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Moody's says EMEA firms can withstand losses from Iran

Rated debt issuers in Europe, the Middle East and Africa can ride out the expected business losses resulting from their pullout from Iran or suspension of operations there as the U.S. renews economic sanctions on the Persian Gulf nation, Moody's said.

In a new report, the rating agency noted that the affected profits or cash flows of EMEA-based companies make up a relatively small portion of their overall finances.

"Although some rated issuers in EMEA will suffer some loss or delay of business, or will not be able to access cash flow from local subsidiaries, we do not believe that these losses will be material, nor have a material impact on credit quality," Moody's said.

The Trump administration withdrew from the 2015 Iran nuclear pact in May and reinstated sanctions suspended under the deal. Businesses that entered into contracts based on the agreement were left with either 90 or 180 days to cease those operations.

Several EMEA-based companies have announced plans to abandon projects or joint venture activities in Iran to avoid the sanctions, including French oil giant Total SA and car manufacturer Peugeot SA.

"The potential severity of a breach ensures a strong incentive for companies or banks to respect the sanctions and we expect them to comply with the new sanction regime, once imposed," said Vincent Allilaire, vice president and senior credit officer at Moody's.

The Moody's report pointed out that losing access to the dollar clearing system, in addition to fines, as a consequence of noncompliance with the sanctions is a greater risk for companies than lost revenue.

While it may not significantly affect EMEA companies' profits, Moody's said the U.S. withdrawal from the Iran nuclear deal increases geopolitical risk in the region, and the re-imposition of sanctions may have contributed to recent oil price hikes.