With foreign investors wary of war risk, Gulf sovereign funds may have to finance green heavy industry at home

Gulf sovereign wealth funds may have to pay for the region’s next round of industrial infrastructure now that foreign investors are wary of war risk, Dawud Al Ansari, president of the Shaheen Institute for Strategy and Development, argues in the Carboun Institute’s 2026 Dossier (pdf). His pick for the money: green steel and ammonia at the ports and plants the Gulf already has. Royal decrees rewriting the funds’ mandates would be the clearest sign it’s happening, he tells EnterpriseAM.

For years, Gulf states left the building to foreign companies while their sovereign funds invested abroad. The funds put much of their capital into real estate and stakes in foreign companies, and governments used auctions and production targets to bring in foreign builders. The UAE got Amazon, Oracle, and others to open large data centers, and Oman auctioned green hydrogen land blocks to foreign consortia while keeping sovereign equity to minority stakes.

That model has been under strain since the Iranian strikes: After strikes damaged operating data centers in the UAE and Bahrain, financiers paused or slowed decisions on new Gulf facilities. Al Ansari expects foreign capital to go only where the business case holds up under uncertainty, which leaves the sovereign funds to take back the job of building new sectors. A smaller, earlier sign of that would be more domestic funding for strategic industries, he tells us.

Foreign investment may be affected by the conflict for a few years, which would leave financing more reliant on domestic sources, Tim Callen, visiting fellow at the Arab Gulf States Institute in Washington (AGSIW), tells us. It’s too early to say where oil revenues settle after the war, but unless oil prices stay low for a sustained period, investment in new industrial projects by the Public Investment Fund (PIF) and others in Saudi Arabia is likely to continue, he adds. The PIF’s review of its projects has focused on real estate and not industry, and diversification and new industrial sectors remain a priority.

In Saudi Arabia, that money would come mainly from state companies, Callen tells us: the PIF and the National Development Fund, and potentially Aramco, depending on the sector.

Why it matters: If the shift happens, Gulf states would finance these projects and buy much of what they produce. Developers, contractors, and port operators chasing those projects would be pitching sovereign funds first.

For the funds, the best wager is green industry, because its assets can’t move. Renewable resources, ports, and heavy industry stay where they are in a way data centers and AI don’t. Gulf plants already use the process routes green production needs, so much of the build means upgrading installed capacity to run on some of the world’s cheapest renewable power.

Oman and Saudi offer early examples: Foreign interest in Omani green industry ran high before the war, but little of it turned into investment. The focus is now shifting to green steel and ammonia ventures at Duqm, Salalah, and Sohar, according to the chapter. In Saudi, the USD 8.4 bn NEOM green hydrogen project reached financial close in 2023, and partner Air Products kept its Saudi commitment this summer while dropping a large hydrogen complex in Louisiana.

The outlook for green iron hasn’t shifted much, but developers are waiting for clarity on the war before final investment decisions, Soroush Basirat, an energy finance analyst, tells us. MENA still has strong fundamentals for supplying it, and Oman has generally offered a more favorable environment for clean heavy industry, including iron and steel, a position its location could strengthen, he adds. Meranti’s green HBI plant in Oman was expected to reach a final investment decision this year and may now slip to next, he tells us, and he hopes it moves into construction, since it could be a milestone for green iron across MENA and for Oman.

Omani ports have picked up much of the trade rerouted from Hormuz, and that gives Oman a window to build industry. It’s a sudden economic prospect arising from a difficult regional situation, and Oman needs to move quickly to bring in investors and industrial relocation while attention is high, before logistics patterns shift again, Al Ansari tells us. That gives the ports and freezones at Duqm, Sohar, and Salalah two jobs at once: handling far higher volumes, which, he adds, they’ve managed remarkably well, and laying the foundations for long-term industrial growth.

Export routes outside the strait are an advantage, though not an assurance. Saudi Arabia’s Red Sea facilities have also been hit by attacks and by threats to shipping at Bab Al Mandab, Kate Dourian, a board member of the Energy Institute’s Middle East branch, tells us. Projects with outlets outside Hormuz, particularly in Oman and at Fujairah, have an obvious logistical edge, and investors now ask how reliably oil and gas can reach customers, she adds, which should draw more money into pipelines, storage, and alternative routes. Investors aren’t abandoning projects inside the Gulf, though they are pricing in higher transport, ins., and security costs, she tells us.

Buy local

Green steel and cement also have something hydrogen doesn’t: a buyer at home. Most Gulf hydrogen projects were designed around promised European and East Asian demand, so buyers there set the pace. Hydrogen is also inflexible and hard to transport, which keeps investment risk high, he tells us. Green steel and cement producers can sell into the Gulf’s own construction pipeline instead, where the green premium almost disappears once it’s spread across large civil engineering projects.

