Middle Eastern sovereign wealth funds, accumulated over decades from oil and gas revenues, face their biggest test as regional conflicts threaten to drain the $5 trillion emergency reserves these nations have carefully built.
Iranian strikes targeting Gulf infrastructure have created potential financial pressures not seen in years. While crude prices jumped 20% since last Friday, the attacks have disrupted critical oil exports through the Strait of Hormuz and forced shutdowns at major facilities, including Saudi Aramco’s largest domestic refinery and Qatar’s natural gas operations.
Extended military confrontations could compel treasury officials in Riyadh, Abu Dhabi, Doha and Kuwait to access their sovereign reserves, financial experts warn. These governments now face mounting defense expenditures, supply chain disruptions affecting everything from food to medical supplies, and potential economic downturns.
“SWFs (sovereign wealth funds) give countries like the UAE strong financial buffers, and regional governments will rely on their deep pools of sovereign wealth if and as needed,” said Paris-based Robert Mogielnicki, who runs an investment and geopolitical advisory firm and is a non-resident scholar at the Arab Gulf States Institute.
The Strait of Hormuz, which carries roughly one-fifth of global oil consumption, remains critical for energy giants Saudi Aramco and Abu Dhabi National Oil Company (ADNOC). Both companies have historically moved most crude exports through this waterway. Alternative shipping routes exist but lack sufficient capacity to handle typical Gulf volumes.
“The impact of the current Iran-related crisis depends on how energy flows and prices evolve,” Global SWF, a research group, said in a report on Wednesday.
Gulf nations have worked to reduce dependence on natural resources, yet hydrocarbon revenues still anchor public budgets with varying degrees of stability. The UAE expects fiscal surpluses approaching 5% of GDP through 2025 and 2026, while Saudi Arabia recorded a 276 billion riyal ($73.54 billion) budget shortfall last year, with additional deficits projected ahead.
JPMorgan analysts have already reduced growth projections for non-oil sectors across Gulf Cooperation Council members – Saudi Arabia, UAE, Oman, Bahrain, Kuwait and Qatar. They anticipate a 1.2 percentage-point decline from earlier estimates, with the UAE facing the steepest downward revision of 2.3 percentage points. Hydrocarbon sectors might rebound later this year depending on conflict duration, JPMorgan noted.
The investment bank warned that non-hydrocarbon industries would suffer lasting damage, with heightened risks to diversification goals including domestic investment, foreign capital attraction and talent recruitment.
International borrowing costs could also increase for these nations. Saudi Arabia approved a 217 billion riyal ($57.86 billion) borrowing authorization in January. The kingdom’s sovereign wealth fund, the Public Investment Fund (PIF), alongside Aramco, banks and other entities, has raised approximately $27 billion since early this year, representing one of their most aggressive fundraising periods, JPMorgan reported February 2.
“PIF may face more (financial and operational) constraints (than purely portfolio-oriented peers) since it is not only a global investor but is also the main funding force for Vision 2030,” said Ana Nacvalovaite, an Oxford academic specialising in sovereign wealth funds.
PIF was already redirecting focus domestically as the kingdom seeks to attract investment amid growing fiscal strain and the need to finance Vision 2030. This ambitious plan requires hundreds of billions in government spending across tourism and other sectors to reduce hydrocarbon dependence.
Following the 2008 global financial crisis, regional funds became crucial lifelines for international investors, supporting institutions from Barclays to Credit Suisse. Not every investment succeeded, leading funds to adopt more strategic approaches in recent years.
These entities have committed massive resources to technology and artificial intelligence, making these sectors central to economic diversification efforts away from oil dependency.
PIF has allocated tens of billions toward domestic and international technology ventures, including stakes in SoftBank’s Vision Fund. Mubadala has invested heavily in robotics and AI infrastructure, while Abu Dhabi’s MGX, launched last year with Mubadala as a founding partner, has collaborated with BlackRock on a $30 billion AI infrastructure initiative.
High-profile investments in media, entertainment and sports reflect efforts to project influence and capture growth in consumer industries. PIF acquired majority control in Electronic Arts and invested billions in professional golf through LIV Golf, boxing and e-sports.
Last December, the Saudi fund, Abu Dhabi’s L’imad and Qatar Investment Authority combined forces to support Paramount Skydance’s $108 billion offer for Warner Bros Discovery. This unusual three-way partnership demonstrated Gulf states’ appetite for entertainment assets and growing influence in global dealmaking.
However, continued military escalation and increased domestic needs could pause investment activities, according to Nacvalovaite.
“Priority is security of the citizens and the supply chains e.g. food security and drinking water,” she said.
The $1 trillion Kuwait Investment Authority (KIA), established in 1953 as the world’s first sovereign wealth fund, provides historical context for these institutions’ emergency role. When Iraqi forces invaded in 1990, KIA’s London operations effectively functioned as the country’s finance ministry, coordinating transfers to the government in exile.
Since then, every major Gulf fund has maintained similar emergency preparedness: accumulating during prosperous periods and deploying during crises, despite operating under different mandates and strategies. While PIF serves as a domestic investment vehicle for Saudi Vision 2030, KIA and Abu Dhabi Investment Authority focus exclusively on international investments.
Not all sovereign capital could be quickly mobilized during deeper crises. Funds like Mubadala, with greater emphasis on private equity, infrastructure assets, and illiquid alternatives, might face more challenging divestment processes.
U.S. Treasury bonds and publicly traded stocks may offer the first and easiest liquidation options. Abu Dhabi’s ADIA was among investors that sold a large block of shares in U.S. company Medline this week.
“Public markets are the easiest source of liquidity, but they’re also the most visible and can be costly to exit during volatility,” said Sam Bourgi, finance analyst at InvestorsObserver.
“The base case is that Gulf SWFs are not forced sellers.”
Some investment activity continues currently. Mubadala joined a group committing approximately $4 billion to life insurance company Athora Holding, according to Friday’s announcement, while ADIA and a QIA subsidiary appeared this week among cornerstone investors for Japanese payment firm PayPay’s U.S. initial public offering.
Reduced outbound investing and quiet portfolio adjustments rather than emergency asset sales represents a more probable scenario, Bourgi explained.
Qatar’s QIA chose to deploy sovereign resources domestically during the 2008 financial crisis to stabilize its banking system, purchasing assets from local bank portfolios to restore market confidence.
Peter Jädersten, CEO of fundraising advisory firm Jade Advisors, said efforts would focus on quickly restoring confidence, though he cautioned the process may require time.
“I think the SWFs’ portfolios will have a short-term reset, but so will other long term investors across the globe like endowments and pension funds. I don’t think it will make a dent in the long-term portfolios of the region’s SWFs,” he said.
