US President Donald Trump’s policies, which have rocked the financial and commodities markets globally, will have an indirect impact on the UAE, GCC and wider Middle East and North Africa (Mena) region, say analysts.

However, some analysts said that oil-exporting GCC countries could see a boost in oil demand if the US applies tariffs on energy products from Canada and Mexico.

Global ratings agency S&P analysts said the UAE and other Gulf countries that have pegged their countries will be affected indirectly through higher interest rates as the US Federal Reserve will hike rates because Trump’s policies are likely to increase inflation in the world’s biggest economy.

In addition, UAE dirham and other Gulf currencies are also likely to strengthen further due to the US dollar getting stronger on the back of Trump’s trade policies, it said.

However, it cautioned that high interest rates could stifle growth and stronger currencies will make imports which will impact the competitiveness of local productions, leading to lower GDP growth.

Trump earlier this week ordered tariffs on goods from Mexico, Canada and China. He later froze tariffs against Mexico and China but went ahead with tariff imposition on China.

On Wednesday, China formally launched a dispute at the World Trade Organisation (WTO) over 10 per cent tariffs imposed by the US on Chinese goods.

“Countries in the Mena region that maintain a fixed exchange rate to the US dollar, such as Saudi Arabia and the UAE, are likely to face tighter monetary policies as the US Federal Reserve keeps interest rates elevated to combat inflation. This scenario could stifle private sector investment and dampen real GDP growth. Furthermore, a stronger US dollar, resulting from sustained tariff introductions, would make imports cheaper while diminishing local industry competitiveness, leading to worsening trade balances and lower GDP growth in these pegged economies,” said S&P.

S&P noted although the Mena region – except Israel and Jordan – has a moderate level of exports to the US and does not maintain a significant trade surplus, the potential introduction of general global tariffs could hinder export growth from the region.

“While specific tariff actions targeting Mena countries seem unlikely due to the US's focus, any blanket tariffs would still have repercussions, albeit with minimal impact on the region's real GDP and external balances,” said S&P analysts.

It cautioned that the likelihood of increased US interest rates is expected to significantly reduce portfolio inflows into emerging market debt securities, including those from several Mena countries.

Hassan Fawaz, chairman and founder of GivTrade, said Trump’s tariff policies could introduce challenges but could also have positive implications for the GCC region.

“Trump’s protectionist policies may contribute to the acceleration of deglobalisation trends, potentially leading to economic instability, but also providing opportunities for the GCC to establish strategic partnerships and diversify its trade relationships in a more fragmented global market,” said Fawaz.

However, he added that the Gulf region will face challenges arising from the broader economic effects of Trump’s tariff policies. “Increased global tariffs could contribute to market volatility, particularly in commodities such as crude oil, which are vital to the GCC economies. In this regard, weaker global economic growth could affect demand levels for energy products.”

GCC countries could also see an improved economic relationship with the US in case they can secure more favourable conditions than other economic blocks, he said, adding that energy exports could see a boost if the US applies tariffs on equivalent products from Canada and Mexico, opening new opportunities for countries like Saudi Arabia to use its excess production capacity.