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To sustain global influence, Gulf economies recalibrate foreign investments as war drains revenues
S7To sustain global influence, Gulf economies recalibrate foreign investments as war drains revenues Submitted by Gaspard Rouffin on Fri, 09/04/2026 - 11:46 Closure of Hormuz is forcing GCC states to balance domestic infrastructure and overseas economic ambitions for political influence to maintain soft power A general view shows Abu Dhabi's skyline across the Gulf waters in the Emirati capital (Karim Sahib/AFP) Off Economies across the Gulf Cooperation Council (GCC), comprising Bahrain , Kuwait , Oman , Qatar , Saudi Arabia, and the UAE , have all felt the fallout from the US - Israeli war on Iran, which has had a profound effect on investment across the region. Foreign investment into the region has fallen sharply , by as much as 67 percent since the war began in February, as the uncertainty over key trade routes like Hormuz and Bab al-Mandeb has added to the concerns. The Gulf states’ own ability to invest abroad, a pillar of their international financial and political weight in recent decades, has also come under strain. That strain has forced a series of recalibrations, both to outbound investment flows and to domestic spending more broadly, adding to already downward-revised ambitions, particularly in Saudi Arabia . Justin Alexander, an economist specialising in the GCC, told Middle East Eye the war is having “short-term impacts on fiscal revenue,” meaning “some Gulf states will either be unable to provide new capital to sovereign wealth funds or may even have to draw on them for financing". Kuwait did just that this week, announcing its government would borrow from the Future Generations Fund, a sovereign wealth fund holding over $1 trillion in assets, in order to support public finances. Saudi Arabia, meanwhile, is seeking to borrow up to $8bn in loans through its debt management centre to diversify its income sources, Bloomberg reported earlier this week. Competing priorities The financial fallout of the war means domestic priorities are increasingly competing with outbound investments from the Gulf. The construction of resilient infrastructure is one example, particularly channels built to bypass the Strait of Hormuz chokepoint, which has devastated oil and natural gas exports from GCC economies. From Syria to UAE, the race to bypass Strait of Hormuz is on Read More » These could take the form of pipelines, such as the second one the UAE has started building to the port of Fujairah. Such massive infrastructure projects have historically not always followed pure economic logic, and could collectively cost tens of billions of dollars, Ben Cahill, a senior fellow at the Atlantic Council, a Washington-based think tank, previously told Middle East Eye. “These pipelines are expensive and geopolitically complicated, but the Gulf states will spend serious money for back-up options,” Cahill said. The necessary capital is harder to find at a time when many GCC economies are losing revenue from blocked oil exports with a decline of over 30 percent, the same pressure already driving Kuwait and Saudi Arabia to borrow. While Saudi Arabia has previously turned to loans to fund its megaprojects, the urgency at which it is doing so is unusual, experts say, and Kuwait’s move is even rarer: the only other time it borrowed from its sovereign wealth fund was in 1990 following Iraq’s invasion of the kingdom. Alexander expects the shift from foreign investment towards domestic priorities to continue: “The demand for domestic spending for recovery and in new infrastructure will compete to some extent with foreign investment priorities," he said. Not every GCC country is responding the same way, said Robert Mogielnicki, a researcher and consultant specialising in the Gulf. While Saudi Arabia has "continued many of the strategic recalibrations that were underway before the Iran war," he said, the UAE is instead “seeking to restore normalcy," and Qatar is “figuring out how to manage growing economic pressures due to its significant exposure to Hormuz”. Resilience put to the test The economic resilience of Gulf investments has been put to the test with the closure of the Strait of Hormuz. For years, GCC economies have worked to diversify their incomes and reduce their vulnerability to large fluctuations in oil prices, investing in sectors as varied as logistics, tourism, and e-sports. That diversification has helped, Alexander told Middle East Eye. While the war has disrupted many sectors, having “broader economic bases” served as a “buffer amidst a sharp downturn in hydrocarbon production”. 'The war has pushed some of the economic diversification agenda points a bit lower on the priority list' - Robert Mogielnicki, Gulf researcher But some of the very sectors diversification strategies have focused on have also been hit hard. Tourism to the Gulf has dropped sharply, causing record losses for the airline and hotel industries , while revenue from tourism investments held abroad, by Qatar, for example, has not made up for losses in oil and natural gas exports. Other key sectors such as heavy manufacturing have also been disrupted by the Hormuz closure, with some aluminium processing plants and data centres directly hit by Iranian strikes, Alexander added. Diversification “continues to be an important longer-term objective,” Mogielnicki said, but the war has “pushed some of the economic diversification agenda points a bit lower on the priority list”. He cited the example of redundant infrastructure, such as the second pipeline to