Confluence Consultants’ Post

𝑻𝒉𝒆 𝑮𝑪𝑪 𝑪𝒂𝒖𝒍𝒅𝒓𝒐𝒏: 𝑾𝒉𝒆𝒓𝒆 𝑩𝒖𝒔𝒊𝒏𝒆𝒔𝒔 𝒊𝒔 𝑩𝒐𝒐𝒎𝒊𝒏𝒈 𝒂𝒏𝒅 𝑮𝒆𝒐𝒑𝒐𝒍𝒊𝒕𝒊𝒄𝒔 𝒊𝒔 𝑩𝒐𝒊𝒍𝒊𝒏𝒈 The economic activity in GCC states like Saudi Arabia and the UAE sets them apart from the Middle Eastern stereotype of a conflict zone. In H1 '24, the UAE’s non-oil foreign trade reached AED1.395 trillion and in KSA, non-oil exports rose by 10.5% YoY in Q2 ‘24. 𝘏𝘰𝘸𝘦𝘷𝘦𝘳, 𝘵𝘩𝘦 𝘳𝘦𝘨𝘪𝘰𝘯 𝘤𝘰𝘯𝘵𝘪𝘯𝘶𝘦𝘴 𝘵𝘰 𝘣𝘦 𝘢𝘧𝘧𝘭𝘪𝘤𝘵𝘦𝘥 𝘸𝘪𝘵𝘩 𝘨𝘦𝘰𝘱𝘰𝘭𝘪𝘵𝘪𝘤𝘢𝘭 𝘩𝘦𝘢𝘥𝘸𝘪𝘯𝘥𝘴 𝘵𝘩𝘢𝘵 𝘱𝘰𝘴𝘦 𝘣𝘶𝘴𝘪𝘯𝘦𝘴𝘴 𝘳𝘪𝘴𝘬𝘴. 𝐄𝐬𝐜𝐚𝐥𝐚𝐭𝐢𝐨𝐧 𝐨𝐟 𝐈𝐬𝐫𝐚𝐞𝐥-𝐇𝐚𝐦𝐚𝐬 𝐂𝐨𝐧𝐟𝐥𝐢𝐜𝐭 The ongoing Israel-Hamas conflict continues to threaten regional stability and its attractiveness for foreign investment. It also curtails the normalisation of relations between the UAE/KSA and Israel. Since the conflict, UAE-Israel trade has cooled- from growth of 17% in 2023 to that of 7% in Q1 ‘24 YoY- despite a CEPA between the two countries. Red Sea disruptions have also affected GCC shipping. DP World has faced a 1.9% reduction in MENA container capacity, while Oman’s Port of Salalah reported a 16% decline. Disruptions are expected to continue into Q3 ‘24. For businesses in the region, shipping remains a critical area to navigate. 𝐒𝐮𝐩𝐞𝐫𝐩𝐨𝐰𝐞𝐫 𝐑𝐢𝐯𝐚𝐥𝐫𝐲 The rivalry between the US and China manifests itself through competition in GCC investment, especially across deep technology. Chinese companies and funds have a stake in the world’s largest solar projects in Mohammed bin Rashid Al Maktoum Solar Park and Noor Abu Dhabi solar plant, and in KSA’s prime Renewable Energy company ACWA. On the other hand, Abu Dhabi’s G42 sold its Chinese stakes in order to secure Microsoft’s $1.5bn investment. KSA’s King Abdullah University of Science and Technology is also collaborating with Google for AI research. The exchange of investment and knowledge is prevalent with both key partners, and balancing interests with them both is key to optimising returns from both relations.  𝐈𝐧𝐜𝐨𝐧𝐬𝐢𝐬𝐭𝐞𝐧𝐭 𝐎𝐢𝐥 𝐏𝐫𝐢𝐜𝐞𝐬 The price of oil is impacted by significant geopolitical incidents and reduced Chinese demand. KSA’s oil sales dropped to a 3-year low in June 2024, causing revenue-dependent projects to be delayed. Libya’s recent output cuts caused a 3% spike in the price of oil, but OPEC+ is due to make a decision on whether planned production cuts until 2025 will stay in place or be revised. The volatility of the market remains a key consideration for the GCC. 𝐔𝐒 𝐑𝐚𝐭𝐞 𝐂𝐮𝐭𝐬 US interest rate changes are mirrored by GCC banks to maintain the currency peg. The GCC financial sector has been strong in 2024 but a rate reduction would likely impact profitability. GCC banks must remain vigilant to interest rate shifts, often countered by shifting deposits to less rate-sensitive instruments. If you are a business in the GCC, let us know how you navigate these geopolitical risks.