S&P dropped a bombshell on Thursday, downgrading the sovereign credit rating for Saudi Arabia by two notches.

The ratings agency also slashed credit rating for Brazil, Kazakhstan, Bahrain and Oman as the pain from low oil prices continues to undermine the economic and financial foundations of commodity exporters around the world.

The decision to cut Saudi Arabia’s rating was the most striking decision though. As the world’s largest oil-producer, sitting on some of the largest reserves in the world, Saudi Arabia has been a bastion of financial stability for a long time. But it is also has a highly undiversified economy, dependent on oil for nearly all of its export earnings and budget revenues. Last October, S&P cut Saudi Arabia’s rating one level. Related: How Far Will The U.S. Go If Turkey Invades Syria?

S&P slashed Saudi Arabia’s rating two notches from A+ to A-. "The decline in oil prices will have a marked and lasting impact on Saudi Arabia's fiscal and economic indicators given its high dependence on oil," S&P said in a statement.

Saudi Arabia has tried to stay the course during the crash in oil prices. It has continued to pump oil at elevated levels in order to hold onto market share. It has also doggedly maintained its long-standing currency peg. But, Riyadh is not without options. It could, for example, abandon the currency peg, which would reduce the burden on its cash reserves and potentially boost the economy. Saudi Arabia burned through $115 billion in reserves in 2015 as it fought to shore up the currency. The government has also undertaken an austerity campaign to reduce the pressure on public coffers. Related: Historic OPEC-Russia Agreement Will Have Minimal Impact

On the oil market side of things, Saudi Arabia has shown a new willingness to cooperate within OPEC and with Russia, agreeing to a production freeze. While the effects of the agreement may be limited in the short-term, there remains the possibility that it amounts to a confidence-building measure that could eventually lead to a real production cut.

Bahrain also saw its rating cut two notches, from BB to BBB-. That takes the Gulf state below investment grade. S&P cut Oman’s rating from BBB+ to BBB-; Kazakhstan’s rating dropped from BBB to BBB-; and Brazil’s fell from BB to BB+.

By Charles Kennedy of Oilprice.com

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