By Marc Jones and Steven Scheer
LONDON/JERUSALEM (Reuters) -A full-scale military conflict with Hezbollah or Iran could have significant “credit implications” for Israeli debt issuers, credit rating agency Moody’s (NYSE:) said on Tuesday.
“We remain confident that the ongoing tensions will not escalate into a full-scale military conflict between the two sides, or extend to Iran, limiting the immediate credit negative impact on the region,” the rating agency said in a statement .
“However, a full-scale military conflict with Hezbollah or Iran could have significant credit implications for Israeli debt issuers.”
Moody’s in February downgraded Israel’s credit rating to A2 with a negative outlook, citing material political and fiscal risks to the country from the war with the Palestinian militant group Hamas.
In a separate report, S&P Global Market Intelligence – separate from its Global Ratings division – said it is unlikely that the Israeli government, Hezbollah or Iran intend to escalate this round of confrontation into a broader conflict.
The “position on both sides, combined with the very limited number of Israeli casualties and the apparent lack of significant material damage resulting from the attacks in Israel, is likely to provide sufficient distraction for further escalation,” the report said.
Hezbollah launched hundreds of missiles and drones at Israel on Sunday, while the Israeli army said it had attacked Lebanon with about 100 jets to thwart a larger attack, in one of the biggest clashes in more than ten months of border war.
S&P Global Ratings downgraded Israel in April and Fitch followed suit in August.
The S&P report said that while Hezbollah is likely to be deterred from full-scale war, Iran will likely still seek a military response to the killing of Hamas leader Ismail Haniyeh in Tehran, but this will most likely be limited in scope.
“The Iranian leadership, in our view, has even greater incentives than Hezbollah to avoid a regional war that would likely entail direct Israeli and US military strikes on Iran,” the report said.
An Israeli-Hamas ceasefire agreement that would return Israeli hostages to Gaza, it added, “would allow the Iranian leadership to present this as a result of effective Iranian military pressure.”
