Middle Eastern governments are finding it increasingly expensive to borrow money. The average sovereign risk premium for the region surged to 402 basis points over US Treasuries around July 16, hitting the widest level since October 2022. That means investors are demanding an extra 4.02 percentage points of yield just for the privilege of lending to these governments instead of parking cash in Treasuries.
A week that moved the needle
The trigger was specific and recent. On July 8, President Donald Trump issued a warning about potential breakdowns of the US-Iran ceasefire. Within a single week, spreads widened by approximately 20 basis points.
This pace of spread widening represents the fastest year-to-date increase since 2018.
The drivers extend beyond rhetoric. Renewed fighting between US and Iranian military forces, strikes on targets in the region, and escalating risks to energy infrastructure have all contributed to the repricing. The Strait of Hormuz, through which a massive share of global oil shipments pass, sits squarely in the danger zone.
