As tensions escalate in the Middle East, stock markets in the region are feeling the impact. Recent data shows that the main exchange in Saudi Arabia experienced a staggering decline of 6.1%, while the indices in Qatar and Kuwait saw drops exceeding 5.5%. Meanwhile, equities in Tel Aviv suffered their most significant loss since October 2023, a month marked by the onset of the ongoing conflict in Gaza triggered by a shocking attack from Hamas.
Regional Stock Market Downturn
All four major stock markets were closed on Friday, reflecting investor apprehension amid geopolitical turmoil. Saudi Aramco, recognized as the largest oil exporter globally, was notably affected, with its market valuation plummeting by over $90 billion at one point. The ripple effects from a global market decline that began last week, following US President Donald Trump’s imposition of the highest tariffs in over a century, have intensified concerns.
- Key Stock Market Declines:
- Saudi Arabia: -6.1%
- Qatar: -5.5%
- Kuwait: -5.5%
- Tel Aviv: Significant drop since October 2023
Global Trade Tensions
Investor anxiety is compounded as China retaliated with its own tariffs, raising fears of a full-blown trade war that could disrupt supply chains and hinder economic growth. Fadi Arbid, the founding partner and chief investment officer at Amwal Capital Partners Limited, emphasizes that the Gulf Cooperation Council (GCC) stock markets are closely tied to global sentiment. Historical patterns demonstrate that downturns like the global financial crisis and COVID-19 significantly influenced regional markets.
Oil Price Concerns
Adding to the uncertainty, the potential for prolonged lower oil prices poses a threat to the economies of the Middle East. Brent crude oil prices plummeted 13% recently as OPEC announced plans to increase supply significantly more than previously anticipated in May. Many Middle Eastern economies, reliant on high oil prices to support their budgets and investment strategies, are now at risk.
- Oil Price Requirements:
- Saudi Arabia: Needs oil prices above $90 per barrel
- Iraq: Requires prices above $90 per barrel
- Kazakhstan: Needs prices exceeding $115 per barrel
Economic Implications
The decline in oil revenues has already strained finances in Saudi Arabia, leading to budget deficits and adjustments in spending related to Crown Prince Mohammed bin Salman’s ambitious diversification plans. A continued drop in oil prices could seriously hinder regional economic transformation and investments in mega projects, particularly within Saudi Arabia.
While Arbid does not anticipate a significant impact from the 10% tariff imposed by the US on GCC nations, he acknowledges that the political bond between the US and these countries remains robust.
Diplomatic Developments
Looking ahead, President Trump is scheduled to meet with Israeli Prime Minister Benjamin Netanyahu in Washington to explore potential tariff adjustments. Additionally, Trump plans his first international visit since resuming office in January, which is expected to include a trip to Saudi Arabia.
As the situation evolves, stakeholders in the region are closely monitoring both economic indicators and diplomatic negotiations that could shape the future landscape of the Middle Eastern markets.
