In its report, Moody’s said its experts believed that there was “a substantial risk that the medium-term credit fundamentals of Bahrain will be impaired by the present crisis, which seems unlikely to be resolved in the near future”.
“Rising tensions between Saudi Arabia and Iran, which has condemned the intervention, have negative implications for political stability in the wider region,” The report added.
Last month Moody’s placed Bahrain’s A3 sovereign ratings on review for possible downgrading. In its latest report, released yesterday, the ratings agency noted that Moody’s had “long flagged” as an important downside sovereign risk the “well-documented tensions” that have existed between Bahraini opposition groups and the Sunni ruling family.
“However, the intensity and determination of the current anti-government protests are novel, and have been amplified by events elsewhere in the Arab world, particularly the uprisings in Tunisia and Egypt,” Moody’s said.
“Against this context, there is a substantial risk that Bahrain’s credit fundamentals will be impaired by the present crisis, notwithstanding the short-term benefits of rising oil prices.”
Moody’s said the severity of the political crisis in Bahrain had been illustrated by the government’s request for outside military assistance, which it said was “unprecedented and follows renewed violent clashes between demonstrators and government forces over the weekend.”
Noting the "significant risk of an escalation in tensions between [Shi’ite] Iran and countries from the GCC [Gulf Cooperation Council] that participate in the military intervention in Bahrain", Moody’s went on, "this may also have consequences for countries further afield, such as Lebanon (rated B1/stable) and Iraq (unrated), which have acted as arenas for competing regional and international powers".
Moody’s said there was an ongoing potential for further rating actions by its agents if they felt it likely that the deterioriating political situation in Bahrain was likely to endure, and that it presented "a significant threat to particular countries’ medium-term credit fundamentals".
