Middle East Treasure Worth Rp85,000 Trillion at Risk of Vanishing in Flames of War

Jakarta, CNBC Indonesia - For several years, Gulf states have become major players in the global investment market. According to The Economist, the sovereign wealth funds of the six Gulf Cooperation Council (GCC) members—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates—manage assets exceeding US$5 trillion, or approximately Rp85,000 trillion (US$1 = Rp17,125). This value has surged from US$3 trillion in 2021. Since 2021, they have poured more than US$430 billion into various global sectors, from artificial intelligence and private credit to property, infrastructure, and elite football clubs. This flow of funds has driven the region’s transformation. Oil-producing countries are seeking to buy a future as the era of fossil fuels gradually wanes. Consequently, these funds have flowed into AI startups, data centres, renewable energy, logistics, ports, critical mineral mines, and farmland in Africa and Asia. The strategy is clear: rotate today’s oil revenues to keep economies alive when wells begin to lose dominance. However, Iran’s retaliatory strikes on US allies in the region are said to have damaged oil and gas infrastructure worth US$25 billion. In addition to repair costs, Gulf states are estimated to need US$30-50 billion for building new pipelines to reduce dependence on the Strait of Hormuz. This route is vital as it serves as the world’s energy export lifeline. At the same time, defence spending is rising. Supplies of interceptor missiles, ammunition, air defence systems, and military readiness must be bolstered. When domestic economies slow due to trade disruptions and energy exports, national funding needs automatically swell. Dubai has even announced a stimulus package for businesses. In such situations, sovereign wealth funds almost certainly become the state’s emergency cash reserves. During the pandemic, the Abu Dhabi Investment Authority once withdrew US$24 billion from its portfolio. The Kuwait Investment Authority withdrew US$25 billion. Funds from the United Arab Emirates and Qatar also injected around US$4 billion into national airlines. This means that when a country is under pressure, global portfolios will be called home. The problem is that their investment structures are now far more complex than in the past. Over the last five years, much of the Gulf funds have gone into illiquid assets. Entities from the United Arab Emirates and Saudi Arabia have invested nearly US$140 billion in property and infrastructure, about US$80 billion in private credit, and tens of billions of dollars into AI startups and data centres. Assets like these are not easily sold quickly. If forced to be offloaded, their prices could plummet. Some investments are also tied to geopolitical agendas. The United Arab Emirates holds stakes in mines and farmland in several African countries. Saudi Arabia’s Public Investment Fund finances mining businesses in Brazil and the agricultural sector in Southeast Asia. Such investments typically stem from inter-country relations, making them difficult to cancel just for short-term cash needs. Further pressure comes from ambitious domestic projects. Mubadala is funding the expansion of the Al Maryah Island financial district and the green energy company Masdar. When war reduces air traffic, tourism, and foreign investor interest, cash flows from airports, luxury hotels, property, and airlines are hit hard. Dividends that usually flow to sovereign wealth funds also shrink. In Saudi Arabia, the pressure affects national megaprojects. Construction of the Mukaab was reportedly halted in January. Contracts for the Trojena and The Line projects are also being trimmed. If the slowdown continues, the value of state fund investments could decline, and economic diversification targets could be delayed. The war forces Gulf wealth funds to face difficult choices. Money previously used to buy the future now must be diverted to repairing the old economy, refineries, pipelines, defence, and fiscal stability.