Gulf dealmaking machine hits the brakes

Good morning from the Financial Times. Today is Tuesday, May twelfth, and this is your FT News briefing. All eyes are on this week's US-China summit, and prospects for peace in Iran are looking worse by the minute. Plus business in the Gulf was booming, but the war in the Middle East is forcing bankers to slow things down. I'm Mark Filipino, and here's the news you need to start your day.

The month-long ceasefire between the US and Iran is hanging by a thread, or as US President Donald Trump puts it, I would say the ceasefire is on massive life support where the doctor walks in and says Sir, your loved one has approximately a one percent chance of living. He spoke from the Oval Office yesterday after he rejected Tehran's counter proposal to end the war.

After reading that piece of garbage they sent, I said, I didn't even finish reading it. They said, I'm not gonna waste my time reading it. Washington and Tehran have bounced peace deals back and forth since the temporary ceasefire came into effect in early April, but the two sides haven't been able to agree on what happens to Iran's stockpile of highly enriched uranium.

The leaders of two global superpowers and geopolitical foes will sit down together later this week. Donald Trump arrives in China tomorrow and he'll hold a summit with President Xi Jinping. The two countries are locked in a bitter trade war, so can they find common ground? Here to tell us more is the FT's chief foreign affairs commentator, Gideon Rockman. Hey Gideon. Aye.

So give us some background about the trade environment this meeting is happening in. Who has the upper hand heading into the top? Well I I think probably you'd have to say that China slightly has the edge simply because they responded to President Trump's very uh extreme tariffs of last year, which were up to one hundred and forty five percent, by restricting the exports of critical minerals and rare earth

And that more or less forced America to cut tariffs to a level that China can cope with. And they haven't really gone up since then. And I think the Americans know that if they really went for the all out trade war that China could redeploy that critical minerals and rare earths weapon, which has a really quite severe effects on American industry. Ford Motor, for example, were closing down production lines in response. So China I think does have the edge in the pure trade aspect.

So if China holds the slight edge here, what cards does the US hold? Well, I think there are things that China still wants from America. I mean I ideally they would like tariffs to go down even further. And there are these uh restrictions on tech exports, which are a serious inconvenience for the Chinese. That said, I think that one of the things that is also giving America pause

is the sense that China is still making rapid technological progress even in AI. And some leading American tech firms, such as NVIDIA, say that these tech restrictions are actually gonna backfire on America because they spark indigenous Chinese development. So that's the trade side of things. I also want to talk to you about geopolitics, particularly the war in Iran. China has tried to broker peace between Iran and the US recently. How do you think Trump will play that with Xi?

Well, I think Trump's got a couple of issues. Firstly, I mean he never likes to project weakness, but America is looking pretty frustrated in Iran. However, I think he'll want to put a brave face on it i in China. He doesn't want to look like he's he's losing this war.

If uh China can help deliver the Iranians in some way, then obviously America would be very interested in doing that. On the other hand, uh if the price of that is an enlarged Chinese road in the Middle East, there'll be some in Washington who would Hesitate about that, said How likely is that the two sides can agree to anything meaningful on either trade or Iran in these meetings?

Well look, I think anything that comes out of the Chinese American Summit is meaningful in one sense, and that these are the two most powerful countries in the world. the the two largest economies and their trading relationship is incredibly important, not just for them, but also for third parties. So more or less however they adjust it will be watched very, very carefully. But I don't think

you're gonna get some huge agreement. That said, I think one big thing that everyone's watching is Taiwan. The Chinese would love Trump to shift America's position on Taiwan and particularly come out and say that he opposes Taiwanese of independence as opposed to just not supporting it. And those kind of semantic changes do actually matter.

I think it's unlikely that Trump would do that, even though I doubt he cares about it much personally. I suspect the people around him will have uh pre prepped him not to do that. But if he were to do it, it would be a big moment. Gideon Rockman is the FT's chief foreign affairs commentator. He also hosts the Rockman Review podcast. We'll have a link to that in the show notes. Thanks, Gideon. Thank you.

