Credit and political risks heightened by Israel-Hamas conflict

  • Market Insight 09 January 2024 09 January 2024
  • Middle East

  • Predictions 2024 - Geopolitical Risk

The conflict in Gaza looks set to continue, raising concerns that political tensions could spread further afield, increasing political and credit risks for businesses operating in the region.

While the humanitarian truce announced in late November brought a temporary halt to hostilities between Hamas and Israel in the Gaza Strip, there are growing concerns that the conflict could ratchet up political tensions elsewhere in the region. 

While the longer-term implications for political and credit risk are unclear at this stage, there are a few overriding concerns for businesses operating in the Middle East, and for insurers covering risks in those countries most exposed to possible fallout from the Israel-Hamas war.

There are already indications that some commercial relationships have foundered where the views on the conflict of parties concerned are not aligned, resulting in subsequent credit risks. We anticipate there will be further terminations of contracts due to political differences as the war grinds on.

There are also abiding concerns in the region about a ripple effect of political and economic instability created by the conflict, with an accompanying increase in insolvency risks should the conflict spread to neighbouring countries. 

In particular, banks that have purchased trade credit policies from local insurers are becoming increasingly concerned about potential insolvencies among carriers. There are instances of banks requesting cut-through agreements so they can go directly to reinsurers in the event of a carrier insolvency.

More broadly, there is concern among companies transacting business in the region about the increased risk of political violence across the Middle East, which may impact the insurability of their operations. 
For example, Egypt is one territory where insurers are increasingly reluctant to write business, due to the growing dominance of the military in economic affairs and a heightened corruption risk, which make it increasingly difficult to take US dollars outside of the country.

While all hopes are that the conflict in Gaza comes to an end as soon as possible, we anticipate that other territories in the region, such as Lebanon, may become increasingly difficult in terms of cross-border transactions and the ability to secure appropriate insurance coverage for political and trade credit risks going forward.


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