The nation was cut by one notch to the fifth-highest score, on par with Bermuda and China. The outlook remains negative. 

“The recent increase in confrontation with Iran heightens already elevated geopolitical risks for Israel,” the company’s statement said. 

S&P said a wider regional conflict was not its baseline scenario, but could have a further material negative impact on Israel’s security situation. That would then impact its economic, fiscal, and balance-of-payments parameters.

All three major rating firms have put out warnings on Israel’s credit score since the onset of the war with Hamas. On 25 October, S&P revised the outlook to negative on risks the conflict spreads into the country. Moody’s Ratings gave the nation its first-ever sovereign rating downgrade in February, assigning the nation the sixth-highest investment-grade score. 

Tensions in the region have intensified since Iran launched a barrage of drones and missiles on Israel in response to a strike in Syria that killed several Iranian officers on 1 April. Tehran is bracing for a potential Israeli retaliation.

Israel Versus Iran — What All-Out War Could Look Like: QuickTake

S&P forecast that Israel’s general government deficit will widen to 8% of gross domestic product in 2024, mostly as a result of increased defense spending. It expects higher deficits to persist over the medium term and net general government debt to peak at 66% of GDP in 2026.