Markets tumble with Iran’s nuclear deal on the brink

Financial markets in the Middle East & North Africa have underperformed those in the rest of the emerging world over the past week following President Trump’s decision to pull the US out of the Iran nuclear deal. Equity markets have been the hardest hit, with the MSCI Arabian Markets down by 1%. There are already signs that, with the US set to re-impose nuclear-related sanctions on Iran, firms are beginning to head for the exit. That will lend support to hardliners in Tehran who have long opposed the nuclear deal and cooperation with the US. Tensions between Iran and Israel have escalated since President Trump’s announcement and, following Hezbollah’s strong showing in the Lebanese elections, there’s a growing risk (again) that Lebanon becomes the centre-ground of a new proxy war. Against that backdrop, spreads of Lebanese dollar bonds have jumped by more than 50bp over the past week. The Gulf economies may actually benefit in the near-term from a collapse of the nuclear deal, through higher oil prices and by an increase in oil output to offset supply disruptions in Iran. But that hasn’t soothed investors’ nerves.