The sovereign wealth funds in the Gulf region together manage assets worth over $5 trillion. According to multiple reports, Gulf countries are among the world's most powerful investors, and the ongoing war in the Middle East is putting growing pressure on these funds. The funds are some of the world's largest and have been central global players in recent years, making their strategic decisions critical to international capital flows.
Brent crude oil prices have surged due to the conflict, with LNG prices rising almost 60% since the start of the war, according to Muyu Xu, senior crude oil analyst at Kpler. On March 2, QatarEnergy suspended its LNG production after an Iranian drone attack, straining the global LNG market. Prices of refined products have seen significant increases and are expected to continue rising if energy flows through the Strait of Hormuz remain largely shut, Xu added.
Iranian attacks on vessels in the Strait of Hormuz have dramatically reduced traffic in the channel. About 20% of global oil and gas supplies transit through the Strait of Hormuz, and Iran attacked fuel tankers in Iraqi waters on Thursday. About 84% of crude oil and 83% of LNG that passed through the Strait of Hormuz in 2024 was bound for Asia, according to the US Energy Information Administration. China, India, Japan, and South Korea accounted for nearly 70% of oil shipments through the Strait of Hormuz, with about 15% bound for the rest of Asia, the agency reported.
As crude oil and refined products from the Middle East Gulf are unable to reach buyers, countries in Asia are scrambling to secure alternative supplies at higher prices and adopt emergency measures, according to Muyu Xu. Much will depend on what happens with the Strait of Hormuz off Iran's coast, where roughly a fifth of the world's oil typically sails.
Three of the four largest Gulf economies began reviewing their sovereign wealth fund approaches in early March 2026 as the conflict with Iran escalated and disrupted oil and gas exports. Officials are assessing options such as slowing new outbound investments or redirecting capital toward local stabilization needs like supply chain security for food and water. One Gulf source noted that prolonged conflict would require balancing balance sheets after evaluating losses, yet immediate forced sales of global holdings remain unlikely.
The United Arab Emirates publicly affirmed no changes to its investment plans, highlighting forward-looking strategies. Saudi Arabia's Public Investment Fund similarly signaled commitment to its decades-long horizon. Pledges by government-linked investors in the Gulf since the outbreak of war have signalled the region's sovereign wealth funds will not row back on their foreign direct investment plans, despite warnings they are reviewing commitments overseas.
Gulf sovereign wealth funds are tipped to recalibrate future FDI strategies by narrowing focus to strategic industries that boost domestic capabilities, and allocating more capital to defence and infrastructure at home after damage and vulnerabilities from Tehran's retaliatory strikes.
A negative payrolls number combined with a big jump in oil prices will have traders worrying about stagflation risks.
Conflicting projections cloud the price outlook. If the conflict is short-lived and Iranian attacks cease, oil and LNG prices would fall back sharply with Brent crude reaching $65 per barrel by year-end, according to Neil Shearing and his team at Capital Economics. In case of a longer war, oil prices would rise further to around $130 per barrel in Q2, and shipments through the Strait of Hormuz would be affected, the team projected. Global commodity prices are set to tumble to a five-year low in 2025 amid an oil glut that is likely to limit price effects even of a wider conflict in the Middle East, according to the World Bank's Commodity Markets Outlook. Next year, global oil supply is expected to exceed demand by an average of 1.2 million barrels per day, a glut exceeded only twice before during the 2020 pandemic shutdowns and the 1998 oil-price collapse.
The World Bank outlook notes that from 2024 through 2026, global commodity prices are projected to plummet by nearly 10%. Global food prices are set to fall 9% this year and an additional 4% in 2025 before leveling off, leaving them nearly 25% above the 2015-2019 average. Energy prices are expected to drop by 6% in 2025 and an additional 2% in 2026. Overall commodity prices will remain 30% higher than in the five years before the COVID-19 pandemic.
The oil glut partly reflects a major shift in China, where oil demand has essentially flatlined since 2023 amid a slowdown in industrial production and an increase in sales of electric vehicles and LNG-powered trucks. Several non-OPEC+ countries are expected to ramp up oil production, and OPEC+ maintains significant spare capacity of 7 million barrels per day, almost double the amount in 2019.
Falling food and energy prices should make it easier for central banks to control inflation, but an escalation in armed conflicts could complicate that by disrupting energy supply and driving up prices. High prices, conflict, extreme weather, and other shocks have made more than 725 million people food insecure in 2024, according to Indermit Gill, World Bank Group's Chief Economist.
Oil shot to its highest price since 2023 after surging again Friday because of the Iran war, and a weak update on the U.S. job market knocked stocks lower to cap Wall Street's worst week since October. The S&P 500 dropped 1.3% after a report showed U.S. employers cut more jobs last month than they created and after oil prices spiked above $90 per barrel. The Dow Jones Industrial Average finished with a loss of 453 points (0.9%), and the Nasdaq composite sank 1.6%. A separate report showed that U.S. retailers made less money in January than economists expected. According to apnews.com, Brian Jacobsen described a negative payrolls number combined with a big jump in oil prices as having traders worrying about stagflation risks.
A barrel of benchmark U.S. crude breached the $90 level for the first time since 2023 and jumped 12.2% to $90.90. Oil prices have surged, with Brent up from near $70 late last week, as the war has expanded and included areas critical to oil and gas production and movement in the Middle East. The exact current Brent crude oil price and its total increase since the conflict began remain unclear, with reports showing discrepancies between $92.69 and $106 per barrel.
The U.S. government gave details Friday about a plan President Donald Trump announced earlier to offer insurance to ships crossing the strait, but it had little effect on the market. The effectiveness of U.S. and international measures to secure shipping in the Strait of Hormuz, and what alternatives exist for oil transport, are critical unknowns.
The duration of the conflict and whether Iranian attacks on the Strait of Hormuz will continue are pivotal factors shaping the global economic outlook. The total impact on global economic growth and inflation from the conflict, and whether it will lead to a recession, has not been determined. To what extent Gulf sovereign wealth funds are actually changing their investment strategies, and what specific actions they are taking, also remains uncertain amid conflicting signals about their response.