Matthew’s view
Gulf states have amassed around $5 trillion from oil surpluses over the past few decades, while institutions like Abu Dhabi’s Mubadala, Qatar Investment Authority, and Saudi Arabia’s Public Investment Fund have been fêted by the world’s biggest dealmakers and corporate bosses.
That has, in turn, helped the governments that control them wield influence across the globe, but particularly in the US: When President Trump visited the Gulf last year, sovereign wealth funds played a major part, making trillion-dollar promises to invest in America.
How those funds respond to this crisis could go several ways, but a recent scenario analysis by GlobalSWF suggested the most likely outcome sees them play an even bigger role in years to come.
The forecast assumes that when the Strait of Hormuz reopens, oil prices remain high as investors fret about risks in the region, leading to a surge in cash for Gulf states. That will enable them to pay for rebuilding damaged infrastructure, restocking depleted militaries, and still directing surplus cash to investment vehicles around the world, reinforcing a reputation as a top source of funding for global dealmakers.
Yet GlobalSWF’s model also warns of other, far more disruptive potential outcomes. A prolonged halt to shipping through the Strait of Hormuz would damage government finances, leading them to call on sovereign funds to help fund deficits. An escalation in the conflict and damage to key infrastructure could lead to oil price spikes, but limit Gulf states’ ability to capitalize on them. Governments may need to call on rainy day funds to help bolster defense spending and make up for shortfalls in tourism and other non-oil industries.
The potential for a swift return to the status quo of last month is possible, but seems like a long shot.
Notable
- Pressure on Gulf state budgets from the US–Israeli war against Iran could prompt them to reassess overseas investments and commitments, with a Gulf official telling the Financial Times that this could affect investment pledges, sports sponsorships, business contracts, and holdings sales.