Emerging markets face a credit-downgrade era as Middle East tensions threaten to end a run of net credit-rating upgrades, according to S&P Global Ratings. Director Ravi Bhatia warned that the conflict could trigger a new downgrade cycle by fueling inflation and tightening financial conditions across developing economies.

This shift marks a significant reversal from the recent trend where emerging markets had enjoyed net upgrades, improving their access to global capital. The Middle East war introduces multiple pressures on these economies, from higher energy costs to disrupted trade routes and increased geopolitical risk premiums that investors demand.

For investors and policymakers, this signals a potential turning point in emerging market stability. Countries may face higher borrowing costs and reduced investment flows as credit ratings decline, potentially slowing economic growth in regions already grappling with post-pandemic recovery challenges.