Good morning, wonderful people. It’s a relatively quiet Monday morning, though it’s unclear if that’s because we’re collectively holding our breath for the next round of tit-for-tat with the Houthis, or because of a natural slowdown ahead of the National Day holiday later this week.

Beyond the latest with the ongoing fighting with the Houthis — which we get into below — the theme of the morning is substitution, and the inability to price anything amid uncertainty over how long the conflict will last. This runs through the real estate market, where households and companies are signing leases instead of buying, Saudis are taking their holidays at home instead of abroad, and crude is moving under escort rather than under normal conditions.

Yanbu in the crosshairs

Houthi militants targeted Yanbu and Riyadh yesterday, using ballistic and cruise missiles and drones to cause large fires at the targeted sites, according to Houthi military spokesman Yahya Saree. The group targeted Aramco’s facilities in Yanbu as a response to Saudi Arabia’s 732 airstrikes against them so far, Saree said.

The Kingdom prevented other attacks on various civilian targets: Saudi air defense intercepted a ballistic missile launched toward the capital yesterday, according to a statement. The Houthis also attempted to target civilians and civilian infrastructure in Baish, Taif, Farasan, and Yanbu, but the attacks were thwarted, the statement said.

The continued attacks prompted the US State Department to issue a level 3 travel warning on Saudi Arabia, advising its citizens to “reconsider travel … due to risk of Iranian drone and missile targeting of American interests, armed conflict, terrorism, exit bans, and local laws regarding social media activity.” The advisory also includes a level 4 warning — a ban on travel — on Saudi Arabia’s border with Yemen.

ICYMI- The Houthis said they hit “sensitive” sites in Riyadh with missiles and drones over the weekend, hours after a fire broke out near Riyadh’s main airport and reports of explosions in the Olaya district.

Strait recovery?

Washington says oil is moving through the Strait of Hormuz again. Crude, cargo, and LNG through the strait hit a six-month high over the past two weeks, US CENTCOM Commander Admiral Brad Cooper said (watch, runtime: 1:53) with GCC countries moving more than 1 bn barrels over the past two months. He credited US naval escorts and mine clearance, and said Iran “has exported zero barrels” under a US blockade — a claim Tehran disputes, maintaining the strait is closed. Washington is working with GCC states, shippers, and insurers to push volumes higher, Cooper added.

ICYMI- Saudi Arabia is rerouting its oil exports back through the Gulf to cover the gap left by the strike on the East-West pipeline. Aramco has sold roughly 60 mn barrels from Ras Tanura for ship-to-ship transfer off Sohar, Oman, this month and the next, lifting the company’s Gulf exports back to 1-1.5 mn bbl / d, in line with or slightly above August levels.

Stepping off the mBridge

Saudi Arabia has left mBridge, the China-led platform built to let central banks settle cross-border payments directly in their own digital currencies, bypassing the USD as an intermediary. The Saudi central bank (Sama) withdrew last year after completing its proof of concept, ending its formal participation, the Financial Times reports. A person familiar with the matter said it would be inaccurate to draw wider conclusions from the decision given the Kingdom’s limited involvement, and that geopolitics did not drive it.

From pilot to exit: Sama joined mBridge as an observer in 2023, alongside participants China, Hong Kong, Thailand, and the UAE under the Bank for International Settlements. It helped develop the platform’s minimum viable product and proof of concept in 2024, then said it was no longer a participating member.

Sama isn’t the first to walk: The Bank for International Settlements exited in October 2024, with then-general manager Agustín Carstens saying the institution had “graduated out” of the project rather than leaving over failure or politics. mBridge has since moved toward commercial rollout, with the Monetary Authority of Macao joining and going live on 3 June, completing 23 transactions on day one.

Eyeing Nomu

Spimaco is moving to float part of its hospital unit on the Nomu. Shareholders of Qassim Medical Services — the healthcare arm 57.23%-owned by Saudi Pharma Industries and Medical Appliances (Spimaco) — have approved offering and listing a portion of the company's shares on the Nomu parallel market, Argaam reports, citing a Tadawul filing.

