Daily Economic Update

Oil: Brent closes above $100/bbl again on Friday amid continued Strait of Hormuz disruptions. Brent futures closed Friday at $103.1/bbl, capping a week of volatile price swings and a weekly gain of 11.3% w/w, the largest since the 12-day conflict in June 2025. Since the start of the current military conflict, the market’s initially optimistic view regarding how quickly oil flows through the Strait would recover has gradually turned more pessimistic, particularly as the conflict continues to extend with no clear off-ramp in sight. The IEA’s planned release of 400 mb from strategic reserves helped temper price movements earlier in the week, after Brent briefly approached $120/bbl. However, the scale of the release itself signaled expectations of a prolonged disruption at the world’s most critical oil chokepoint, contributing to renewed upward pressure on prices later in the week. Indeed, the agency’s most recent monthly report described the situation as “the largest supply disruption in the history of the oil market,” with oil flows through the Strait estimated to be down around 90% from the pre-war level of roughly 20 mb/d. The IEA report also highlighted emerging demand destruction effects. Flight cancellations and large-scale disruptions to LPG supplies are expected to reduce oil demand by around 1 mb/d in March and April, prompting the agency to revise down its global oil demand growth forecast for the year to 640 kb/d; 210 kb/d lower than last month’s estimate and the weakest increase since the pandemic-affected year of 2020. Over the weekend, US President Trump announced strikes on military targets on Kharg Island, which hosts Iran’s most active oil terminal and accounts for around 90% of the country’s crude exports. He spared the island’s oil facilities “for reasons of decency” but threatened to hit them if Iran does not lift its blockade of the Strait of Hormuz. Trump also called for countries that rely on oil and shipping that traverses the Strait to send military vessels to safeguard shipping. For Iran, while the bulk of its crude exports are concentrated at Kharg, the country does retain several alternative export routes, such as the underutilized 1 mb/d Goreh–Jask pipeline that flows directly to the Gulf of Oman side of the Strait. The Lavan and Sirri islands, each with a capacity of around 200 kb/d, could also serve as secondary export points. In retaliation for the strikes on Kharg Island, Iran targeted the UAE’s Fujairah port, leading to a partial suspension of oil loading operations. Abu Dhabi relies on Fujairah to bypass the Strait of Hormuz via the Habshan–Fujairah pipeline, and Iran’s targeting of the port underscores the vulnerability of alternative export routes in the region.

Saudi Arabia: Rating affirmed as strong buffers cushion geopolitical shock. S&P Global Ratings reaffirmed Saudi Arabia’s ‘A+’ sovereign credit rating with a stable outlook, citing the Kingdom’s strong financial buffers and ability to withstand the economic impact of the recent regional conflict. In the agency’s baseline scenario, the main geopolitical risks are expected to ease by the end of March, allowing Saudi Arabia to maintain non-oil growth momentum while continuing large scale Vision 2030 investments. A key factor behind the rating affirmation is the Kingdom’s ability to mitigate disruptions in the Strait of Hormuz shipping route, primarily through the 1,200 km East West Pipeline, which transports crude to the Red Sea port of Yanbu. S&P also highlighted that Saudi Arabia is less vulnerable to population displacement risks than several neighboring countries, given its large national population base and comparatively lower dependence on expatriate labor. However, risks remain as a prolonged or intensified conflict could pressure the outlook, particularly if energy infrastructure becomes a direct target or if government borrowing rises sharply to pressure the public finances. Conversely, sustained geopolitical easing combined with continued progress on economic diversification could support a future rating upgrade.

Egypt: Government raises budget contingency buffer as regional risks intensify. The Ministry of Finance plans to increase the state budget’s contingency reserves for FY26/27 to the constitutional ceiling of 5% of total spending, up from the current 3%, while freezing or postponing non-essential public expenditures. The move comes as policymakers seek to strengthen fiscal buffers amid heightened geopolitical uncertainty in the region. In the current fiscal year, contingency reserves amount to roughly EGP 140 billion, equivalent to about 3% of total spending. Around 60% of these funds remain unused so far, but the government may tap into them if regional tensions persist and global market volatility intensifies. The contingency buffer serves as a key fiscal tool to absorb shocks, particularly to protect energy and food subsidy programs from sudden increases in global commodity prices. On the supply side, the Ministry of Supply and Internal Trade confirmed that strategic reserves of key commodities remain at safe levels. Grain storage capacity has expanded significantly in recent years, rising to 3.4 million tonnes from 1.6 million tonnes, with plans to increase capacity further to 6 million tonnes, strengthening Egypt’s food security buffer in times of external volatility.

