Money doesn’t come easy, and the Middle East is feeling the impact. With rising interest rates, dealmakers are recalibrating, and long-standing strategies are being upended, forcing traders to innovate, minimize risks, and navigate a harsher financial climate.

THE RATE EFFECT ON COMMODITIES

Rising interest rates are affecting commodity trading in the Middle East—particularly in key sectors like energy, metals, and agriculture. Steve Griffiths, Professor and Vice Chancellor for Research at the American University of Sharjah, says, “In the energy sector, producers accelerate extraction to avoid the higher opportunity cost of keeping reserves underground, which increases supply and could place downward pressure on prices. For metals, while demand tied to industrial applications helps stabilize prices somewhat, the higher cost of financing impacts production and exploration efforts.”

He adds that rising borrowing costs in agriculture put pressure on producers, limiting their ability to invest in equipment and technology, which could potentially reduce output.

The overall impact is sector-specific, with each commodity responding differently to these financial pressures. Vandana Hari, Founder and CEO of Vanda Insights, says the prolonged combination of higher borrowing costs and inflation negatively impacts corporate growth and consumer spending, dampening oil demand and putting downward pressure on prices.

Another key factor is oil demand. Rising interest rates affect global oil demand, with significant implications for Middle Eastern producers. As investors brace for a more hawkish Federal Reserve, concerns about a potential sharp downturn in the US economy have grown, according to Hari. There are also resurgent fears of stagflation, not only in the US but also in Europe.

She says, “Such fears typically drive risk-aversion, as we have already seen in the sell-off in the equities markets. Normally, that would have also weighed on oil market sentiment and pushed crude prices lower, as sluggish economic growth is a proxy for weaker oil demand. But the colder-than-normal current winter in the northern hemisphere and the US’ tough new oil sanctions against Russia are keeping crude in rally mode.” 

A stronger US dollar also plays a key role in shaping crude oil prices, which, in turn, influences commodity trading strategies in the Middle East.

Hari says, “The Federal Reserve and the ECB have turned cautious on cutting rates in recent months, with an eye on stubborn inflation. The US economy has shown signs of resilience and might be able to withstand higher rates for a bit longer. Still, the same can’t be said with much confidence about the European Union economies.”

TIGHTER MONETARY POLICIES

Globally, tighter monetary policies paint a mixed picture for commodities, says Griffiths.

“Oil and agricultural commodity prices trend lower due to slowing economic growth and improved supply conditions. On the other hand, precious metals like gold and silver have surged,” he adds.

These metals benefit from safe-haven demand, especially during geopolitical uncertainty and expectations of eventual interest rate cuts. This divergence highlights the importance of understanding the macroeconomic context when analyzing commodity trends.

Additionally, while a stronger dollar is typically bearish for crude oil prices, the two don’t always exhibit a strong inverse correlation, as is currently the case, adds Hari.

Short-term supply concerns are pushing up crude prices, which currently outweighs the stronger dollar’s impact. However, if both continue to rise, it could create a double whammy for the major oil-importing emerging economies in Asia.

Trade flows and strategies are also evolving in response to rising interest rates. For example, a stronger US dollar—against which many Middle Eastern currencies are pegged—makes exports less competitive globally and increases reliance on imports. In response, traders are diversifying their portfolios to spread risk and using hedging tools to manage price volatility, highlights Griffiths.

It’s clear that adaptability is becoming a key strength for traders in the region.

ECONOMIC FLUCTUATIONS AND TECH ADAPTATION

Currency fluctuations have also played a crucial role in commodity trading, particularly in the Middle East, notes Griffiths. When local currencies strengthen against the dollar, exports can become less competitive, while imports become cheaper—impacting trade balances and inflation. Conversely, a weaker currency enhances export appeal but raises the cost of imports, potentially leading to inflationary pressures. Given the region’s close ties to commodities, these fluctuations add another layer of complexity to an already challenging trading environment.

In addition, technology, particularly AI and blockchain, could revolutionize how companies respond to the challenges posed by rising interest rates. AI is being leveraged for predictive analytics, allowing traders to anticipate market shifts, while blockchain ensures greater transparency and efficiency in transactions. These tools are valuable for optimizing strategies and managing risk. However, the higher cost of capital due to rising rates may limit investment in innovation for some firms. Striking a balance between addressing short-term challenges and fostering long-term technological growth will be essential for maintaining the region’s competitiveness.

RESHAPING COMMODITY TRADING 

For Hari, there is little Middle Eastern oil producers can do to stabilize oil prices or ensure predictability in their oil revenues.

She says, “Rising global economic uncertainties and the Ukraine and Gaza wars had already muddied the waters. Now,  the unpredictability of the impact of Trump’s international political and trade policies could affect inflation, keeping the Federal Reserve and the ECB officials on their toes.”

Griffiths thinks that elevated interest rates, if they occur, will continue shaping the market. 

Suppressed trading volumes and persistent volatility are likely to define the near-term environment. However, once interest rates decline, commodities could rally.

He adds, “In the long term, the Middle East’s focus on economic diversification and technological advancements will create new opportunities, but it will require traders to be agile and adopt new strategies. Staying attuned to both global and regional trends will be crucial.”