Implications of the US midterms for the GCC
An analysis of what the Democratic sweep of Congress in the November 3 midterms means for the Gulf.
* A resounding result. The Democrats took both chambers of Congress on Nov 3 with as many as 56 Senate seats and around 260 in the House, the largest midterm margin since 1974. The new Congress is due to be seated on January 3rd.
* The Iran war was key. Just under 3/4 of voters said it was a major factor, and 63% said it was the wrong call. The senior Republicans (including the VP) all agree it was a costly mistake in terms of the election.
* Lower risk of escalation, no quick peace. Trump has an incentive to get a deal before January, and then Congress will just keep at him with funding and investigations (it won't end the war on its own). Brent has been down over 20% since late October but markets still have only a 37% chance of Hormuz traffic normalizing by mid-2027.
* AI cuts both ways. There'll be increased scrutiny of chip exports to the Gulf, but there could be a voter backlash against data centers in the US, which could effectively halt up to 30% of the planned capacity and in turn bolster the Gulf's argument for being the place to locate compute.
* Investigations are coming. Gulf dealings with the Trump family and envoys, in property, asset management, crypto and gifts, will be examined. Blame is likely to fall mainly on the Trump circle, but the reputational exposure is real.
* Israel is losing support across both parties. This lowers the political premium for normalization and moves US opinion closer to Saudi Arabia’s position on Palestinian statehood. AIPAC’s influence in Democratic primaries is waning.
* A smaller US footprint is very likely. The decision on whether to fund the repair of the damaged bases will fall to the new Congress. Gulf views of the bases have changed, and arms sales to the Gulf will be subject to much more scrutiny.
* Financial conditions remain tight. The Gulf currency pegs are importing some of the Fed's tightening, and the high Treasury yields are also increasing the cost of long-term borrowing. US fiscal policy is likely to be gridlocked until 2029. A divided government is probably in favor of US equities in which Gulf funds are the larger investors.
* A more diverse Congress. Dr El-Sayed, the first Muslim senator, has been celebrated in the Gulf, but he and other progressives are also among the firmest critics of Gulf human rights records.
* Prepare for 2029. The odds of Democrats winning the presidency have increased (66% on Kalshi), with Jon Ossoff now the market favorite. Gulf states are likely to broaden their engagement in Washington and ensure relationships are on an institutional footing.
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