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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
Ceasefire eases oil market jitters, shifts focus to oversupply risks. Oil prices dropped sharply after President Trump announced a tentative ceasefire between Iran and Israel, easing fears of a prolonged conflict that could disrupt Middle East oil supplies. Brent crude fell nearly 5% to around USD68/b before recovering slightly. The reduced geopolitical risk is shifting market focus back to fundamentals, with expectations that global supply will exceed demand in the second half of the year due to rising OPEC+ output. Lower oil prices may help ease inflationary pressures and support potential interest rate cuts by central banks.
Gold slips as ceasefire tempers geopolitical fears. Gold fell as haven demand eased following President Trump’s announcement of a ceasefire between Israel and Iran. Spot gold dropped 0.5% to around USD3,353/oz after earlier dipping below USD3,350. Gold had surged 28% this year due to geopolitical tensions, economic worries tied to Trump’s tariffs, and strong central bank buying. Markets now await Fed Chair Powell’s testimony for clues on potential rate cuts, which could impact gold further.
Gold/oil ratio surge flags investor caution. The gold/oil ratio has spiked to 40-50, well above its historical average of ~20, as gold outperforms oil amid rising geopolitical tensions and sluggish energy demand. This divergence signals market caution and may suggest a coming mean-reversion if conditions stabilise.
MIDDLE EAST - CREDIT TRADING
End of day comment – 23 June 2025. With the US strikes on Iranian nuclear sites over the weekend, the market took a bit of time in the morning to get going. It was clear though from the macro moves in early Asian hours that the reaction was looking muted. And indeed it was for GCC bonds as well. What is however more surprising is the fact that whilst we saw a selling overhang from Wednesday to Friday last week the flows today were pretty balanced. To be sure the grind wider in spreads continued, but with the sorts of UST moves we saw in the afternoon that is not unusual. IG sovereign going out 5bp wider on average, Qatar sovereign bonds still a touch heavier than ADGB across the curve. In higher beta credits, OMAN continues to show relative strength to other credits. Today it was led by a squeeze in 29s (+0.5pt/-1bp) which led to buying in 31s and 32s and generally supported the entire curve. DPWDU saw first buyers coming in in the afternoon, but still closed around 5/8bp wider, 35s at these levels are attracting retail interest though. Market will remain headline driven, and the response from Iran is still outstanding. Qatar closed pre-emptively its air space. Overall though the muted reaction from today suggests positioning is neutral.
MIDDLE EAST - MACRO / MARKETS
Oman becomes first Gulf state to introduce income tax. Oman has announced it will introduce income tax starting in 2028, becoming the first Gulf Cooperation Council (GCC) country to do so. The 5% tax, starting in 2028, will apply only to annual incomes above OMR42,000 (USD109,000), affecting the top 1% earners. The Minister of Economy stated it will reduce reliance on oil while preserving social spending. The move marks a significant fiscal shift in a region known for tax-free income and may influence other GCC states facing long-term pressures to broaden their revenue base amid evolving global energy dynamics. The IMF has previously suggested that Gulf countries may need to adopt broader taxation to maintain fiscal health in the face of future oil demand uncertainty.
Kuwait seeks to raise USD6bn in international bonds. Kuwait has begun contacting banks to arrange a USD6bn dollar-denominated bond issuance for the fiscal year ending March 31, 2026, its first international debt sale since 2017. This is part of a broader plan to raise up to KWD6bn (~USD20bn) via domestic and global markets to fund development projects under a new five-year strategy. The move follows the March 2025 approval of long-delayed legislation allowing Kuwait to issue international debt, with a ceiling of KWD30bn over 50 years. Separately, the finance ministry is working to raise KWD500 million locally. Faced with budget deficits, Kuwait has been drawing on its General Reserve Fund, even selling assets to the Future Generation Fund, both managed by the Kuwait Investment Authority. Despite low external debt, Kuwait holds an A1 credit rating and a USD1 trillion sovereign wealth fund.
