A UK bank just raised the odds it puts on a Middle East crisis to 60%
Key Points
- Standard Chartered raised the combined weighting on its two downside economic scenarios to 60%, from 41% at the end of 2025, cutting its base forecast to 40%
- The bank added a new Sustained Middle East Conflict scenario, modelling prolonged energy supply disruption and elevated commodity prices
- Its existing stress scenario models an oil price peak of $150 a barrel
- The conflict cost $234 million in overlays and non-linearity charges, with total credit impairment of $446 million for the half
- Early alert balances rose to $5.8 billion from $4.3 billion, and stage 2 loans increased $3.9 billion
Standard Chartered now assigns a combined 60% probability to its two downside economic scenarios, up from 41% at the end of 2025, after adding a sustained Middle East conflict to its forecasting models, according to the bank’s half year report for 2026.
The base forecast now carries a 40% weighting, down from 59% at 31 December 2025.
The two downside scenarios each carry 30%. Standard Chartered runs 50 scenarios across its economic modelling, and the shift in weightings feeds directly into how much the bank sets aside for expected credit losses.
What the new scenario assumes
The bank added a scenario it calls Sustained Middle East Conflict, which models a prolonged geopolitical crisis in the region leading to sustained energy supply disruptions and elevated global commodity prices.
It sits alongside the existing Bank Capital Stress Test scenario, which incorporates global supply-side disruptions including tariffs, materially elevated commodity prices and an oil price peak of $150 a barrel.
Standard Chartered attributes the increase in downside weightings to management judgement on continuing geopolitical uncertainty around the Middle East conflict, trade tariffs and other market risks. Group Chief Risk Officer Jason Forrester signed the risk review on 29 July.
A massive cost
The Middle East conflict cost the bank $234 million across management overlays and an increased non-linearity charge in the first half.
Standard Chartered took $159 million of overlays in Corporate & Investment Banking and central items, covering risks in the petrochemical sector and the probability-weighted impact of sovereign downgrades across several of its footprint markets.
A further $14 million overlay landed in Wealth & Retail Banking, reflecting risks in specific markets.
The non-linearity charge rose by $64 million, $61 million of which the bank attributes to the conflict. Total credit impairment reached $446 million for the half, up $110 million year-on-year and equivalent to an annualised loan-loss rate of 26 basis points.
The Corporate & Investment Banking charge of $150 million rose $160 million year-on-year, as $170 million of overlays outweighed continued stage 3 releases.
