Key facts
- Foreign investment into GCC economies has dropped significantly due to the US-Israeli war on Iran.
- The conflict has created uncertainty around vital trade routes like the Strait of Hormuz and Bab al-Mandeb.
- Kuwait is borrowing from its sovereign wealth fund to bolster public finances.
- Saudi Arabia is seeking loans to diversify its revenue streams.
- Domestic infrastructure projects are gaining priority over outbound investments.
- GCC countries continue to announce major foreign investment deals, some predating the current conflict.
Economies across the Gulf Cooperation Council (GCC) are recalibrating their foreign investment strategies due to the financial fallout from the US-Israeli war on Iran. The conflict has led to a sharp decline in foreign investment into the region, estimated at up to 67 percent since February, driven by uncertainty surrounding critical trade routes like the Strait of Hormuz and Bab al-Mandeb.
The ability of Gulf states to invest abroad, a key component of their international influence, has also been strained. This has forced a reevaluation of outbound investment flows and domestic spending priorities, particularly in Saudi Arabia, which is facing downward-revised ambitions. Justin Alexander, an economist specializing in the GCC, noted that the war is impacting fiscal revenue, potentially preventing some states from injecting new capital into their sovereign wealth funds or even requiring them to draw from these funds for financing.
Kuwait has already announced it will borrow from its Future Generations Fund, which holds over $1 trillion, to support its public finances. Similarly, Saudi Arabia is reportedly seeking to borrow up to $8 billion through its debt management center to diversify its income sources. This shift means domestic priorities, such as constructing resilient infrastructure to bypass chokepoints like the Strait of Hormuz, are increasingly competing with outbound investments. These infrastructure projects, which could cost tens of billions, are seen as crucial backup options despite their expense and complexity.
Robert Mogielnicki, a researcher specializing in the Gulf, observed that different GCC countries are responding uniquely. Saudi Arabia is continuing strategic recalibrations that were already in motion, while the UAE aims to restore normalcy, and Qatar is managing growing economic pressures due to its significant exposure to Hormuz. The closure of the Strait of Hormuz has tested the economic resilience of Gulf investments, impacting hydrocarbon production and other sectors like tourism and heavy manufacturing.
Despite these challenges, GCC investors have announced significant deals, including Saudi Arabia's $55 billion acquisition of Electronic Arts and a $7 billion joint theme park project in France. These investments, while sometimes predating the current conflict, continue to serve dual objectives of commercial returns and cementing bilateral relationships, demonstrating the dual role of Gulf investments as both financial instruments and tools of soft power.