Hormuz and Bab el-Mandeb ignite oil markets

Oil markets are no longer driven solely by the traditional supply-and-demand equation, as trade and energy routes in the Middle East have become a decisive factor in determining price trends. Amid escalating risks surrounding the Strait of Hormuz and the Bab el-Mandeb, fears of prolonged supply chain disruptions have resurfaced. Although oil prices retreated on Friday, the daily losses did not obscure the broader picture; Brent crude ended the week up by more than 8.6%, while West Texas Intermediate (WTI) recorded weekly gains of approximately 9.4%, with Brent surpassing the $104-per-barrel threshold. On Friday, Brent fell by $3.02, or 2.81%, to settle at $104.61 per barrel, while the US crude declined by $2.43, or 2.37%, to $100.05.

This leaves the energy market facing a highly sensitive equation: any easing in navigation activity could reduce the risk premium, but any new escalation in the region could quickly send prices back on an upward trajectory.

**Hormuz at the Heart of the Equation**

Concerns have intensified following a decline in ship traffic through the Strait of Hormuz, one of the world’s most critical energy arteries, coinciding with escalating attacks on shipping. Preliminary data from ship-tracking services showed that the number of vessels transiting the strait dropped to seven, down from 11 the previous day, reflecting heightened caution among shipping companies and operators. This development is of exceptional importance given Hormuz’s role in global oil, gas, and trade flows, meaning any prolonged disruption could add a significant risk premium to energy prices.

Conversely, reports of potential regional talks to manage shipping traffic through the strait brought some calm to markets at the end of the week, after prices had previously surged by more than 6%. Analysts warn that the market will remain highly volatile, as political or security news can now move the price per barrel by tens of dollars in a short period.

The situation is not limited to the Strait of Hormuz; Bab el-Mandeb emerges as the other side of the region’s navigation crisis. The passage connecting the Red Sea to the Gulf of Aden and the Suez Canal is a vital route for trade between Asia and Europe. Any disruption to navigation security there raises transport and insurance costs, forcing some ships to seek longer routes. Here, the crisis’s repercussions widen from the oil market to the global economy as a whole, as it is not just about getting barrels of oil to market, but also about the cost of transporting goods, raw materials, and food. With Hormuz’s energy significance and Bab el-Mandeb’s trade importance converging, markets face a dual risk: rising energy costs on one hand, and increasing shipping and supply costs on the other.

**Oil Brings Inflation Back to the Forefront**

Oil rising above $100 is not just bad news for stock markets; it reopens the inflation file for major central banks. Rising energy prices gradually translate into higher costs for transport, production, and services, complicating the task of monetary policymakers in containing inflation without harming economic growth. In the United States, recent core inflation data came in higher than expected, increasing market sensitivity to the Federal Reserve’s decision expected next Wednesday. With oil remaining above the $100 threshold, the question for investors is no longer just “Will the Fed cut rates?” but has become more complex: Can monetary policy ease economic pressures at a time when energy prices are reigniting inflation?

**A Crucial Week for Markets**

As major central banks approach their decisions, markets enter a week that could reshape expectations for the remainder of 2026. If tensions ease and navigation flows normally, the risk premium on oil could recede, potentially providing a release valve for stocks. However, continued escalation and disrupted shipping could push energy prices higher, bringing inflation back to the forefront and narrowing the margin for maneuver for central banks. In either scenario, Gulf stock exchanges, along with oil, gold, and bond markets, will remain influenced by a single common factor: the region’s ability to pass the test of maritime chokepoints, and how that reflects on global inflation, interest rates, and liquidity. Thus, investors are no longer watching just the oil screen; they are monitoring Hormuz, Bab el-Mandeb, inflation data, and Fed decisions on a single dashboard, seeking the signal that will determine market direction in the coming phase.

**The Gulf Facing a Dual Test**

Current developments hold particular significance for Gulf markets, which operate in an environment combining oil price support with geopolitical escalation risks. While rising crude prices provide fundamental support for oil revenues and public spending in Gulf economies, they simultaneously raise inflation risks and increase market sensitivity to global interest rates. Furthermore, continued tension in “Hormuz” and “Bab el-Mandeb” presents investors with an additional risk factor, particularly as the region relies to varying degrees on trade, energy, and maritime routes. Consequently, rising oil does not necessarily mean an automatic rise in stock markets; the picture will depend on investors’ ability to balance the positive impact of oil revenues against geopolitical risk premiums and interest rate expectations.

*Note: The preceding paragraph regarding the Gulf markets’ dual test was repeated in the source text.*

**Kuwait Stock Exchange Resists External Pressures**

Amid the complex global environment, the Kuwait Stock Exchange demonstrated notable resilience in maintaining its activity, although performance varied across indices. The exchange closed its trading with its general index rising by 1.43 points, or 0.02%, to reach 8,944.17 points. A total of 453.1 million shares were traded across 27,575 cash transactions valued at 123.1 million dinars (approximately $402.1 million).

The Main Market Index rose by 94.59 points, or 1.01%, to reach 9,427.30 points, driven by the trading of 268.4 million shares across 18,486 cash transactions valued at 60.3 million dinars (approximately $196.9 million). Conversely, the First Market Index fell by 18.32 points, or 0.20%, to 9,305.56 points, with 184.7 million shares traded across 9,089 cash transactions valued at 62.8 million dinars (approximately $205.1 million).

The “Main 50” Index rose by 130.69 points, or 1.18%, to reach 11,274.48 points, with 214.8 million shares traded across 12,432 cash transactions valued at 45.3 million dinars (approximately $147.9 million).

**Top Gainers**

The Main Market led the indices in performance, rising by 1.01%, while the “Main 50” Index jumped by 1.18%, reflecting continued liquidity inflows into several mid-cap and small-cap stocks. This segment benefited from investor interest seeking growth opportunities and larger price movements.

**Pressure on Leading Stocks**

The market index in the Kuwait Stock Exchange fell by 0.20%, indicating that some leading stocks faced profit-taking or selling pressures that limited the market’s ability to achieve broader gains. This decline is particularly significant given the substantial weight of First Market companies in the general index movement.

**High Liquidity**

The session recorded notable activity in terms of liquidity, with transaction values exceeding 123 million dinars, as more than 453 million shares were traded across approximately 27,600 transactions. These figures reflect the continued active presence of investors and the diversity of operations between leading stocks and Main Market shares.

**The Fed Facing a Difficult Equation**

Global markets are turning their attention to the Federal Reserve meeting in a week of critical importance for global monetary policy, with anticipation building around interest rate decisions in the US, UK, and Japan. US inflation data is gaining double importance, particularly as continued energy price hikes could make the Fed’s task more complex. At the same time, pressure is mounting on other central banks, as rising energy has become a factor capable of reigniting inflation, potentially prompting some banks to delay rate cuts or even consider tightening monetary policy.

For markets, oil, inflation, and interest rates have become three links in a single chain: escalation in the Middle East raises oil prices, higher oil prices increase inflation, and high inflation narrows the margin for maneuver for central banks.