US: Q4 GDP growth revised down to 0.7%; January’s core PCE inflation accelerates to a 22-month high. GDP growth in Q4 was revised down to 0.7% (q/q, annualized) in the second estimate from the 1.4% seen earlier and 4.4% in Q3. Growth in final sales to private domestic purchasers was lowered to a still relatively decent 1.9%, down from the 2.4% estimated initially and 2.9% in Q3. Though several growth drivers have remained broadly resilient including robust consumer spending, an ongoing AI/tech investment boom and the fiscal boost, the latest hike in energy prices and higher UST bond yields have clouded the outlook for 2026. Furthermore, even before the surge in energy prices in March, the Fed’s preferred inflation gauge, core PCE inflation in January rose to the highest level in 22 months to 3.1% from 3% in December, but matching estimates. Headline PCE inflation moderated to 2.8% from December’s 2.9%, but that will likely reverse over the coming months reflecting higher energy costs, which have a direct impact as well as an indirect impact on many other categories in the inflation basket. In addition, if the Strait of Hormuz remains blocked, global food prices may also be impacted due to a shortage of fertilizers, as a large chunk of the latter passes through the Strait. The futures market now signals around 60% probability of just one interest rate cut in 2026, down from almost three cuts seen before the war in the Middie East started. Finally, job openings in January (JOLTS report) increased more than expected to 6.95 million from 6.55 million in December. The hiring and quits rates were unchanged at 3.3% and 2%, respectively, but the layoff rate fell to 1% from December’s 1.1%, indicating a continued soft hiring and soft firing labor market backdrop. 

US: A federal judge blocks DoJ subpoenas to Fed Chair Powell; the administration launches new trade probes on 60 countries. A US District chief judge blocked the Department of Justice’s (DoJ) subpoenas issued to Fed Chair Powell, saying the government produced “essentially zero evidence to suspect Chair Powell of a crime,” and these subpoenas were intended to “pressure its Chair into voting for lower interest rates or resigning.” The DoJ immediately vowed to appeal against the ruling. A key Republican on the Senate Banking Committee, Thoms Tillis, whose vote is critical to advance Kevin Warsh’s nomination as next Fed Chair, continued to pledge that he will block that nomination until the court case against Powell is dropped. Repeating his earlier stance, Tillis underscored that “appealing the ruling will only delay the confirmation of Kevin Warsh.” If the DoJ moves ahead with its appeals while Tillis remains defiant (which is expected), and if the matter continues to drag then Warsh’s nomination may not proceed before Powell’s term as Chair ends in May, meaning that Powell may continue as Fed Chair beyond May. Meanwhile, the US administration launched fresh trade probes under section 301 on 60 countries covering all major partners as it aims to recreate the tariff wall, bringing back tariff rates similar to pre-Supreme Court decision. The Chinese authorities criticized such moves by the US administration, noting that officials from both countries will be meeting on March 15 and 16 in France. These meetings are expected to set the ground for President Trump’s scheduled visit to China at the end of the month.  
 
UK: Economy unexpectedly stagnates in January, faces new challenges amid soaring energy prices. The UK economy stagnated in January (0% m/m) after 0.1% growth in December, missing the consensus forecast of a 0.2% rise, given sustained weak job market conditions and despite recent signs of an improvement in business activity indicators. Within the economic components, the services one was flat while production fell 0.1% but construction rose 0.2%. Looking ahead, after the recent surge in energy prices, the growth outlook will encounter additional headwinds such as higher inflation, a squeezed consumer wallet and potentially no BoE policy rate cuts in 2026 in addition to renewed constraints on the government fiscal headroom following the rise in gilt yields. 

Eurozone: Industrial production slumps in January; government bond yields continue rising. Industrial production fell 1.5% m/m in January following a 0.6% drop in December (revised up from -1.4%), missing expectations of a 0.6% increase. The monthly drop was driven by an across-the-board decline in key sectors: non-durable consumer goods fell by 6.0% m/m, capital goods by 2.3%, durable consumer goods by 1.9% m/m, and intermediate goods by 1.9%. Energy output, however, rose 4.7% m/m after two consecutive months of declines. On a y/y basis, industrial production fell 1.2%, marking the first decline in a year. Looking ahead, rising energy costs due to the war in the Middle East paints a murky picture for the Eurozone’s energy-intensive industrial sector. Meanwhile, government bond yields across the Eurozone continued to rise last week with the German 10-year bond yield up around 35 bps since the start of the war, the yield in France up by more than 40 bps, and in Italy up by around 50 bps. The STOXX 600 index is down by 6% since the start of the war. 

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