ISTANBUL
The chain effects of rising tensions in the Middle East resulting from the US and Israeli attacks on Iran and Iran’s retaliation have put pressure on the global economy while increasing risks as reflected in the stock market performance, monetary policies, and risk premiums of Gulf countries.
Tensions in the Middle East remained high on the 20th day, following US and Israeli attacks on Iran and Iranian retaliation.
Escalating tensions in the region through mutual moves gradually worsened, while targeting oil facilities in conflicts remained a major risk factor for the global economy.
With new attacks, optimism that the region’s tensions would be resolved in a short period of time faded, leaving questions about the possible long-term effects of the conflicts on economies.
Iran’s retaliation, targeting Gulf countries and strategic facilities, has a direct impact on market dynamics.
Serious fluctuations occurred in the markets of Gulf countries with the increasing risk perception, while sharp increases stood out in country risk premiums.
Risk premiums in prominent Gulf countries such as Saudi Arabia, Qatar, the UAE, Bahrain, Oman, Iraq, and Kuwait have increased significantly since the attacks began on Feb. 28.
Iraq’s risk premium rises sharply
Looking at the climb in the five-year credit default swaps (CDS) of the countries in this period, Iraq experienced the sharpest increase.
The country’s risk premium increased by approximately 140 basis points to 392.
Bahrain’s risk premium increased by 84 basis points to 297, while Qatar’s risk premium moved up by 13 basis points to 45 in the same period.
Risk premiums increased by 12 basis points to 46.1 in the UAE, by 10 basis points to 59 in Kuwait, and by seven basis points to 92 in Oman during this period.
Saudi Arabia’s risk premium dropped by approximately two basis points to 80.4 in this process.
Analysts said Saudi Arabia experienced relatively less impact from this situation thanks to its strong foreign exchange revenues.
UAE markets fall the most in Gulf states
Stock markets in the Gulf followed a mixed trend, while the UAE stock exchange became the one that fell the most since the beginning of the conflicts that started with the US and Israeli attacks on Iran and spread to other countries in the region.
Since the beginning of the conflicts, the Oman stock exchange has increased by 5%, the Iraq stock exchange by 2.7%, and the Saudi stock exchange by 2.2%.
The UAE stock exchange dropped 14.7%, the Bahrain stock exchange fell 7.5%, the Qatar stock exchange went down 6.9%, and the Kuwait stock exchange lost 1.2% during this process.
Shares of petrochemical and energy companies in the region, following a mostly positive trend in parallel with the rise in oil prices, slowed the decline in the indices.
Selling pressure continued to be effective in the markets in the UAE, Bahrain, Qatar, and Kuwait, where intense airstrikes took place.
Concerns about the country’s security prompted a drop in real estate and investment company shares on the UAE stock market.
Since the war began on February 28, the real estate sector index in the country’s market has fallen by 24.2%.
The Gulf region’s markets were closed on Wednesday, March 18, for the Eid al-Fitr holiday. However, airstrikes on energy facilities and lines, which intensified following market closures, were not yet priced into regional markets.
UAE, Kuwait central banks give message of resilience
Targeting some oil facilities in the conflicts and slowing down maritime traffic in the Strait of Hormuz, which has critical importance for oil shipments, increased energy costs and fueled global inflation risks upwards.
These developments highlighted assessments that central banks would take policy steps considering inflation risks.
The Central Bank of the UAE (CBUAE) and the Central Bank of Kuwait (CBK) announced that their banking systems remained resilient.
The CBUAE approved the “Financial Institutions Resilience Package,” which is supported by the central bank’s one trillion dirhams ($270 billion) asset and aims to strengthen the banking sector’s stability in the face of exceptional conditions in global and regional markets.
A meeting held on March 17 under the chairmanship of CBUAE Board Chairman Sheikh Mansour bin Zayed Al Nahyan noted that the UAE’s financial system showed resilience in the face of extraordinary conditions affecting global and regional markets, adding that there has been no significant impact on the health of the banking sector and payment systems.
The five main pillars of the package aim to increase banks’ access to monetary liquidity and flexibility to support the UAE economy.
Managing foreign exchange reserves exceeding one trillion dirhams ($270 billion) and a monetary base coverage ratio of 119%, the bank confirmed the strong fundamentals of the UAE’s 5.4 trillion dirhams ($1.47 trillion) banking sector.
The CBK, on the other hand, stated that it is closely monitoring regional geopolitical developments and that the Kuwaiti banking sector is operationally ready and resilient.
A statement from the Central Bank emphasized that local banks continued to provide all banking services efficiently and reliably, even under current conditions.
The statement said this success resulted from banks strengthening their risk management systems, developing business continuity and emergency plans, improving their digital infrastructure, and conducting regular exercises simulating possible scenarios in line with the Central Bank’s directives.
Goldman Sachs forecasts contraction for Qatar and Kuwait economies
Tensions in the Middle East threatened global growth by increasing concerns about oil supply, while current tensions could lead to a contraction in the economies of Gulf countries as oil remained one of their main export items.
Goldman Sachs, one of the major US banks, projected that the economies of Qatar and Kuwait could face a 14% contraction as oil shipments would decrease in a scenario where the Strait of Hormuz remained closed for two months.
