GCC 2Q earnings to show Iran war’s financial impact

GCC firms’ 2Q earnings will provide the strongest signal yet of the Iran war’s financial impact. The forecasted sectoral breakdown displays mixed results, with oil and gas and telecoms set to weather the geopolitical storm, while property markets and consumer-facing sectors such as retail and tourism are expected to bear the brunt, Reuters reports.

Oil and gas earnings are expected to remain resilient for now, as higher energy prices offset lower volumes caused by disruption. These elevated prices might change, however, during the second half of this year if the tensions ease and Gulf oil exports normalize.

REMEMBER- Gulf crude exports continued to recover in June, reaching at least 75% of pre-conflict levels as loadings resumed at Ras Tanura, Aramco's main Gulf export terminal. Saudi shipments from the Gulf climbed to 4.45 mn bbl / d, their highest since the war erupted in late February, but remained below pre-war levels.

MEANWHILE- Telecom operators are also set to deliver robust results, benefiting from long-term contracts and inelastic demand. Still, consumer-facing sectors, including retail and tourism, are likely to reflect the impact of the conflict, although higher at-home consumption benefited some companies.

Banks are predicted to post single-digit q-o-q income declines, according to EFG Hermes, reflecting weaker trade finance activity and lower international travel-related card spending. The comparison is also affected by a strong 1Q that included two largely pre-conflict months. Despite slower growth, lenders remain well-capitalized with ample liquidity, with some UAE banks attracting deposits by raising rates for new savers.

The prolonged tension is the greatest threat to the regional property markets: The UAE's property market is displaying signs of strain after years of rapid growth, with analysts warning that prolonged tensions could weigh on expatriate inflows and tourism-driven demand. Some developers have responded by reducing or delaying dividend payments to preserve liquidity.

Some execs believe the markets will absorb this shock: FIM Partners CIO Francesc Balcells struck a more optimistic tone, saying some developers had underperformed, but regional credit spreads had largely normalized. “It is just an issue of balance sheets,” he said. “These guys have very strong balance sheets, so they can withstand big shocks like this.”

The economic impact varied across the region, depending on the countries’ reliance on the strait. Saudi’s economy is expected to grow by 2.1% in 2026, due to its Red Sea export infrastructure, according to HSBC, with the IMF expecting its real GDP growth to reach 6.8% in 2027. The UAE, Qatar, and Kuwait, which rely more heavily on the strait, are expected to contract.

The strait is unlikely to return to normal anytime soon. Regional growth projections across most sectors hinge on the outcome of US-Iran negotiations, with a lasting de-escalation needed to restore shipping through the strait to pre-conflict levels. This seems unlikely at the moment, with Trump saying last week that the ceasefire collapsed, while Iran warned it would no longer consider itself bound by any agreement if the US continued to violate the truce.

MARKETS THIS MORNING-

Asia-Pacific markets are down in early trading as escalating regional tensions put a drag on Japan’s Nikkei and South Korea’s Kospi. The Kospi is down 4.7% while the Nikkei is down a less dramatic 1.7%. “The strait closure will hang over the market with a risk-off tone,” Fed Watch Advisors’ Ben Emons wrote.

THE CLOSING BELL-

The ADX rose 0.6% on Friday on turnover of AED 1.5 bn. The index is down 0.6% YTD.

In the green: e& (+5.3%), Al Wathiba National Ins. (+5%), and Invest Bank (+3.4%).

In the red: GFH Bank (-2.9%), ADNH Catering (-1.3%), and Abu Dhabi National Hotels Co. (-1.2%).

Over on the DFM, the index rose 0.9% on turnover of AED 570.2 bn. Meanwhile, Nasdaq Dubai rose 1.1%.