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 extends rally as US-Iran conflict threatens Hormuz shipping. Oil prices climbed further, with Brent rising above USD79/b and WTI approaching USD74/b, after the US launched another round of strikes against Iranian targets, intensifying concerns over Middle East oil supplies. Iran declared the Strait of Hormuz closed “until further notice”, although US and regional maritime authorities said the waterway remains partially operational. Tanker traffic through the strait fell to near standstill, while Kuwait reported damage to an offshore drilling platform, marking one of the first direct attacks on regional energy infrastructure in weeks. The renewed escalation has revered hopes for a lasting peace agreement and reintroduced a significant geopolitical risk premium into oil prices. Unless shipping through Hormuz normalises quickly, the market is likely to remain highly sensitive to any further attacks on energy infrastructure, with a broader disruption to Gulf exports posing the main upside risk to crude prices.

Gold falls as Middle East tensions reinforce higher for longer rate expectations. Gold prices declined, with gold falling to around USD4,050/oz, as renewed US-Iran military strikes drove oil prices higher and reinforced expectations that the Fed may keep interest rates elevated for longer to contain inflation. The latest escalation, including uncertainty over shipping through the Strait of Hormuz, pushed US Treasury yields and the dollar higher, adding further pressure on non-yielding precious metals, while silver fell more than 3%. Investors are now focused on upcoming US inflation data and Fed Chair Kevin Warsh’s congressional testimony for further signals on the interest rate outlook. With geopolitical tensions now feeding into inflation expectations, gold’s near-term performance is likely to depend more on the Fed’s policy response than on safe-haven demand alone.

MIDDLE EAST - MACRO / MARKETS

Fitch affirms Saudi Arabia’s ‘A’ rating with stable outlook. Fitch Ratings affirmed Saudi Arabia’s ‘A+’ rating with a stable outlook, citing the Kingdom’s strong fiscal and external balance sheets, sizeable foreign assets, and resilient banking sector, despite elevated regional geopolitical risks. Fitch noted that Saudi Arabia’s economy and public finances have remained resilient through the recent US-Iran conflict, supported by the East-West pipeline, which helped sustain oil exports during the disruption in the Strait of Hormuz. The agency expects GDP growth to slow to 0.6% in 2026 due to temporary trade disruptions before rebounding in 2027 as oil and petrochemical exports normalise and major Vision 2030 projects continue to support non-oil activity. While Fitch projects government debt to rise gradually and lower oil prices to widen fiscal and currency account deficits over the medium term, it expects Saudi Arabia’s fiscal and external metrics to remain significantly stronger than those of similarly rated peers. Overall, the affirmation reinforces confidence in Saudi Arabia’s credit fundamentals, although maintaining fiscal discipline and advancing economic diversification will become increasingly important as oil prices normalise and borrowing gradually increase.

US eases AI export restrictions for the UAE. The US has eased export restrictions on the UAE, allowing the government and approved entities, including G42, Core42, and MGX, to purchase advanced US technologies, including AI chips from Nvidia and AMD, without requiring individual export licenses. The decision reflects closer US-UAE strategic cooperation, including the UAE’s support during the recent Iran conflict, and is expected to accelerate the country’s ambition to become a global AI and technology hub. The policy also expands opportunities for partnerships with major US technology companies, including OpenAI, Microsoft, Oracle, Google, Amazon, Apple, Meta, and xAI, while easing restrictions on other high-tech exports such as satellites and civilian nuclear technologies. The move marks a significant depending of US-UAE technology ties and is likely to boost AI infrastructure investment in the UAE, although concerns over technology security and potential access by China are expected to keep the policy under close scrutiny in the US.

Iraq to deepen US energy cooperation during Washington visit. Iraq is expected to sign several energy and oil agreements with the US during Prime Minister’s visit to Washington, as Iraq seeks to deepen economic and strategic cooperation with its largest international partner. The discussions are expected to cover new oil and gas projects involving US companies, initiatives to increase Iraq’s production capacity, and the development of alternative export routes to reduce the country’s heavy reliance on the Strait of Hormuz. The two sides will also discuss establishing a joint investment fund backed by revenues from Iraqi oil exports to the US, with proceeds directed toward infrastructure, electricity, and other development projects involving American firms. Beyond the energy sector, the visit will focus on expanding bilateral trade, investment, and broader economic cooperation. The planned agreements underscore Iraq’s strategy to attract greater US investment, diversify its export infrastructure, and strengthen energy security while advancing its long-term ambition to expand oil production and reduce vulnerability to regional supply disruptions.