Nearly six months since the start of the Iran war, Gulf countries have weathered serious attacks on their infrastructure. This dynamic has increased talk about the sustainability of the business models of Gulf Coordination Council (GCC) countries, which have thrived on the idea that they are safe places where the world can come together to do business. And yet, their bond markets have held up relatively well in the face of missiles and drones. To dig into the reasons for this, we turned to Eric Fine, a nonresident fellow in the MENA Futures Lab and an experienced investor in emerging market debt. Below, he answers seven burning questions about GCC debt and borrowing.
1. How has the Iran war impacted the GCC bond market?
Core GCC countries (Saudi Arabia, Kuwait, the United Arab Emirates, Qatar) all saw spreads grind higher, but not enough to become a “screaming buy” opportunity. The GCC stalwarts saw their credit spreads (the difference between their bond yields and certain benchmarks) languish in the war—they are torn between their credit strength and the profound challenges they face as a result of the Iran war. More precisely, the first several weeks after the start of the war on February 28 saw these spreads reluctant to budge or even tightening, reflecting market confidence. As the markets absorbed the war news, these spreads started widening slightly, but not a lot (see chart below). As a result, they remain in between two worlds—one world pricing their current credit risk, the other worrying about longer term questions.