Fujairah being built by the Abu Dhabi National Oil Company, now seen as “a means for mitigating against Hormuz-related and other disruptions”. Such projects, he added, will limit the GCC states' ability to pursue economic diversification for its own sake: “clearly, lots of excess infrastructure is not the most cost-efficient approach to economic diversification”. Saudi soft power Outbound foreign investments from the Gulf often serve as a calculated instrument of soft power, offering geopolitical leverage, cultural relevance, and structural influence abroad. That logic still appears in the region’s newly recalibrated investment decisions, Alexander said. “Gulf investments often have dual objectives of commercial returns and cementing bilateral relationships.” Despite the Gulf countries' necessary recalibration on domestic investments, there have been record deals announced by GCC investors in the past few months, though many of these had momentum predating the war. On 4 August, a Saudi-led consortium finalised the acquisition of Electronic Arts, an American video game developer which made Fifa and The Sims. The deal took the video game giant private for $55bn, marking the largest leveraged buyout in corporate history. Even more recently, on 24 August, France and Saudi Arabia announced a major joint project to build three theme parks near Paris, one inspired by the global manga franchise Dragon Ball Z. The project is accompanied by a $7bn investment by Saudi Arabia's sovereign-backed Qiddiya Investment Company, The project was announced by French President Emmanuel Macron during an official state visit by Crome Prince Mohammed bin Salman, another display of how Gulf countries are using these foreign investments as leverage on the global political scene. Emmanuel Macron and Mohammed bin Salman shake hands during a trade agreement signature ceremony after their meeting in Paris on 24 August 2026 (Lou Benoist/AFP). Kristian Alexander, a Gulf security analyst at the Middle East Institute, told Middle East Eye that these investments also aim to generate financial returns and extend Saudi Arabia’s cultural reach. “The EA acquisition provides access to global franchises and digital audiences, while the Paris project potentially gives Saudi-owned Qiddiya an international operating platform and European visibility,” he said. This comes after a series of setbacks with domestic megaprojects the kingdom was pursuing. It recently halted construction on The Line, the 170km smart city meant to be the flagship of the Neom development, until at least 2030. The Neom megaproject, initially worth over $1tn, faced large-scale restructuring after cost projections suggested it could rise eightfold. Logistical constraints and shrinking oil revenue forced Saudi Arabia to pivot its strategy, now focused on AI data centres and digital infrastructure. Even domestically, massive investments once characteristic of booming Gulf economies are suffering the fallout of the war, forcing the kingdom to reprioritise infrastructure. Luxury hotel diplomacy Qatar’s international influence continues to rest on strategic investments in the luxury tourism industry abroad, which act as a direct instrument of soft power. In recent decades, Doha has accumulated acquisitions in New York, London, Paris, Barcelona, Singapore, Italy, and Switzerland, earning Qatar a strategic position at the crossroads of luxury and finance. But it also allows the emirate to gain strategic influence in key sectors, often raising fewer questions than an investment in defence, energy, or infrastructure would. 'A tourism project is easier to present as employment, environmental tourism and economic development' -Kristian Alexander, security analyst Kristian said: “A tourism project is easier to present as employment, environmental tourism and economic development.” This was recently the case with a hotel complex in the Seychelles, on Assomption Island, where a Qatari consortium acquired a site to build an ultra-luxury resort. The site is close to the Aldabra Atoll, a Unesco World Heritage Site, and the project has drawn stark opposition from environmental groups, which have criticised the environmental risks of the construction. But most importantly, Assomption Island had previously been chosen by the Indian military for a naval base, part of its “necklace of diamonds” strategy to counter China's growing presence in the Indian Ocean, known as the “string of pearls”. The luxury hotel investment allows Qatar to establish an economic foothold in this strategic region, at a time when Gulf states are increasingly competing with China and India for influence there. This project is characteristic of Qatar's luxury hotel diplomacy strategy, Kristian said. “Qatar can consequently obtain presence, relationships and reputational visibility in a strategically important location without requesting the explicit sovereign privileges associated with a military base.” GCC states will need to keep investing abroad to sustain the economic and political influence that such deals have built, especially as the region takes on a more central diplomatic role, seen in Qatar’s position in international negotiations over Hormuz. But this will be harder now, as the strait’s closure and the war’s financial toll strain Gulf finances at a time when they can least afford it. Uncertainty over when oil and natural gas exports will recover is adding to that pressure, just as domestic infrastructure is requiring more capital, and leaving GCC economies increasingly stretched. Economy News Post Date Override 0 Update Date Mon, 05/04/2020 - 21:19 Update Date Override 0
