S&P warns 'Israel' facing downgrade amid escalating war
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S&P Global Ratings has warned that Israel’s escalating conflict with Iran and its allies risks triggering a downgrade to A–, as sustained resistance, regional backlash, and economic instability expose the fragility of Tel Aviv's financial standing and amplify the broader consequences of its military aggression.
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Israeli security forces inspect a site hit by a missile launched from Iran in central occupied Palestine on Tuesday, June 17, 2025 (AP Photo/Baz Ratner)
S&P Global Ratings has issued a stark warning about the vulnerability of the Israeli economy as it confronts growing resistance from Iran and its regional allies.
The agency stated that a continued Israeli war campaign, particularly if met with a sustained and strategic Iranian response, could lead to a downgrade of "Israel's" credit rating from A to A-.
"Israel" had already suffered two downgrades in 2024, first in April and then in October, amid widening instability and declining investor confidence.
In its latest assessment, S&P notes: "Developments in the Israel-Iran conflict are testing S&P Global Ratings' previous assumptions by increasing downside risk, including due to the prospect of further escalation."
The agency had previously issued a negative outlook, citing the likelihood of broader regional spillover.
Economic Reckoning
The report outlines a series of potential consequences for "Israel's" economy in the face of continued escalation, including "shocks to foreign and domestic investor confidence, capital flight, and volatility in financial markets and the exchange rate," along with "direct physical damage to infrastructure and associated risks to growth and public finances."
These concerns reflect the increasing efficacy of Iran's retaliatory strategy and the broader regional backlash against Israeli military adventurism.
S&P also referenced Israeli officials' own admission that their objective of dismantling Iran's nuclear capabilities would not be a short-term campaign: "Israel says its stated aim of destroying Iran's nuclear capability could take at least two weeks, possibly longer."
Read more: S&P sees no major Israeli economic recovery before 2026
Regional Fallout
The agency laid out four possible scenarios if the conflict deepens, with the most severe involving a region-wide confrontation including Iran and its allies, the US, and Gulf countries.
Such a scenario would expose the fragility of "Israel's" economy and deepen the consequences of its war footing.
Maxim Rybnikov, S&P's director, confirmed that a direct confrontation with Iran is now the central threat to "Israel's" credit standing.
While not yet the base case, the agency made clear that if "Israel" expands its war, a downgrade would likely follow.
Strategic Leverage
Economic experts, including those at the IMF and RBC Capital Markets, have pointed to the ripple effects of Iran's countermeasures, including surges in global oil prices and fears of a broader market correction.
Tehran's capacity to apply pressure through strategic energy chokepoints and its regional alliances pinpoint the imbalance in the current confrontation.
S&P's findings confirm what Iran and much of the region have long warned: that Israeli aggression, left unchecked, invites not only military consequences but also long-term economic collapse.
The more Tel Aviv continues down this path, the more precarious its position becomes, not just militarily, but financially.
