Saudi Arabia and the United Arab Emirates (UAE), two oil-rich nations in the Middle East, are splitting over the Iran war and oil policy, forcing Wall Street financial firms that have managed both countries' money to choose sides.
Saudi Arabia and the UAE were close allies, intervening together in Yemen's civil war in 2015. But ties began to fray as they backed different factions in Yemen and Sudan, and the break became complete when the UAE in April quit the Organization of the Petroleum Exporting Countries (OPEC), which Saudi Arabia has led.
Bloomberg reported on the 12th (local time), after interviewing more than a dozen Wall Street bankers and private equity executives, that Goldman Sachs, Morgan Stanley, BlackRock, Brookfield, and KKR have begun drawing up contingency plans in case relations between the two countries worsen. The two countries' sovereign wealth funds together have entrusted these global financial firms with more than $3 trillion (about 4,500 trillion won). Senior executives at major financial firms did not expect an outright clash between the two countries. But as both sides raise their voices, they worried that pressure could grow to pick whether to focus on money from Riyadh, the Saudi capital, or Abu Dhabi, the UAE capital.
Global SWF, a sovereign wealth fund data provider, estimated total global sovereign wealth fund assets under management at about $13 trillion as of July this year. Saudi and UAE sovereign wealth funds manage more than one-fifth of that. The Public Investment Fund (PIF) alone has about $1.21 trillion (about 1,815 trillion won) in assets under management. Bloomberg said the market was booming in the first half of this year as well, with the value of transactions involving Gulf capital reaching about $300 billion (about 450 trillion won), nearly 200% higher than a year earlier. Saudi and UAE funds both put money into the $110 billion (about 165 trillion won) acquisition of Warner Bros. Discovery by Paramount–Skydance, known as the biggest merger in the first half. When Saudi bought game company Electronic Arts (EA) for $55 billion (about 82.5 trillion won) last year, foreign banks earned millions of dollars in advisory fees.
Recently, however, corporate remittances sent from Saudi Arabia to the UAE have been unusually delayed. At the same time, employees of global financial corporations based in the UAE have found it harder to obtain Saudi business visas. Authorities related to the two countries officially denied any sanctions targeting a specific nation. But as remittance and visa issues coincided with the timing of the rift, some global investment banks consider the matter serious enough that they have conducted internal risk assessments in case economic tensions worsen.
Bloomberg, citing an international asset manager that had been raising Middle Eastern fund capital, said, "We were told by Saudi limited partners that going forward they can commit only to vehicles focused on Saudi Arabia and should avoid investments related to the UAE." Another law firm said it is choosing Gulf mandates more carefully than before to avoid antagonizing either camp. One financial firm is said to have even considered a lobbying plan through the U.S. government to contain the fallout if the conflict escalates significantly.
The UAE is a federation of seven emirates, with politics and sovereign wealth funds concentrated in the capital, Abu Dhabi, and finance and expatriate life centered in the commercial hub of Dubai. Many staff at major global financial firms, including Wall Street, live in Dubai, which has international schools and housing, and commute on weekdays to Riyadh, Saudi Arabia, where social norms are more conservative. Aware of this commuting pattern, the Saudi government has for years pressed multinationals earning money in the kingdom to expand their on-the-ground operations.
Since then, even during this year's wartime phase of the U.S.–Iran confrontation, Saudi Arabia has taken a conciliatory stance toward Iran, while the UAE advocated a hard line from the start and went a different way. In April, the UAE went so far as to announce it was leaving OPEC. Bloomberg said, "The decision caught Saudi Arabia off guard" and "threatened the entire OPEC system led by Saudi Arabia."
Experts said that the more tensions rise between the two Middle Eastern economic heavyweights, the more complicated the Gulf policy calculus pursued by the Donald Trump administration will become. Corporations have already begun making case-by-case decisions on where to place funds, investors, transaction and treasury staff—Saudi Arabia or the UAE. Firas Maksad, head of Middle East and North Africa at the Eurasia Group, said, "At a time of conflict with Iran, further fragmentation among the United States' key Middle Eastern allies does not serve America's long-term strategic interests."