It’s early days: The offering is at an initial stage and still needs the necessary regulatory sign-offs. Spimaco gave no size, price, or timeline.

KSA, UAE already seeking contractors for Hormuz workaround

The KSA and UAE could lean on India’s EIL for consultancy work for Hormuz workarounds: State-run Engineers India Ltd (EIL) is in early-stage talks with Saudi Arabia and the UAE for consultancy and engineering mandates as the two countries look to cut their reliance on the Strait of Hormuz. The Gulf producers are planning about USD 1 bn in pipelines, storage facilities, and export terminals to build out alternative routes for crude and petroleum products — and EIL wants a piece of the design and feasibility work that comes with it, The Hindu reports, citing chairman and managing director Atul Gupta.

Another workaround is on the mend: Saudi Arabia aims to restore about half the East-West pipeline’s capacity within days following recent drone strikes. While full repairs could take five to six weeks, the pipeline remains critical as the Kingdom’s primary export alternative to the high-risk Strait of Hormuz.

Paramount edges closer to settling Warner Bros. merger

Paramount is working on reaching a settlement for the US antitrust lawsuit threatening its USD 110 bn Warner Bros. Discovery takeover, sources told Reuters. As it stands, California and 11 other states are seeking to block the merger over competition concerns, putting an agreement backed by nearly USD 24 bn in commitments from Saudi Arabia’s Public Investment Fund, Abu Dhabi’s L’imad, and the Qatar Investment Authority in limbo. The Gulf funds are set to hold minority, non-voting stakes in the combined company.

What could get the agreement over the line? The parties are discussing independent monitoring of CNN’s content and commitments on theatrical releases. Paramount has pledged to release 30 films annually, but one California attorney said structural remedies, such as asset sales, are preferable to promises about future conduct. Settlement talks also reportedly include the possibility of imposing a USD 30 mn fee on the company per film short of its pledge, Bloomberg reports, citing two sources familiar with the negotiations.

The clock is getting expensive: Paramount faces USD 7 mn in daily delay payments after 30 September. We reported in July that the lawsuit had pushed the takeover’s closing deadline to June 2027. The UK has since cleared the takeover after receiving assurances, but a settlement with the US states would not automatically resolve a separate challenge brought by the Writers Guild of America.

Data point

4.9% — that’s how much Saudi Arabia’s Operating Revenues Index rose y-o-y in July, according to Gastat. The annual increase was driven mainly by gains in manufacturing (13.5%), wholesale and retail trade and motor vehicle repair (0.8%), construction (1.6%), financial and ins. activities (9%), and information and communication activities (6.5%).

ALSO- The Employees Compensation Index climbed 7.4% y-o-y, while issued building permits grew 4.4% y-o-y.

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The big story abroad

Major US banks project that the federal government will issue as much as USD 1 tn in short-term Treasury bills in the coming year, amid efforts by Treasury Secretary Scott Bessent to limit surges in long-term rates. This reliance on short-dated debt may expose Washington to increased financial risk if interest rates continue to climb, with borrowing costs reaching their highest level since 2007.

On the geopolitical front: The Trump administration is seeking to slap the International Criminal Court (ICC) with sweeping sanctions, aiming to prohibit most transactions with the institution after a grace period of six to seven months. Washington’s retaliatory action against the ICC — prompted by its arrest warrant for Israeli Prime Minister Benjamin Netanyahu — could be finalized during or shortly after this week’s UN General Assembly.

Takeover of Aussie developer falls short: Sydney-based property group Ingenia has turned down a USD 1.5 bn takeover bid by private equity giant Warburg Pincus on account of the proposal undervaluing the firm. The sweetened bid — at AUD 5.05 per share — followed an earlier proposal that valued the firm at AUD 4.75 per share.