Keep an eye on Saudi Arabia-Iran tensions: Fitch Ratings

Finance news

Heightened geopolitical tensions remain a risk for Saudi Arabia even though there is a low probability of revenues getting hit, a Fitch Ratings expert said Wednesday.

“Clearly the escalation of tensions with Iran is a big issue, no question about it,” Jan Friederich, head of Middle East and Africa sovereign ratings at Fitch Ratings, told CNBC’s Hadley Gamble.

Geopolitical tensions between Saudi Arabia and Iran have been in focus amid an ongoing civil war in Yemen. The conflict is regarded as a proxy battle between Saudi Arabia and Iran and their competing ideologies of Sunni and Shia Islam, respectively.

While Sunni-ruled Saudi Arabia backs the government of President Abdrabbuh Mansour Hadi, Iran backs the pro-Shia Houthi movement loyal to the country’s former president Ali Abdullah Saleh.

Although there is a slim chance those tensions would result in an appreciable hit to business, they’re still worth paying attention to, according to Friederich.

“It’s totally something that is now becoming pretty core to the assessment even though the probability of anything really dramatic happening probably is still quite low, because both sides know how much is at stake,” he said.

Media in Saudi Arabia reported last month that Houthi forces launched missiles at a Saudi Aramco facility, but those had been destroyed, Reuters reported.

Friederich also weighed in on concerns that structural and fiscal reforms in Saudi Arabia might take a back seat as oil prices edged higher.

“There is probably still a certain degree of oil price cyclicality in the reform process. There was a great emphasis before trying to really entrench the reform path, but you do see, a little bit, that pressure on fiscal consolidation has eased up,” he said.

With the kingdom now “switching a little bit more towards focusing on growth,” fiscal consolidation has been pushed “a little bit to the back burner,” Friederich added.

— CNBC’s Sam Meredith contributed to this report.

Link to the source of information: