Middle East Conflict May Reverse Emerging Market Credit Rating Upgrades, Expert Warns

S&P Global Ratings Director Ravi Bhatia has expressed concerns that the ongoing Middle East conflict could halt the trend of credit rating upgrades for emerging markets. According to Jin10, this shift may lead to a new cycle of downgrades driven by rising inflation and tightening financial conditions. This change would mark a reversal from the past three years, during which many emerging markets repaired balance sheets, implemented fiscal reforms, and regained market access following pandemic-induced defaults and rating downgrades. The decline in sovereign and corporate default rates had contributed to a net upgrade cycle in 2024 and 2025. However, the persistent conflict involving Iran may now tilt the balance towards downgrades. Bhatia noted that last year saw inflation decrease and credit conditions ease, which put upward pressure on sovereign ratings in the Middle East and Africa. However, in 2026, the renewed conflict in the Middle East is expected to increase inflationary pressures and create a less favorable financing environment for the region, posing potential downside risks.