Geopolitical Risk and Global Markets: Navigating U.S. Policy Shifts in the Middle East

In late 2025, the interplay between U.S. political developments and Middle East stability has become a defining force in global markets. President Donald Trump's September 2025 Gaza peace proposal-a 20-point plan aimed at ending the Israel-Hamas conflict-has triggered a cascade of geopolitical and economic ripple effects. While the plan's proponents, including Israeli Prime Minister Benjamin Netanyahu and Arab allies, frame it as a path to regional stability, critics warn of its potential to deepen divisions and destabilize the region further. For investors, the fallout from this high-stakes diplomacy has reshaped asset allocation, safe-haven demand, and foreign direct investment (FDI) flows, demanding a recalibration of risk management strategies.

Geopolitical Uncertainty and Asset Allocation Shifts

Trump's Gaza proposal, which includes U.S. administrative control over the territory and the voluntary relocation of Palestinians, has heightened geopolitical tensions. According to a Financial Analyst report, the plan's controversial elements-such as the demilitarization of Hamas and the establishment of a U.S.-led trust-have introduced volatility into global markets. Middle Eastern stock indices, including Egypt's EGX30 and Jordan's AMMAN, dropped nearly 4% in the immediate aftermath of the proposal, reflecting investor caution, according to NYC FPA analysis.

Equity markets have shown mixed signals. While U.S. tech and energy sectors have benefited from Trump's tariff-driven policies and infrastructure pledges, sectors like tourism and manufacturing in the Middle East face headwinds. For instance, the UAE's push for AI-driven infrastructure, including a $2.2 billion acquisition by G42 of Khazna Data Center Holdings, underscores resilience in tech-driven M&A activity, S&P Global Market Intelligence notes. However, broader regional uncertainty has led to a reallocation of capital toward defensive equities and U.S. Treasury bonds.

Safe-Haven Demand: Gold and Treasuries in the Spotlight

The geopolitical risks associated with Trump's Gaza plan have amplified demand for safe-haven assets. Gold prices surged to $3,895 per ounce by October 2025, a 47% year-to-date gain, as investors sought refuge from volatility; the Financial Analyst report referenced above highlighted this surge. Analysts at Sora Futures cite the World Gold Council's attribution of the trend to falling real yields and central bank purchases, with geopolitical tensions acting as a key catalyst.

U.S. Treasury yields, meanwhile, have remained elevated, reflecting concerns over fiscal sustainability and shifting capital flows. The 10-year Treasury yield reached 4.79% in January 2025 but settled at 4.20% by September 2025, illustrating the inverted yield curve's sensitivity to policy uncertainty. This dynamic has created a unique environment where both gold and Treasuries are seen as hedges against inflation and geopolitical instability, challenging the traditional inverse relationship between the two assets.

Regional FDI Flows and Strategic Realignments

Foreign direct investment (FDI) in the Middle East has been shaped by Trump's Gaza proposal and broader U.S.-China competition. S&P Global Market Intelligence notes that GCC states, particularly Saudi Arabia and the UAE, have leveraged their economic diversification projects to attract FDI, despite global uncertainties. For example, Saudi Arabia's $142 billion defense sales agreement with the U.S. and the UAE's $440 billion energy investment pledge highlight the region's strategic importance, according to a Henley report.

However, the Gaza plan's controversial nature has introduced ethical and legal concerns, deterring some investors. Morocco, a key North African destination for renewable energy and tourism investments, has seen a 35% increase in arrivals since 2019 (S&P Global Market Intelligence). Yet, geopolitical spillovers from the Middle East could undermine this momentum, particularly if regional tensions escalate.

Investment Recommendations for a Volatile Landscape

For investors navigating this complex environment, the following strategies are critical:

1. Increase Exposure to Safe-Haven Assets: Allocate a portion of portfolios to gold and U.S. Treasuries, which have demonstrated resilience amid geopolitical shocks. ETFs like SPDR Gold Shares (GLD) and iShares 20+ Year Treasury Bond ETF (TLT) offer liquid exposure.
2. Diversify Equity Portfolios: Prioritize defensive sectors (e.g., utilities, healthcare) and U.S. tech stocks, which have shown relative stability. Avoid overexposure to Middle Eastern equities until regional stability improves (NYC FPA analysis).
3. Hedge Currency Risks: Given the U.S. dollar's weakening trend, consider hedging against currency fluctuations in GCC markets, where dollar-pegged currencies like the Saudi riyal and UAE dirham remain competitive (S&P Global Market Intelligence).
4. Monitor FDI Opportunities in Stable Sectors: Target renewable energy and tourism in North Africa, where Morocco's energy policy and Egypt's Ras El Hekma project present long-term growth potential (S&P Global Market Intelligence).

Conclusion

The U.S. political landscape in the Middle East remains a double-edged sword for global markets. While Trump's Gaza proposal aims to stabilize the region, its controversial execution has introduced new risks. Investors must balance optimism for long-term economic transformation with caution against short-term volatility. By prioritizing safe-haven assets, diversifying equities, and targeting resilient sectors, portfolios can navigate the turbulence while positioning for eventual regional stabilization.