War in Iran: where trillions of dollars from the Persian Gulf will go
Trillions of dollars of public investment are at stake.
The scale of sovereign funds of these states shows what a shock for the world markets will be a possible “flight” of capital from the Persian Gulf countries. The largest of them are comparable or even much larger than the economies of many states, including Moldova:
– Public Investment Fund (Saudi Arabia) – about $1.15 trillion of assets;
– Abu Dhabi Investment Authority (UAE) – about $1.1-1.18 trillion;
– Kuwait Investment Authority – about $1 trillion;
– Qatar Investment Authority – more than $500 billion.
Together, the Gulf states control the largest public investment funds in the world.
The second significant factor is the historical connection of these funds with the American economy. The US remains the key destination for sovereign investments: for example, Abu Dhabi has announced plans to invest up to $1.4 trillion in the US economy, while Qatar plans to invest $500 billion within a decade.
In this context, the main question for the markets is still open: how will the owners of these funds behave? Will they revise their investment strategies and when? And if they do, where will the trillions from the Persian Gulf flow to?
Was the war started for the sake of “financial redistribution”?
In various publications, blogs and social networks, the topic of capital flight from the war in Iran is already being discussed in full swing. Despite the absence of official statements by governments or funds, many believe that a revision of financial strategies is imminent. The main thing is when and how?
At the same time, despite the direct involvement of the United States in the conflict, it is American assets that are considered to be the main beneficiaries of a possible capital flight.
A very important aspect: it is not only the sovereign funds of the sheikhs that may flow to the United States. Analysts claim that many of those “moneybags” who recently actively invested in the Emirates and associated their future with this “safe haven” have fled from there. Predominantly also in the USA.
In this context, a hypothesis is put forward that the war in Iran is not really about Tehran’s nuclear program and regime change there. It is about the redistribution of the financial and oil market.
According to the authors of this hypothesis, Trump, as a successful businessman, considers any situation primarily from the point of view of profit and financial interest. And getting involved in the conflict in Iran, he took into account, among other things, the behavioral factor of investors. Not unreasonably expecting that the money of the sheikhs and other investors would “run” more actively to America and thus help support the dollar and American state assets.
That is why, according to commentators in social networks, Washington is not very diligent in protecting the Gulf countries from Iranian drones and missiles. Thus, as if weakening the competition for financial flows from Dubai and Abu Dhabi, which are no longer perceived by many as “safe havens”.
In times of crisis, money almost always goes where markets are deeper and liquidity is higher. Based on these criteria, in the current situation, American assets become practically non-alternative.
What the markets are really showing
Although there is little direct evidence of active “capital flows” from the Gulf countries to the US or other regions, some signals suggest that there is growing interest in the dollar as the most reliable asset.
In particular, the deputy head of Reserve Bank of Australia Andrew Hauser noted at the financial forum in New York: “The dollar still demonstrates stability as a protective currency” (quoted by Reuters).
However, serious analysts have noted that financial markets have so far reacted relatively calmly to the war in Iran. It can testify either in disbelief in duration of the conflict, or that investors do not see serious threat to their capitals yet.
David Solomon, head of Goldman Sachs, admitted at an investment summit in Sydney: “I’m surprised at how calm the reaction of the markets has been so far, notes NewYorkPost. And he specified that investors usually start to change strategies only when the conflict starts to directly threaten global economic growth.
At the same time, despite the lack of evidence of mass capital withdrawal, analysts believe that the scenario itself does not look unrealistic.
They proceed from the fact that the financial system of the Gulf countries is deeply integrated into global markets. Their funds actively invest in the U.S., Europe and Asia and are able to change the structure of their portfolios quite quickly.
If the conflict over Iran drags on, investors may act more cautiously: increase the share of liquid assets, postpone new investments and reallocate funds to the most stable markets.
And all experts say that the U.S. market remains the main candidate for reallocation of funds. It is the largest, most liquid and has historically been a financial safe haven in times of instability.
What can spur the financial market to action
Taking into account all these factors, we can say that so far the talk about “capital flow” remains a hypothesis rather than a confirmed fact.
But financial markets are watching the situation closely for one reason – the stakes are too high, analysts warn.
When a few sovereign wealth funds control trillions of dollars, even a small change in their strategy can alter global capital flows.
Sometimes all it takes is one investment committee decision to move global markets.
Therefore, analysts of the largest banks are now following two indicators rather than statements of politicians: flows into U.S. bonds and new investments of Middle East funds.
If these indicators start to grow rapidly, the talk of a “quiet exodus of capital” from the region may cease to be a rumor and turn into a new reality of global financial markets.
And in such a situation, the one who reacts faster and navigates correctly usually wins.
