Riyadh wants to bolster its position in global commodities markets.
Saudi Tadawul Group, which runs Saudi Arabia’s main stock exchange, is set to buy a 32.6% stake in the Dubai Mercantile Exchange (DME).
The agreement will see Saudi Tadawul acquire a combination of new and existing shares in DME Holdings, the parent company of the DME, with an option to increase its shareholding.
Once the deal closes, Saudi Tadawul will become the joint largest shareholder next to the CME Group. The exchange will be rebranded as the Gulf Mercantile Exchange.
The DME, founded in 2007 in the United Arab Emirates, lists the benchmark Oman Crude Oil Futures Contract used by five national oil companies in the countries of the Gulf Cooperation Council (GCC) to price oil contracts.
According to the DME, the crude oil futures contract generates the world’s largest amount of physically delivered crude oil with delivery volumes reaching 210 million barrels of oil in 2023, up from 181 million in 2022. Other notable shareholders in the DME include Oman Investment Authority and Dubai Holding.
The move by Saudi Arabia is designed to capitalize on future opportunities in commodity markets by diversifying away from raw material extraction to less capital-intensive and potentially more profitable activities such as trading.
“[It is] solidifying their position as the major economy in the GCC and ensuring a route to market for both today’s and tomorrow’s commodities—today primarily oil, but tomorrow will include the outputs of mining and industry,” says consulting firm Publicis Sapient’s Senior Vice President Joseph Tabita.
Expectations that Saudi Arabia could use the deal to trade its own oil output appear to have been ruled out under the terms of the agreement.
“No Saudi Arabian crude oil contract will be traded, sold or bought on, or indexed to, nor will Saudi crude be delivered against, the DME Oman contract via DME,” the Dubai exchange said in a prepared statement. The DME will remain regulated by the Dubai Financial Services Authority, and all trades executed on the DME will be cleared through CME Clearing, which is regulated by the US Commodity Futures Trading Commission. The DME will continue to be based at the Dubai International Financial Centre.