That puts governments on both sides of the agreement: The state ensures these projects and buys their output through its own construction programs, so it can use cheap policy tools to make them bankable: quotas for domestic green steel, sovereign offtake guarantees, and green procurement rules like those Germany has used. These tools can pull in private capital even where foreign investors, rather than sovereign funds, lead the projects, Al Ansari argues in the chapter.

The sovereign funds wouldn’t need to carry the demand side themselves. State-owned companies could sign the offtake agreements, with finance ministries or similar institutions underwriting them out of the general budget, he tells us. Because green steel and cement replace existing products one for one, the state only has to cover the remaining cost gap. If the EU’s Carbon Border Adjustment Mechanism (CBAM) proves effective enough, these goods may become commercially viable without any support at all, he adds.

Low-wattage returns

Grid-scale renewables are unlikely to get the same push from the funds. Sovereign funds hold only around a quarter of the equity behind the GCC’s installed utility-scale renewables capacity, most of it through the Public Investment Fund (PIF), by Al Ansari’s count in the chapter. The rest of the state money in the sector comes through utilities such as DEWA and EWEC/TAQA, joint ventures with foreign developers, or heavily leveraged agreements. That share probably won’t grow much, he tells us, since the case for domestic industry has strengthened since the war while the math on renewables hasn’t changed.

Returns are the sticking point: Renewables make economic sense for the Gulf because they freeup gas for export, but they sit heavily on public balance sheets and return less than funds typically require, he writes. Installing capacity also creates relatively few jobs unless it’s tied to lasting industrial operations, which would need markets beyond the GCC, Al Ansari tells us. The funds have more room to move in manufacturing renewable energy equipment, he adds.

Renewables also cut dependence on fuel that a conflict can disrupt, and gas development continues alongside them, Dourian tells us. Burning less gas for power frees supplies for industry, petrochemicals, and LNG, but she wouldn’t call that their main purpose, and she describes renewables and gas as complementary. Adnoc has moved ahead with the Ruwais-Diyab unconventional gas project and the USD 6.2 bn Umm Shaif Gas Cap development, she adds, while much of the renewables-related investment is going into storage and grids, particularly in Saudi Arabia and the UAE.

The PIF is likely to tilt more toward commercial returns over time, but there is room for lower-return industrial projects in its portfolio as long as they bring other benefits, Callen tells us. Its mandate is to balance financial and social returns, and it is focused on developing new sectors where skilled jobs can be created for Saudi nationals.

Foreign money is still going into Gulf oil and gas, Dourian tells us, and she sees little sign that the war has deterred it. National oil companies are keeping their programs going, with Aramco holding its 2026 capital spending at USD 50-55 bn and Adnoc announcing major new gas investments at Adipec, and international oil companies are pursuing prospects in Iraq, Libya, and Syria, where the risks were already high. She points to January agreements involving TotalEnergies and ConocoPhillips in Libya that envisage more than USD 20 bn of foreign-financed investment, and to Chevron, ConocoPhillips, and ExxonMobil investing in Iraq’s upstream. The chapter also expects foreign investors to put more into hydrocarbons, and Oman opened a bidding round for five oil and gas blocks in April.

The UAE has used its exit from Opec to push output to a record, Dourian tells us. Its crude production recovered from 1.92 mn bbl / d in March to a record 4.01 mn bbl / d in October despite the disruption to shipping through Hormuz, partly because of its existing Fujairah pipeline and alternative export arrangements. Adnoc is expanding its bypass pipeline capacity from 1.8 mn bbl / d to 3.3 mn bbl / d by mid-2027, and the message, she adds, is that Abu Dhabi intends to expand its share of global oil markets while building the infrastructure to reach customers. Other Gulf producers face the same challenge, though how they respond depends on access to alternative export routes.

Seeing double

If the funds do pile into green industry, the same plants could go up across the bloc. Gulf states already build the same capital-intensive export industries side by side, with no mechanism to sequence or link them. Sovereign funds converging on green steel and ammonia would sharpen that, Al Ansari warns in the chapter, which is why he wants the shift coordinated at a regional level.

Who would do the coordinating is still an open question, he tells us. The GCC already has a few bodies working on industrial cooperation, including the Gulf Organization for Industrial Consulting (GOIC), and the options range from strengthening existing institutions to creating a new one or a multilateral council. The most ambitious would be a jointly financed, jointly owned GCC industrial investment fund backing cross-border projects and shared value chains, though it would also be the hardest to set up.