RIYADH: Ports across Europe, the Middle East and Africa are broadly well-positioned to absorb the economic shock of a prolonged Iran conflict and a potential closure of the Strait of Hormuz, with most maintaining sufficient rating headroom, Fitch Ratings said.
Despite the war significantly disrupting global oil and gas flows through the narrow channel along the Iranian coast, many ports in the region have robust financial profiles and diversified cargo bases, providing a buffer against potential revenue losses, said the credit rating agency in its latest analysis.
Severe shipping restrictions affecting the Strait of Hormuz has stopped the passage of 20 percent of the world’s oil and liquefied natural gas since the US and Israel began airstrikes on Iran on Feb. 28.
“The prolonged closure of Hormuz would trigger higher war-risk premiums, higher energy prices and rising inflation. Many costs are passed on to cargo owners, but sustained inflation may weaken containerised trade demand,” said Fitch Ratings.
It added: “We assess the overall impact of this adverse case (three-month closure of the Strait) on rated EMEA port operators as medium to low, mitigated by globally diversified operations, long-term contracted lease revenues and tariff flexibility, strong liquidity buffers, and medium-term bullet maturities.”
According to the report, exposure to Middle East volumes varies, being highest at DP World and Abu Dhabi Ports and minimal at ABP and Boluda.
Fitch added that DP World and ADP can absorb the adverse scenario, with their ratings remaining resilient despite material Middle East exposure.
For those companies, global diversification provides natural hedges, while flexibility in capital allocation and shareholder distributions, combined with operating leverage, and fuel representing less than 5 percent of operating expenses, will support their cost adjustment strategies.
Fitch added that both DP World and ADP are well-positioned to capture rerouting demand and benefit from increased storage revenues.
ADP’s rating is linked to the government of Abu Dhabi, and Fitch expects a small impact on public finances from the Strait’s closure, given the anticipated large budget surplus.
