KUALA LUMPUR (April 14): Malaysia’s sovereign credit rating is likely to withstand potential economic shock from the conflict in the Middle East, S&P Global Ratings said on Tuesday.

The country’s credit strength, including deep domestic capital markets and sound economic growth trends, means a one-off deterioration of its fiscal performance or a moderate increase in debt metrics is unlikely to trigger a rating action, the rating agency said in a note on Tuesday.

“This is in part because we already account for a relatively elevated net generational government debt stock” of about 69% of gross domestic product, S&P Global said.

S&P Global rates Malaysia at A- while Moody’s maintains its A3 credit rating. Fitch has Malaysia on BBB+. All three ratings, which are investment grades, carry a stable outlook.

The US have threatened to blockade the Strait of Hormuz after peace talks with Iran collapsed over the weekend, risking protracting a war now in its second month. The waterway is critical for the flow of about one-fifth of the world’s oil and gas supply.

Malaysia, which provides targeted subsidies for petrol and diesel, has seen its monthly fuel subsidy bill balloon. From a monthly bill of about RM700 million pre-conflict, the bill has leapt to RM4 billion.

An increase in the subsidy bill could weaken Malaysia’s fiscal and debt positions but is partly offset by higher government revenue, S&P Global flagged. If necessary, the government could also ask for a higher dividend from national oil and gas company PETRONAS, the ratings agency noted.

“We don’t expect higher energy prices this year to undo the Malaysian government’s plans for fiscal consolidation over the next three to four years,” the agency said.

However, there are risks as the external metrics supporting Malaysia’s sovereign rating could deteriorate in the event of a global economic slowdown, S&P noted.

Malaysia enjoys a modest net energy trade surplus on its natural gas exports. However, its external position may not see much improvement on higher energy prices, as it is also a substantial net importer of petroleum products.

“Conversely, a sharp contraction in external demand for its non-energy exports may drag down exports and weaken credit support for the government,” the ratings agency warned.