Key Takeaways
- • Iran's attacks across the Gulf, in response to Israeli and U.S. strikes, have slashed hydrocarbon exports via the Strait of Hormuz and halted output at facilities including Saudi Aramco's biggest domestic refinery and Qatar's LNG sites, according to Reuters.
- • Gulf sovereign wealth funds, holding a combined pot of about $5 trillion, may be pressed to shift toward domestic stabilisation if the conflict is sustained, analysts say.
- • JPMorgan cut its non-hydrocarbon growth forecast for Gulf Cooperation Council countries by 1.2 percentage points, with the UAE seeing the steepest revision at 2.3 points.
- • Analysts stress Gulf SWFs are not forced sellers in the base case, with slower outbound investing and portfolio rebalancing seen as more likely than emergency selling.
Summary
Iran's attacks across the Gulf, launched in response to Israeli and U.S. strikes, could unleash a fiscal shock across the region, Reuters reported on March 6. Oil prices have surged 20% since the previous Friday, but the attacks have slashed hydrocarbon exports through the Strait of Hormuz, which handles about a fifth of world oil consumption, and halted output at Saudi Aramco's largest domestic refinery and Qatar's LNG sites. Analysts say a sustained conflict could force the hand of finance ministries in Riyadh, Abu Dhabi, Doha and Kuwait, which face rising defence costs, supply disruptions and a possible broader economic slowdown.
Gulf SWFs have built a pot of roughly $5 trillion over decades. Robert Mogielnicki, a non-resident scholar at the Arab Gulf States Institute, said regional governments would rely on these reserves if and as needed. Global SWF said in a report that the impact depends on how energy flows and prices evolve. Public finances remain mixed: the UAE is projected to record a fiscal surplus of close to 5% of GDP in 2025 and 2026, while Saudi Arabia posted a 276 billion riyal ($73.54 billion) budget deficit last year, with deficits forecast for the next few years. JPMorgan cut its non-oil growth forecast for GCC countries by 1.2 percentage points, with the UAE seeing the steepest cut at 2.3 points. Borrowing through international debt markets could also become more expensive.
PIF faces particular pressure. Saudi Arabia approved a 217 billion riyal ($57.86 billion) borrowing plan for this year, and the PIF, Aramco, banks and other companies had raised about $27 billion by early February, according to JPMorgan. Ana Nacvalovaite, an Oxford academic specialising in sovereign wealth funds, said PIF may face more constraints than portfolio-oriented peers because it is also the main funding source for Vision 2030, and that investments could be paused if military escalation and domestic demands grow.
Liquidity is uneven across funds. Public markets are the easiest source of liquidity, and ADIA was among investors that offloaded a large block of shares in Medline this week. Mubadala's focus on private equity, infrastructure and illiquid alternatives could make divestments more difficult. Some investments continue: Mubadala is among investors committing about $4 billion to Athora Holding, and ADIA and a QIA unit were cornerstone investors in PayPay's U.S. IPO. Peter Jadersten, CEO of Jade Advisors, said the focus would be on restoring confidence quickly, and that the short-term portfolio reset would not significantly dent the long-term portfolios of regional SWFs.
Gulf SWFs have built a pot of roughly $5 trillion over decades. Robert Mogielnicki, a non-resident scholar at the Arab Gulf States Institute, said regional governments would rely on these reserves if and as needed. Global SWF said in a report that the impact depends on how energy flows and prices evolve. Public finances remain mixed: the UAE is projected to record a fiscal surplus of close to 5% of GDP in 2025 and 2026, while Saudi Arabia posted a 276 billion riyal ($73.54 billion) budget deficit last year, with deficits forecast for the next few years. JPMorgan cut its non-oil growth forecast for GCC countries by 1.2 percentage points, with the UAE seeing the steepest cut at 2.3 points. Borrowing through international debt markets could also become more expensive.
PIF faces particular pressure. Saudi Arabia approved a 217 billion riyal ($57.86 billion) borrowing plan for this year, and the PIF, Aramco, banks and other companies had raised about $27 billion by early February, according to JPMorgan. Ana Nacvalovaite, an Oxford academic specialising in sovereign wealth funds, said PIF may face more constraints than portfolio-oriented peers because it is also the main funding source for Vision 2030, and that investments could be paused if military escalation and domestic demands grow.
Liquidity is uneven across funds. Public markets are the easiest source of liquidity, and ADIA was among investors that offloaded a large block of shares in Medline this week. Mubadala's focus on private equity, infrastructure and illiquid alternatives could make divestments more difficult. Some investments continue: Mubadala is among investors committing about $4 billion to Athora Holding, and ADIA and a QIA unit were cornerstone investors in PayPay's U.S. IPO. Peter Jadersten, CEO of Jade Advisors, said the focus would be on restoring confidence quickly, and that the short-term portfolio reset would not significantly dent the long-term portfolios of regional SWFs.
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