Listen to the article Audio text automatically generated by an automated system

0:00

2 minutes to read

The cost of borrowing for Middle Eastern governments has risen to its highest since October 2022, as investors demand higher risk premiums amid renewed confrontations between the United States and Iran and escalating geopolitical tensions in the region.

Indicators from JPMorgan showed that the average sovereign risk premium for countries in the region rose by about 20 basis points last week to 402 basis points above US Treasury yields, the highest level in about four years, contributing to the fastest increase since the beginning of the year since 2018.

The attractiveness of investment in the Middle East before the outbreak of the war was based on economic factors such as the real estate boom in Dubai and ambitious development plans under Saudi Vision 2030, but investors' decisions have become increasingly linked to geopolitical risks, according to Bloomberg, as seen by Al Arabiya Business.

For his part, Hasnain Malik, head of equity and geopolitical strategy for emerging markets at Tellimer, believes that investors were 'too optimistic' about the ceasefire agreement announced last April.

In recent days, rounds of confrontation between Iran and the United States have renewed, while Tehran resumed its attacks on ships transiting the Strait of Hormuz, raising fears of potential disruptions to oil exports and increased financial pressures on the region's economies.

Malik considered that Iran has imposed 'de facto control' over the strait, noting that the widening of risk premiums on sovereign bonds of Gulf Cooperation Council countries reflects these new realities.

Investors reduced risk premiums by more than half a percentage point in the two weeks following the initial ceasefire agreement in April, before they rose again as Washington and Tehran hardened their positions and competed to impose control over the Strait of Hormuz.

Dollar-denominated Middle Eastern bonds recorded the worst performance among emerging market debt since the start of the war, as regional governments had to offer an additional yield of 163 basis points to attract investors compared to other developing country bonds.

Advertorial

Advertorial

Read also

UK publishes update on Heathrow Airport expansion models Proposed measures include capital governance and stronger incentives for cost efficiency Tourism and Travel

After a 32-month peak, inflation in Italy slows to 3% in June Food and transport prices lead Italian inflation decline Economy

Delivery Hero agrees to acquisition offer from Uber at €41.5 per share Total deal value €13 billion Capital Markets