To read the full report, please download the PDF above.
Middle East Daily
SOOJIN KIM
Research Analyst
DIFC Branch – Dubai
T: +44(4)387 5031
E: soojin.kim@ae.mufg.jp
MUFG Bank, Ltd. and MUFG Securities plc
A member of MUFG, a global financial group
Middle East Daily
COMMODITIES / ENERGY
Oil steadies as Venezuela risk meets growing supply glut. Oil prices stabilised after their biggest gain in a week as markets balanced short-term geopolitical risk tied to Venezuela against persistent concerns over a swelling global supply glut. Brent crude hovered near USD62/b after jumping 1.7% previously, when the US capture of President Nicolas Maduro briefly injected a risk premium and lifted shares of US oil companies on hopes of a longer-term revival of Venezuela’s energy sector. However, Venezuela now accounts for less than 1% of global output, limiting the likelihood of lasting supply disruption, while excess supply has already pushed Saudi Arabia to cut crude prices to Asia for a third month. While Chevron remains the only US major operating in Venezuela under special permission, US officials, have signalled discussions on rebuilding the sector, even as hedge funds increased bullish crude bets ahead of the US intervention.
Gold steadies as focus shifts from Venezuela tensions to US data. Gold prices stabilised near USD4,440/oz as investors looked past geopolitical tensions in Venezuela and turned their attention to a heavy state of US economic data. Gold had surged 2.7% in the previous session following the US capture of President Nicolas Maduro and renewed uncertainty after President Trump said US plans to “run” the country. Market focus is now shifting to signals on US monetary policy, with Fed Minneapolis President Neel Kashkari noting that interest rates may be near neutral and future moves will depend on incoming data. Gold is coming off its strongest annual performance since 1979, but in the near term, gold prices may face pressure from commodity index rebalancing that could prompt passive funds to trim positions following last year’s record-breaking rally.
MIDDLE EAST - CREDIT TRADING
End of day comment – 05 January 2026. Whilst global risk markets started the year firmly on the front foot, my GCC space had a mixed start. For one, it didn't took long for new issues to get announced, KSA, MEX, CHILE, SLOVENIA in EM sovereign, DHAFRAH, ALDAR, KFH, EIBUH in GCC fins/corps makes for a brisk primary market start this year. Add to that sellers of long end bonds mostly via ETF outflows and secondary markets had overall a weak feel. Sellers outnumbered buyers by nearly 2:1 at eod. Some higher beta names outperformed where the market isn't expecting imminent supply, such as new SHARSK 36s closing +0.375pt/-2bp. But in general spreads close 2/3bp wider with most cash prices unchanged. Bonds lower in cash price today are selected IG long end bonds, like ADGB 54s (-0.125pt/+3bp) or ADQABU 54s closing also -0.125pt/+3bp. Much will now depend how new issues price and perform in the secondary, especially since the recent new issues of the last 2/3 months performed poorly in the secondary. New KSA tomorrow should give a good first idea of the market temperature.
MIDDLE EAST - MACRO / MARKETS
Bank of Israel delivers surprise rate cut as inflation eases. The Bank of Israel (BoI) unexpectedly cut its policy rate by 25bps to 4.0%, citing a more favourable inflation environment, s stronger shekel, easing labour market constraints, and a normalisation of Israel’s risk premium, even as it maintained cautious forward guidance. Governor Amir Yaron stressed that while inflation has moderated, risks of renewed price pressure persist, keeping the future rate path gradual. Updated BoI staff forecasts show a stronger growth outlook, with GDP growth revised up to 2.8% in 2025 and 5.2% in 2026, alongside a sharp downward revision to inflation expectations, now seen at 2.5% in Q4 2025 and 1.7% in Q4 2026. The BoI expects disinflation to be supported by a stronger currency, lower energy prices, and easing global inflation, and now sees the policy rate falling to 3.5% by Q4 2026. While risks remain balanced, ranging from faster demand growth or fiscal uncertainty to geopolitical developments, the BoI noted that a diplomatic breakthrough, including a possible expansion of the Abraham Accords, could improve the outlook, albeit cautious, rate cuts ahead.
Turkey inflation eases further, supporting continued rate cuts. Inflation in Turkey slowed for a third straight month in December, reinforcing expectations that the Central Bank of the Republic of Turkey (CBRT) can stay on its easing path into the new year. Annual inflation fell to 30.9% y/y in December from 31.1% y/y in November, slightly below market expectations, while monthly price growth held at a subdued 0.9%, helped by declines in clothing and transportation costs, despite a 2% rise in food prices. Core inflation eased to 31.1%, its lowest level in four years, signalling gradual but ongoing disinflation. Markets reacted positively, with five-year government bond yields falling to 32.94%. While inflation could slow further in January due to modest tax hikes, uncertainty remains around the pace of easing, particularly after the government raised the 2026 minimum wage by 27% and as policymakers target an ambitious year-end inflation goal of 16%.
