Rivalry Between Oil-Rich Gulf Giants Rattles Wall Street

The conflict between Saudi Arabia and the United Arab Emirates (UAE), which has deepened following the U.S.-Iran war, is now shaking Wall Street. Because the two nations are "big money" players running sovereign wealth funds worth trillions of dollars in total, financial firms are on edge over the risk of angering either side. The fallout from the rift between these Middle Eastern "blood allies" is steadily widening.

Middle Eastern "Blood Allies" at Odds Over Every Issue, on the Brink of Rupture Over the Iran War

According to Bloomberg on the 12th, executives at major Wall Street banks and private equity funds have recently been preparing for the possibility that the deteriorating relationship between Saudi Arabia and the UAE could hurt their businesses. Some are said to have already drawn up contingency plans based on worst-case scenarios.

Saudi Arabia and the UAE, the Middle East's leading oil producers and wealthy nations, have been the Gulf's "top two" representing the regional order. However, they began to drift apart as they took differing positions on geopolitical issues and other matters. For example, Saudi Arabia and the UAE formed a united front against Houthi rebels when Yemen's civil war broke out in 2015, but afterward the forces each supported diverged. Saudi Arabia, which shares a border with Yemen, began supporting Yemen's government forces to stabilize its border region, while the UAE backed the Southern Transitional Council (STC) to secure control of maritime trade routes. In the Sudan civil war that erupted in 2023, Saudi Arabia is known to have covertly supported the government forces, while the UAE backed rebel organizations.

The grievances that had gradually accumulated erupted with the U.S.-Iran war. The UAE abruptly declared its withdrawal in April this year from the Organization of the Petroleum Exporting Countries (OPEC), where it had been a core member for 58 years. The direct reason was that Gulf states remained passive in their response—failing to take military action even after Iran, vowing to retaliate against U.S. forces that struck it, launched indiscriminate drone attacks on neighboring Gulf countries. However, the prevailing interpretation is that the grievances that had built up with Saudi Arabia over oil production ultimately boiled over. The UAE has sought to reshape its national industrial structure toward advanced industries such as AI using profits from increased output, while Saudi Arabia pursues a strategy of maintaining its "fortress" as a cartel that controls crude output to influence international oil prices.

Suspicions of Saudi "Under-the-Radar Financial Sanctions" Against the UAE

Wall Street has poured effort in recent years into attracting investment from these players, who run astronomically large sovereign wealth funds—Saudi Arabia's at about $1.21 trillion and the UAE's at $2.7 trillion, totaling $3.91 trillion (approximately 5,874.96 trillion won). In particular, as the two countries shift their industrial structures from oil toward artificial intelligence (AI) and undertake large-scale infrastructure investments, they are clients that Wall Street cannot afford to lose. But as the rift between the two nations has deepened to the extreme in the wake of the Iran war, firms are being extremely cautious. Bloomberg reported that "Wall Street is walking a tightrope, reluctant to take either side."

Signs have also emerged indicating that the deterioration in Saudi Arabia-UAE relations is worsening. According to the Financial Times (FT), there have recently been growing cases of "under-the-radar financial sanctions," in which Saudi banks block or deliberately delay remittances made to accounts based in the UAE. An executive at a Dubai-based healthcare company told the FT that three payments due from a Saudi business partner it had dealt with for years have been blocked since mid-May. In the market, this is being analyzed as a sign that the conflict between the two nations, which has escalated in recent years, is now expanding into the private economic sphere.

If Relations Worsen Further, a Repeat of the "Qatar Rupture" Is Feared

This means the conflict between Saudi Arabia and the UAE has begun to affect even foreign companies operating businesses in the Middle East.

Bloomberg forecast that, in the worst case, a situation like the "Qatar rupture" that began in June 2017 could occur again. In the Qatar rupture, four countries—Saudi Arabia, the UAE, Bahrain, and Egypt—abruptly declared a severance of diplomatic ties, claiming that Qatar had aligned itself with Iran and supported terrorist groups. They closed all airspace, waters, and land routes leading to Qatar and pressured it to cut ties with Iran, while Qatar countered that this was an infringement of its sovereignty. The severance lasted about four years, until early 2021. Of course, the circumstances and justifications differ from those of the present, but Bloomberg forecast that it is difficult to rule out the possibility that a Middle Eastern split could once again deal a major blow to global financial markets.