The Middle East is a sensitive and volatile region. This makes it especially important for investors in these exchange traded funds (ETFs) to be aware of any risk factors.

Although the Middle East has been viewed as a fertile region for investors, there are still risks that go along with investing in these emerging markets. Alistair Lyon for Reuters has five points of caution for investors seeking exposure to this area:

  • Iran’s political turmoil/ nuclear experiments: Western leaders, who suspect the world’s fifth-biggest oil exporter of trying to make an atom bomb, have set a September deadline for Tehran to enter nuclear talks. President Mahoud Ahmadinejad is back in power, which has made big rifts in the ruling elite evident.
  • Iraq instability as troops withdraw. The government wants foreign investors to help revamp Iraq’s economy, oil industry and infrastructure, but some have concerns over corruption as well as security, legal and regulatory risks. Security has improved, however. The remaining 130,000 U.S troops will withdraw by the end of 2011.
  • Obama’s peace efforts with Israel and Palestine. The issue has opened the widest rift in U.S.-Israeli relations in a decade and Palestinian President Mahmoud Abbas has said peace negotiations with Israel, suspended since December, cannot resume until settlement activity ceases.
  • Saudi debt crisis. Several Saudi family firms are struggling with a debt crisis that has exposed a lack of transparency in the financial sector and hit the kingdom’s reputation as an investment destination. The country’s king and prince are in their 80s and the future remains uncertain.
  • Hard recovery in Gulf States. As oil rises to $70 per barrel and beyond, public infrastructure spending should stimulate growth. On the other hand, a lack of transparency makes it hard to assess how exposed Gulf firms and sovereign wealth funds are to overseas markets.

Watch the trend lines to see whether any of these events impact your ETFs.

  • WisdomTree Middle East Dividend  (GULF): up 7.8% year-to-date

  • Market Vectors Gulf States (MES): up 13.4% year-to-date

For more stories about the Middle East, visit our emerging markets category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.