U.S.-Muslim World Diplomacy and Its Impact on Geopolitical Risk and Commodity Markets

The Trump administration's approach to U.S.-Muslim world diplomacy, characterized by transactional partnerships and unilateral sanctions, has left a complex legacy on global oil markets and emerging market equities. From 2017 to 2021, policies such as the “maximum pressure” campaign against Iran, Gulf investment deals, and the reimposition of sanctions reshaped energy dynamics and investor sentiment. This analysis examines how these strategies influenced oil price volatility, regional equity performance, and broader geopolitical risk, drawing on empirical data and academic insights.

Trump's Gulf Diplomacy and Oil Market Volatility

The Trump administration's 2025 Gulf tour, which secured over $2 trillion in investment pledges from Saudi Arabia, Qatar, and the UAE, underscored a pivot toward economic statecraftUnpacking Trump’s 2025 Gulf Investment Tour^[1]. These deals, spanning energy, AI, and defense, aimed to stabilize U.S. energy security while reinforcing Gulf alliances. However, the administration's simultaneous “maximum pressure” campaign against Iran—marked by sanctions that slashed Iranian oil exports from 2.5 million barrels per day (mb/d) to less than 0.5 mb/d by 2019Analysis of Iranian Oil Sales Under President Trump vs. President Biden^[2]—created a paradox. While reducing Iranian supply tightened global oil markets, OPEC+ production adjustments and U.S. shale output growth mitigated price spikesTrump’s Impact on the Oil Market - IER^[3].

The interplay of these factors led to significant oil price volatility. For instance, Brent crude prices surged by over 3% immediately after Trump's 2019 threats to sanction Iranian oil buyersOil Prices Soar After Trump Threatens Sanctions On Iranian Crude Buyers^[4]. Yet, the long-term impact of U.S. sanctions on oil prices remains contested. A KAPSARC study noted that Saudi Arabia's willingness to offset supply gaps played a critical role in stabilizing marketsIran Sanctions: Implications for the Oil Market^[5]. This highlights the dual-edged nature of Trump's policies: while sanctions disrupted Iran's economy, they also introduced uncertainty that benefited Gulf producers through higher prices and market share gains.

Emerging Market Equities: Resilience and Vulnerability

Emerging market equities, particularly in the Gulf Cooperation Council (GCC), exhibited mixed responses to Trump's policies. The MSCI Emerging Markets index returned 46.2% from 2017 to 2021, driven by trade liberalization and foreign direct investmentTrading Under Trump: Lessons from 2017–2021^[6]. However, the U.S.-China trade war, a cornerstone of Trump's “America First” agenda, dampened China's equity performance, with the MSCI China index gaining just 7.4% over the same periodTrading Under Trump: Lessons from 2017–2021^[6].

Gulf markets, including Saudi Arabia's Tadawul and the UAE's Dubai Financial Market, showed relative resilience despite regional tensions. For example, GCC stock indices traded higher in 2025 following U.S. strikes on Iran's nuclear sites, reflecting investor confidence in Gulf economic diversification effortsMost Gulf Markets Trade Up, Unfazed by Rising Tensions^[7]. Islamic equity indices, in particular, demonstrated lower volatility compared to conventional counterparts, attributed to profit-sharing models and asset-backed investmentsExamining the Performance of Islamic and Conventional Stock Indices^[8]. This resilience suggests that emerging markets with strong governance and economic reforms can weather geopolitical shocks, even amid Trump-era uncertainties.

Geopolitical Risk and Investor Implications

Trump's policies amplified geopolitical risks, particularly in the Middle East. The 2017 travel ban and refugee restrictions deepened Islamophobia and strained U.S. relations with Muslim-majority nationsFrom Policy to Prejudice: The Ripple Effects of Trump on Muslim Communities^[9]. These tensions, coupled with sanctions on Iran, heightened event risk for investors. For example, attacks on U.S. bases in Iraq in 2020 led to Brent crude prices spiking to $93 per barrel in 2024A Look Back at Our Forecast for Global Crude Oil Prices in 2024^[10].

However, Trump's emphasis on Gulf partnerships also created opportunities. The UAE's $1.4 trillion investment pledge and Saudi Arabia's $600 billion commitment signaled confidence in U.S. economic leadershipUnpacking Trump’s 2025 Gulf Investment Tour^[1]. Analysts warn, though, that the success of these deals depends on geopolitical stability and the ability of Gulf states to execute large-scale projectsTrump’s Gulf Gamble: Oil, Conflicts, and Opportunities^[11].

Conclusion: Navigating a Shifting Landscape

Trump's U.S.-Muslim world diplomacy has left a fragmented legacy. While Gulf partnerships and sanctions on Iran introduced volatility into oil markets, they also reinforced U.S. energy dominance and regional alliances. For investors, the key takeaway is the importance of hedging against geopolitical risks while capitalizing on opportunities in resilient emerging markets. The GCC's economic diversification and Islamic finance's stability offer promising avenues, but long-term success will depend on balancing U.S. strategic interests with regional stability.