Middle East stocks face biggest drop since 2020 on back of Trump tariffs and oil drag

Baseline tariffs imposed by US have increased fears of global trade disruption and economic slowdown

Saudi Arabia's Tadawul stock exchange slid by as much as 6.1 per cent on Sunday, its worst showing since 2020. AFP

Stock markets in the Middle East suffered their worst rout in five years, dragged lower by slumping oil prices and investor concerns that new tariffs imposed by the administration of US President Donald Trump could disrupt global trade and stunt economic growth.

In Saudi Arabia, the Arab world's largest economy, the benchmark Tadawul index closed 6.78 per cent lower on Sunday, its worst performance since 2020.

Stocks slumped across sectors, most notably in energy, real estate, professional services and consumer-related services sectors. Shares in Saudi Aramco, the world's largest oil-exporting company, were down 4.75 per cent.

Bourses in Kuwait and Qatar also fell, with stocks in Kuwait slumping by 5.69 per cent and the benchmark index in Doha slipping 4.23 per cent at the close. Listed real estate and hospitality companies were particularly hard hit, with IFA Hotels and Resorts and Al Tijaria among the top losers.

In Egypt, the benchmark EGX 30 fell by 3.34 per cent and the EGX 70 dropped by 4.84 per cent.

The Abu Dhabi Securities Exchange and the Dubai Financial Market in the UAE are closed on Sundays. They shed 0.76 per cent and 1.51 per cent, respectively, at the close of trading on Friday.

The US imposed a sweeping “baseline tariff” of 10 per cent through an executive order on what Mr Trump called “Liberation Day” on Wednesday. The tariff came into effect on Saturday.

The six-nation GCC bloc – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE – along with Middle East and North Africa nations Egypt, Iran, Lebanon, Morocco and Yemen, all received the minimum 10 per cent tariff. Syria was the hardest hit at 41 per cent, followed by Iraq (39 per cent), Libya (31 per cent), Algeria (30 per cent), Tunisia (28 per cent) and Jordan (20 per cent).

“Stock markets have plunged since the announcement [of the tariffs] … and markets are pricing in more central bank cuts; any Fed cut will be mirrored by most GCC nations, given the dollar peg,” according to analysts at Nasser Saidi and Associates, a Dubai-based advisory company.

Ripple effects

The decline in Middle East stocks followed a similar slide in global equity markets, which plunged on Friday following the tariff announcements that increased fears of full-blown international trade war and the risk of a global economic recession.

Wall Street was hit hard, with the S&P 500 sinking 6 per cent, the Dow Jones Industrial Average falling 5.5 per cent and the Nasdaq composite dropping 5.8 per cent.

In Europe, France’s CAC 40 dropped 4.3 per cent, and Germany’s DAX lost nearly 5 per cent.

The UK's FTSE 100 slid on Friday in its worst day of trading since the start of the pandemic. London’s top stock market index dropped about 5 per cent, its biggest single-day decline since March 2020.

In Asia, Japan’s Nikkei 225 shed 2.8 per cent and South Korea’s Kospi dropped 0.8 per cent. Stock markets in Hong Kong and Shanghai were closed on Friday for a holiday, but were lower by 1.5 per cent and 0.2 per cent, respectively, at the close on Thursday.

Liberation Day “had its intended shock-and-awe effect … we will soon be hearing from companies to what extent they may be able to mitigate the announced tariffs, including price increases, rerouting supply chains, reducing the cost base, among others”, said Philipp Lienhardt, head of equity research at Swiss financial institution Julius Baer.

Oil on a slippery slope

The stock market rout coincided with a slump in oil prices. Crude has remained on a slippery slope during the past week, plunging to the lowest levels in more than three years on Friday, as China hit back against Mr Trump's tariffs with its additional levies on US goods.

Opec+'s surprise decision to boost oil supply added to the heavy selling.

That was a “very bad combo”, as the supply-demand fundamentals remain “comfortably negative”, said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, who also expects a further slide in crude prices.

“Obviously, the tariffs will hit the global oil demand much less compared to the pandemic. Yet the upcoming slowdown in global economic activity reinforces the probability of a further slide toward the $50-per-barrel level,” Ms Ozkardeskaya said.

Brent, the benchmark for two thirds of the world’s oil, closed down 6.5 per cent at $65.58 a barrel at the market close on Friday. West Texas Intermediate, the gauge that tracks US crude, was 7.4 per cent lower at $61.99 a barrel.

On a weekly basis, Brent was down 10.9 per cent, its steepest percentage loss in 18 months, while WTI posted its biggest drop in two years with a decline of 10.6 per cent.