Scenario Analysis: US-Iran Conflict Escalation Implications for Public and Private Credit Investors

This article is written and published by S&P Global Market Intelligence, a division independent from S&P Global Ratings. Lowercase nomenclature is used to differentiate S&P Global Market Intelligence credit scores from the credit ratings issued by S&P Global Ratings.

Escalating geopolitical tension between the United States and Iran had eventually evolved into direct confrontation in late February, when the United States joined forces with Israel to launch strikes on targets inside Iran and Iran retaliated. The incident rapidly elevated risks around Gulf shipping routes and energy infrastructure, leading to higher uncertainty on global supply chains and energy prices. For public credit markets, the immediate implication is wider dispersion in issuer risk due to the shock in issuers’ earnings, cash flows, and financing costs. It also spreads to the private credit market, which is the marginal source of financing for distressed borrowers. In this blog of the Credit Risk Scenario Analysis Series, we assess the impact of credit risk across countries and industries under the Middle East conflict, using a suite of RiskGauge Model^[1], Macro-Scenario Model^[2] (MSM), and Global Link Model^[3] (GLM).

The Middle East Conflict Escalation Scenario, published in early-March, was developed to analyze the impact if the conflict between the United States and Iran escalates into a regional war. The scenario assumes:

• Iran retaliates against the critical infrastructure of Gulf countries that had facilitated the Israeli/US military campaign.
• The attacks extend into the Arabian Sea/Indian Ocean and the Mediterranean Sea, significantly increasing the risk of damage and disruption to commercial shipping.
• Heavy disruptions of significant global trading routes and ports would have implications for trade patterns, particularly affecting the cost and availability of oil and gas in both Asia and Europe.

In short, major economies in the world are expected to experience slower GDP growth and higher unemployment, interest rates, and inflation.

In Figure 1, we compare the current probability of default (PD), as of February 2026, with the scenario PD. This gives us the expected deterioration/improvement in companies’ credit risk in the following one-year period.

Under the scenario, European countries will be more affected by the Middle East conflict than the United States and the Asia-Pacific countries. Among the major economies, France is expected to experience the largest increase in median PD, followed by Canada and Germany. Asia-Pacific countries are expected to be relatively less affected.

Figure 1: Relative difference between current and scenario median PD by country

Source: S&P Global Market Intelligence. As of March 6, 2026.

By analyzing the scenario median PD across industry sectors and counties, the Consumer & Services sector is expected to be severely affected in most countries, followed by the Entertainment & Media sector. This is unsurprising, as the higher oil prices and inflation are likely to cause a pullback in consumer spending, with immediate consequences for discretionary retail, restaurants, travel-related services, and other demand-sensitive subsectors. For oil net-importer countries, the Energy sector is also expected to suffer credit deterioration, as rising production costs cannot be fully passed through to end-users and the energy demand plummets. Conversely, the least affected sectors are expected to be Insurance, Real Estate, and Financial Institutions. In the United States, the Construction & Materials sector is also expected to be significantly affected. The complete ranking of sectors impacted in the scenario can be found in Table 1.

Table 1: Sector ranking per country (1: most affected, 13: least affected)