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The UAE and the Gulf.. A Financial Stronghold

The current global economic landscape is beset by a confluence of acute geo-economic pressures, foremost among them the tension in the Strait of Hormuz and its direct repercussions on supply chains and energy and food markets.

Amid this escalation, widespread warning signs regarding global food security are emerging, driven by rising fertilizer and energy prices and disruptions to transportation and shipping systems, placing developing economies in particular at risk.

The Strait of Hormuz: A Food Lifeline Under Threat

An analysis indicates that the Strait of Hormuz is not only an energy corridor but also a key transit point for approximately 30 percent of global fertilizer trade, making it a direct threat to international food security. In the event of closure or disruption, UN warnings anticipate widespread disruption in the agricultural sector, with potential repercussions extending to global hunger levels.

According to available data, fertilizer prices have risen by about 50 percent since February 28, at a time when nearly one billion people depend on agriculture as their primary source of income. It is estimated that 45 million people are at risk of starvation, and another 32 million are at risk of falling into poverty as a result of rising food, energy, and shipping costs.

Energy, Supply Chains, and Delayed Price Reflection

In the context of energy markets, Abdo pointed out that the recent price increases have not yet been fully reflected in the prices of the end consumer due to the backlog of previous shipments that were en route to the markets. He noted that some shipments took approximately 40 days to pass through the Strait of Hormuz before arriving.

Imbalance Between Supply and Liquidity

He explained that the continued delays in new supplies, coupled with the reluctance of some countries to release their strategic reserves, will lead to continued upward pressure on prices, which will, in turn, affect global inflation rates.

Implications for Monetary Policy

This situation presents central banks with a double dilemma: whether to raise interest rates to curb inflation or keep them low to support growth, especially in economies dependent on globalization and global supply chains.

Gold: Between Temporary Liquidation and a Potential Structural Rise

Abdo believes the decline in gold prices stems from two main factors: the first is related to widespread selling to cover margin calls resulting from the global stock market downturn, and the second is linked to rising US Treasury yields, which have drawn some liquidity away from gold.

The Opportunity Cost of Gold

He pointed out that gold, despite its status as a safe haven, does not generate a financial return compared to US Treasury bonds, which offer around 4.4%, while holding it costs about 40 basis points annually, making it less attractive during periods of tight liquidity.

Strong Bullish Outlook

Despite the current pressures, Abdo predicted that gold could experience a strong upward surge, potentially reaching $5,000, and perhaps even $6,000, within 12 months, especially if the transition to a multipolar global monetary system accelerates.

Reshaping the Monetary System and the Dollar

Abdo addressed the renewed debate surrounding the future of the dollar, emphasizing that the global financial system still relies on it as a benchmark currency, despite geopolitical shifts. He pointed out that even China, despite its desire to reduce dependence on the dollar, recognizes the importance of its stability to avoid losing the competitiveness of its currency.

The Global Liquidity System

He explained that the dollar's strength lies in its role as a global liquidity tool during crises, a role that cannot be easily replaced if its dominance declines. This would make the global financial system more vulnerable to fragmentation in its absence.

The Gulf and the UAE: Financial Resilience and a Diversified Structure

In contrast to these pressures, the Gulf States model—specifically the UAE—stands out as a case with a higher capacity to absorb shocks, based on three key factors: financial capacity, political flexibility, and the efficiency of the financial system.

Figures indicate that the Gulf states possess sovereign assets estimated at approximately $5.3 trillion, equivalent to one-third of global sovereign assets, in addition to a projected size of around $4.1 trillion for the Gulf banking sector by 2025.

The region also holds approximately 32 percent of the world's oil reserves and one-fifth of its gas reserves, enhancing its ability to withstand market volatility.

In the same vein, statements by IMF Managing Director Kristalina Georgieva confirm that "the Gulf states will not break in this war," indicating the strength of their economic structure. Standard Chartered Bank also supports this view, considering the impact of shocks to be relatively limited thanks to financial reserves and economic resilience.

At the UAE level, the cost of mortgage financing stands out as an indicator of the efficiency of the financial system, as mortgage rates have recorded significantly lower levels compared to developed markets, enhancing the attractiveness of investment and the stability of long-term financing.

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