The United Arab Emirates has suspended all trade, commercial exchanges, and financial transactions with Iran indefinitely, citing regional escalations and alleged missile attacks. This move has pushed Brent crude oil prices up nearly 1% to $91.89 a barrel, their highest level since July 30, and U.S. West Texas Intermediate crude up 1.4% to $86.11. The Strait of Hormuz, a key shipping route for about a fifth of the world's oil, remains disrupted, with tanker operators avoiding the area.
Simultaneously, in the chip market, SK Hynix announced a $29 billion share buyback plan to calm market volatility and support its share price. This decision comes as the company generates record cash flows, driven by the ongoing AI boom. Analysts noted that the market had anticipated a buyback given the strong cash flows, and the news followed rumors of a sovereign wealth fund potentially taking a stake in SK Hynix.
However, market strategists like Neil Campling cautioned that volatility in chip stocks is likely to continue, partly due to "tourists" in the stock rather than fundamental owners. Campling also highlighted a broader macro concern: hyperscalers' free cash flows are turning negative, leading them to raise debt, which in turn increases the weighted average cost of capital for equity. This, combined with rising long-dated treasuries, creates pressure points for the tech sector.
The UAE's trade suspension is particularly impactful for Iran, which has heavily relied on the UAE as a re-export hub and a conduit for bypassing international sanctions. Dubai has been Iran's most important trading partner, supplying roughly a third of its imports, including $2.81 billion worth of telephones in 2023. The embargo cuts off a crucial financial route that Iran used to circumvent sanctions. This action is seen by some as potentially more significant than U.S. sanctions, with one former general comparing it to the near-total embargo imposed on Japan after World War II.
