Oil market buffers are “dangerously low,” IMF says

Oil prices have broadly held steady throughout the US-Iran war, but the buffers that absorbed the shock are now running dangerously low, the IMF said on Wednesday. Compression of demand, increased production outside the Gulf, and strategic reserves or commercial inventories all acted as cushions — and all three are now flat.

Demand compression carried most of the load, mostly in Asia, as pricier barrels pushed importers toward coal and renewables. Production outside the Gulf climbed nearly 2 mn bbl / d above 2025 levels, led by the US, Venezuela, Guyana, and Russia. The leftover gap, a deficit of c. 4 mn bbl / d between March and May, was filled almost entirely by draining inventories.

What’s next: Watch whether producers use any lull to rebuild inventories rather than bank the revenue — that's the single variable that decides how hard the next disruption hits.

Surprising exactly nobody, the region’s 2026 just got marked down again: Most GCC economies will contract more sharply this year than forecast three months ago before rebounding in 2027, according to a Reuters poll of economists out late yesterday, as hopes fade that the war will soon end.

Kuwait and Qatar took the deepest downgrades — the poll sees both economies shrinking 8.1% this year. The UAE will hold steady (-0.5%), respondents said,while Saudi (+1.4%) and Oman (+3.1%) will both eke out some growth.

Bond investors understand the calculus: The average sovereign risk premium across Middle Eastern governments jumped roughly 20 bps to 402 bps over Treasuries in the week since the ceasefire broke down, Bloomberg reports — the widest in almost four years, and on pace for the fastest YTD widening since 2018.

Saudi Arabia’s Investment Ministry has begun registering Egyptian contractors, a step toward licensing them to bid on infrastructure projects under the Kingdom’s Housing Ministry. The Investment Ministry is working with the Egyptian Federation of Construction Contractors to facilitate the move, our Egypt desk reports. The target client is Saudi’s National Housing Company, which wants large Egyptian names to bid, including Orascom, Hassan Allam, and Arab Contractors. The move also opens the door for “thousands of smaller firms” to bid as well, Youssef says.

REMEMBER- Egyptian contractors, pressured by high domestic interest rates, slow payments, and a drying up of work, are increasingly taking on work across the Red Sea. Youssef says 25 firms have already qualified to bid on the National Housing Company's SAR 200 bn (c.USD 53 bn) project pipeline.

Why it matters: Financing, not qualification, is the sector’s bottleneck. Outside a few giants that can self-fund, Egyptian firms struggle to get bank guarantees for work abroad — and even the Saudi branches of National Bank of Egypt and Banque Misr operate only as accounting units there, not lenders that can serve Egyptian companies, Youssef says. Saudi banks issue guarantees to firms with a long Kingdom track record but require 60% of the value as cover, against roughly 10% at home — six times the cash tied up for the same guarantee, squeezing the liquidity left for more work.

Sign of the times

Back on the no-fly list: The European Union Aviation Safety Agency (EASA) has advised its regulated carriers and non-EU airlines operating to and from the bloc under its authorization not to fly at any altitude through the airspace of Bahrain, Kuwait, Qatar, and the UAE, according to a bulletin. The warning also covers the Gulf of Oman and will remain valid through 29 July unless reviewed earlier.

The warning has teeth this time: The EU aviation safety regulator had withdrawn its broader regional bulletin on 8 July after the ceasefire temporarily lowered the threat level, replacing it with a lower-level note that only asked airlines to exercise caution over the Gulf states. The current warning recommends avoiding the affected airspace altogether, citing the risk of missile and drone overflights, interception activity, falling debris, and civil aircraft being misidentified by air-defense systems operating with little or no warning.

The bulletin doesn’t close the region’s skies itself, but it could sharply constrain Europe-Asia connectivity. European carriers have already cut several destinations and are increasingly steering around higher-risk zones, reducing the number of viable routes linking Europe with Asia, Bloomberg reports.

PARTING SHOT- Former DP World boss Sultan Bin Sulayem has washed ashore in Malaysia, where he’s running MMC Port Holdings, the country’s largest port operator, according to Reuters. Bin Sulayem stepped down from DP World in February after featuring prominently in the Epstein Files released by the US government.