S&P Global Ratings considers that the normalization of relations between Israel and Bahrain and the United Arab Emirates (UAE; not rated) is likely to benefit these sovereigns' economies and contribute to broader geopolitical stability in the region. However, we also believe that risks to geopolitical stability could arise from those opposed to normalization, or from policy missteps by the parties to the new order. At this stage, we do not foresee any rating impact.
Senior officials from Bahrain, Israel, and the UAE signed the U.S. brokered "Abraham Accords," to normalize relations on Sept. 15. This follows the Israeli and UAE governments' announcement on Aug. 13, that the UAE would normalize relations in exchange for Israel suspending plans to annex large parts of the Palestinian territories. Bahrain agreed to normalize relations with Israel on Sept. 11.
Below, S&P Global Ratings addresses investor questions on these developments.
Frequently Asked Questions
What's the background to the Abraham Accords?
Israel's last significant diplomatic breakthroughs with majority Muslim countries took place when it signed peace treaties with Egypt (1979) and Jordan (1994). However, behind the scenes, some Gulf Cooperation Council (GCC) states have reportedly had ties with Israel for a number of years. In the wake of the U.S. policy of disengagement from Middle East conflicts, starting during the Obama administration and continued by President Trump, some GCC states have decided to publicly strengthen ties with Israel, particularly where the countries share concerns over perceived threats, for example, those posed by Iran or extremist religious groups.
What is the potential upside to the Abraham Accords?
It is too early to tell if there will be any material economic benefits. However, with the removal of the UAE and Bahraini boycotts on Israel, we expect these countries will begin direct commercial flights with Israel and significantly increase cooperation in the areas of tourism, security, telecommunications, technology, health, education, financial services, and agriculture.
It is also likely that the parties to the Abraham Accords will establish reciprocal embassies at some point. Diplomatically, Israel's regional isolation has been reduced, while the GCC sovereigns may be able to leverage Israel's significant military capabilities against common threats.
What is the potential downside?
Tensions between Iran and many regional states continue to be elevated. Strengthening ties between some GCC sovereigns and Israel could make Iran (not rated), a regional power, feel more threatened. Changing the power balance in the region could, in our view, lead to a further heightening of tensions. Military or covert action may be carried out directly by disaffected countries or indirectly through proxy actions. For example, in recent years, drone strikes on Saudi Arabian oil facilities have been carried out by Houthi forces in Yemen, but the technology has been widely attributed to Iran, though Iran denies any involvement.
Either Iran, extremist religious groups, or those that view the recent deals as detrimental to the Palestinian cause, could react negatively to recent developments, potentially increasing regional tensions. In this context, we continue to believe that one of the key rating constraints for Israel is its exposure to persistent geopolitical and domestic security risks, including those arising from tensions with Iran and its proxies (see "Israel Ratings Affirmed At 'AA-/A-1+'; Outlook Stable," published May 16, 2020, on RatingsDirect).
Do you expect other GCC sovereigns to follow suit?
It will partly depend on the domestic and regional reaction to Bahrain's and the UAE's recent moves. If largely muted, then other GCC sovereigns might follow the same path. Another important factor is the extent to which the respective governments tie the pace of normalization to resolution of the Israeli-Palestinian issue. If resolution is a prerequisite for normalization, as we believe is the case for Kuwait and Qatar, then normalization is not likely to happen soon. Qatar's position could also be affected by its opposition to the policies of those countries that have boycotted it since 2017, including Bahrain and the UAE.
We believe that Saudi Arabia is broadly supportive of recent developments. However, we expect visible progress on Saudi's normalization of relations with Israel will take time, and might be affected by the transition of power from King Salman bin Abdulaziz Al Saud to his son, Crown Prince Mohammed bin Salman.
Oman is likely to move relatively slowly, given that Sultan Haitham bin Tariq is only in his first year of rule and had indicated a preference for maintaining Oman's traditional role as a mediator between the U.S., the GCC, and Iran, and between the GCC countries.
- Jordan 'B+/B' Ratings Affirmed; Outlook Remains Stable, Sept, 12, 2020
- Kuwait Outlook Revised To Negative On Continued Depletion Of Fiscal Liquidity Buffer; 'AA-/A-1+' Ratings Affirmed, July 18, 2020
- Abu Dhabi (Emirate of), May 30, 2020
- Bahrain, May 30, 2020
- Israel Ratings Affirmed At 'AA-/A-1+'; Outlook Stable, May 16, 2020
- Egypt, May 9, 2020
- Qatar Ratings Affirmed At 'AA-/A-1+'; Outlook Remains Stable, May 9, 2020
- Oman, April 18, 2020
- Saudi Arabia 'A-/A-2' Ratings Affirmed; Outlook Stable, March 27, 2020
This report does not constitute a rating action.
|Primary Credit Analyst:||Trevor Cullinan, Dubai (971) 4-372-7113;|
|Secondary Contacts:||Karen Vartapetov, PhD, Frankfurt (49) 69-33-999-225;|
|Max M McGraw, Dubai + 97143727168;|
|Shokhrukh Temurov, CFA, Dubai + 97143727167;|
|Ravi Bhatia, London (44) 20-7176-7113;|
|Zahabia S Gupta, Dubai (971) 4-372-7154;|
|Maxim Rybnikov, London (44) 20-7176 7125;|
|Additional Contact:||EMEA Sovereign and IPF;|
No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.
Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: firstname.lastname@example.org.