Remember that make or break speech from Britain's Prime Minister we talked about yesterday? Well, he gave it. Keir Starmer tried hard to save his position after disastrous results in last week's local elections. I know. that people are frustrated by the state of the world, frustrated by politics. And some people frustrated.

Starmer took responsibility for his Labour Party losing hundreds of seats, but despite growing calls from within his own party to resign, Starmer said he's not going anywhere. Rydyn ni'n gwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud ymwneud. Three parliamentary private secretaries resigned shortly after his speech, all of them publicly demanded Starmer step down.

UK government bonds also weakened yesterday. The yield on the 10-year guilt rose and hit 5%, underperforming other bond markets in Europe. A lot of deal making in the Gulf has come to a standstill just as banks in Dubai and Doha were ready to hit the big time. The region was on track to make more than a billion dollars in deal fees this year for the first time in two decades.

But instead the war in Iran has put mergers on ice and lowered companies valuations. The FT's Nico Parazi covers business in the Gulf for the F T from Dubai. He's here to talk us through what's been going on there. Hey Nico. Hi Mark.

So set the scene for us if you don't mind. What's been going on where you are and what kind of deals were people expecting this year? Well I d I spent more than than fifteen years in uh in the region and ever since COVID. So I'm I'm going back a few years, there was really a sense that the region had arrived, that everything was falling into place.

You had all these positive developments all happening at the same time, right? You had these giant sovereign wealth funds, they were investing abroad, they were anchoring large deals in entertainment, sports, and artificial intelligence. The Gulf almost became a lender of l last resort. The contrast with other parts of the world was especially

striking because uh IPO markets in Europe were not doing well. Here they were doing exceedingly uh well. So for the banks, um that fueled expectations that this would be the breakthrough year. And then the war in Iran happened. How is that disrupting these plans? So the mood on the ground here is actually, contrary to what one might expect, not that bad at all. There's this kind of business as usual.

Image that they're trying to project, which the government is trying to do, but the the the bankers are are trying to reflect that. Now, obviously there has been a disruption, right? So if we look at the numbers. The first quarter went off to a good start uh this year, but then you see a drop-off in April um in MA volumes, um IPOs, the IPO market in the UAE where I'm based.

has come to a standstill. There was not a single IPO since the beginning of of this year. And then you also had this immediate impact, right? So the financial center uh was also caught in between one of these uh attacks. There was damage to two of the towers. And so a lot of these international firms feeling threatened they closed offices. So a lot of the deal makers left uh Dubai, Abu Dhabi until they now start gradually returning.

But e even still, there are still some deals that are that are going ahead, right? Yeah, absolutely. I mean th throughout the the the conflict you still had these these these big names, these international names, opening offices, Bain Capital, Hill House. I think Citadel secured a license. Blackstone invested in a payments and data platform. So deals were continuing. Now, obviously, the fundamentals uh as some say are still in place. It's still a very capital-rich.

uh r uh region, but I think was m what most bankers expect is that deals will take longer, the pricing will change, um valuations need to be adjusted and some deals might just be cancelled altogether. Nico, what's the best case and worst case scenario for these financial centers? I mean the b best case is is is almost obvious an immediate ceasefire, a peace deal. Uh that's w what bankers and and everyone else is uh are hoping for. Uh if that happens, I I think the region could probably

quickly turn the page again. Um they they have a history of overcoming these crises, most recently the COVID crisis. And again, there's a lot of capital still in the system. Now worst case, the uncertainty remains, hostilities escalate. Now that would really hurt investors' confidence, especially from abroad. It's very unlikely that private equity investors will sign off on any deal when the prospect of continued hostilities remains in place.

Nico Perazzi is the FT's Gulf Business Correspondent. Thanks, Nico. I thank you, uh Mark. You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News briefing. Check back tomorrow for the latest business news.

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