if the world doesn’t come together to deter Iran.
At the same time, the prince, known as “MBS”, added that he preferred a political solu- tion with Iran to a military one.
Saudi Arabia has said that it will regard the attacks on its oil facilities as “an act of war” if an ongoing investigation determines that they were launched from Iranian soil. Iran, which denies being behind the strikes, which it claims were the work of the Houthis, regards Riyadh as complicit in the “economic war” it says the US is waging against the Islamic Republic with crush- ing sanctions. There is anger that some oil sales lost by Iran because of the sanctions have gone to arch-rival Saudi Arabia.
Even prior to the attacks on the oil facilities— an oilfield and the world’s largest oil process- ing facility—the United Arab Emirates (UAE),
clearly worried at how hard business hubs such as Dubai would be impacted by a growing mil- itary showdown with Iran, had shown signs of stepping back from a close Iran foreign policy alignment with allies Saudi Arabia and the US. The UAE is even said to have lost various forms of valuable business with the Iranians due to the sanctions, brought in by the US to try to force Iran to even more tightly restrict its nuclear and ballistic missile programmes and end its sup- port for various militias across the Middle East, opposed to Israel and/or certain Arab nations.
Impact on value of Aramco IPO
Not only have the attacks now resulted in the Fitch downgrade, they have also likely erased a substantial part of the potential $100bn that Saudi Arabia’s state-owned Aramco, the world’s largest oil company, hopes to raise from an initial public offering (IPO).
Money from the offering is to be channelled into MBS’ economic reform programme, which aims to diversify the Saudi economy away from over-reliance on oil. A far smaller, but significant blow, caused by the attacks is that they came just ahead of the launch of an initiative to open up Saudi Arabia to foreign tourists.
On September 28, the kingdom started offer- ing visas for the first time to non-religious tour- ists. The following day Houthi rebels claimed that they had killed 500 Saudi soldiers, captured a further 2,000 and seized a convoy of Saudi military vehicles in the southern Najran region of Saudi Arabia, which borders Yemen. It’s not the kind of climate that will drive package holi- day bookings. Fitch said its downgrade of Saudi Arabia was also related to a deterioration of the country’s fiscal position.
The Saudi finance ministry responded that it was disappointed by the “swift” downgrade and urged Fitch to reconsider it. It contended that the move did not reflect the kingdom’s response to the September 14 attack or its ability to handle adversity. The move placed Saudi Arabia one notch above the assessment of rating agency S&P Global. It also came ahead of a potential interna- tional sale of dollar-denominated Islamic bonds by Riyadh.
“In our view, Saudi Arabia is vulnerable to escalating geopolitical tensions given its prom- inent foreign policy stance, including its close alignment with US policy on Iran and its contin- ued involvement in the Yemen war,” Fitch said.
Risks of deeper conflict
It saw a risk that the US and Saudi Arabia could be pulled into a deeper conflict with Iran or its allies.
Week 39 03•October•2019 w w w . N E W S B A S E . c o m P9