Saudi keeps its A+ rating from S&P, but the export route it rests on has just been stalled

S&P Global Ratings affirmed Saudi Arabia’s credit rating at A+ with a stable outlook on Friday (pdf), a call the weekend’s events had already begun to overtake. The agency rested the decision on the Kingdom’s ability to route crude away from the Strait of Hormuz through the East-West pipeline to the Red Sea port of Yanbu. Soon after, that pipeline was shut following a drone strike, while Brent pushed past USD 104, above the price S&P had penciled in for the rest of the year.

The war had already dented the oil economy. S&P already expects real GDP to contract 0.9% this year, with the 2Q reading showing a 4.7% y-o-y fall, the steepest since Covid, on a 24.8% drop in oil activity and output tumbling to an average of 6.9 mn bbl / d between March and August, down from around 10.1 mn bbl / d in January and February.

What let S&P look past that damage was, first, the pipeline. The 1.2k km East-West line from Abqaiq to Yanbu — its capacity lifted to about 7 mn bbl / d after a parallel gas line was converted to crude — kept most of the Kingdom’s remaining barrels reaching export markets through the fighting.

The second support is the balance sheet. S&P pointed to non-oil activity now making up about 70% of GDP, up from 65% in 2018, and the PIF’s SAR 3.4 tn in assets underpinning the sovereign’s net-asset position. Higher prices also did their part, with Aramco booking a record realized price of USD 108 per barrel in 2Q, lifting oil revenue 9% y-o-y to SAR 330 bn in 1H.

But the stable call rested on the pipeline staying open and oil staying near USD 95 a barrel. S&P’s base case even named the risk, calling Red Sea exports “vulnerable to Houthi rebel activity.”

The agency spelled out what would move the rating down: a longer, more intense conflict that weighs materially on growth and fiscal and external metrics — an effective closure of Hormuz alongside heavier attacks on oil facilities across the GCC, driving prices higher for longer — or a sharp rise in debt that weakens public finances and the external position.

Several of those conditions are now in play. Hormuz traffic remains down more than 50% from pre-war levels. The East-West line, the workaround the rating leaned on, was shut on Friday after drones struck it near Riyadh and Medina and Houthis deepened their hold on the Red Sea alternative route (see our War Watch for more). The line normally carries 4-5 mn bbl / d, roughly 4-5% of global supply. And Brent, which S&P saw averaging USD 95 a barrel for the rest of the year, is trading well above that.

OUR TAKE- The Yanbu route S&P credited for holding Saudi Arabia’s finances together is the thing now under attack, and the export disruption the rating was built to withstand is deepening. By the agency’s logic, the Kingdom is moving toward the downside scenario — though has not yet reached it. The metrics that would confirm the shift are still quarters away.

What comes next cuts both ways. S&P expects a rebound to 8.2% growth in 2027 as output recovers, but forecasts deficits averaging 3.4% of GDP through 2029.

Three things to watch — whether the pipeline restart matches the three-day repair after April’s strike or drags on; whether Brent holds above the USD 95 base case; and the timing of S&P’s next scheduled review.