Saudi Arabia has, so far, managed to decouple its investment story from more exposed GCC neighbors whose exchanges were temporarily shut and maritime routes blocked. “We believe that investors for now may be looking at Saudi as a safe haven given the market depth and relatively strong domestic narrative,” with multiple sectors offering a solid domestic play unlike some other GCC markets, SICO BSC’s Group Chief Investment Officer Nishit Lakhotia tells EnterpriseAM.

“TASI market in general has been very resilient given the unprecedented situation.” While bourses in the UAE and Kuwait were forced into emergency suspensions earlier this week, Riyadh’s TASI has stayed open and mostly in the green. The index closed up 1.2% yesterday, compared with the DFM’s 4.7% drop and the ADX’s 1.9% slide upon their return to trading.

Saudi’s dual-access geography is a comfort: Unlike our Gulf neighbors, the Kingdom can pivot some trade to its Red Sea ports, bypassing the Hormuz chokepoint where over 150 vessels currently sit at anchor. “Saudi’s Red Sea access gives it a bit more option to maneuver its oil and non-oil trade,” Lakhotia said.

Open skies are also keeping the Saudi narrative intact: A functioning airspace, which has been facilitating logistical movements of goods and people and serving as a primary extraction route for departing expats, has also helped investors hold their ground in the Kingdom.

BUT- There’s an expiration date: If the crisis is extended, Lakhotia expects that the hit to fiscal deficits and government spending will eventually drag the Kingdom into the wider regional economic slump. For now, however, the situation has not deteriorated to the point of permanently impacting the Kingdom's standing.

The biggest damage is to the Gulf’s reputation as a safe haven, but the hit to sentiment among both offshore investors and residents depends largely on the war’s outcome, BMI Middle East and North Africa Senior Country Risk Analyst Mariette Kas-Hanna tells EnterpriseAM.

“The unprecedented nature of strikes on cloud centers and energy facilities is likely to spook foreign investors, at least over the short-to-medium term, though high returns and strong reform drive could somewhat provide some tailwind to GCC markets,” Kas-Hanna said.

Moody’s also warned that strikes have likely shaken expat confidence, potentially leading to an exodus of talent, particularly in Dubai, Doha, and Manama, according to a report.

Risk-off is the name of the game: Regional stock markets’ performance so far this week and the number of expats who have evacuated signal a spike in risk-off sentiment. Capital outflows are expected, given that markets will reopen while the war is still ongoing, Kas-Hanna told us.

IN CONTEXT- Egypt, which hasn’t been dragged into the conflict, saw at least USD 3.7 bn in foreign portfolio funds exit its primary and secondary security markets since 22 February.

WHAT TO WATCH NOW- “SWFs are not tasked with stabilizing crises, at least for the time being, as markets are simply having normal reactions to an escalating war situation,” MENA economist Hamzeh Al Gaaod tells EnterpriseAM.

We’re looking at moderate outflows — but banks are so far in good shape despite rising risks, S&P Global wrote in a research note seen by EnterpriseAM. Banks will need to be watchful of credit risk as the conflict drags on, it said, but it stopped short of a doomsday scenario. Banks seem well-positioned to weather the outflow of capital from the region, which S&P thinks could be “moderate” in magnitude.

The bottom line: The duration and scope of hostilities will determine the magnitude of outflows.

Fitch Solutions’ credit market research subsidiary CreditSights has lowered its recommendations on several Middle Eastern banks to “market perform” from a previous “outperform” position, citing increased pressure on the GCC’s growth outlook, according to a note seen by EnterpriseAM.

Foreign investors are also likely to pull out of the market, CreditSights said, noting it now advises against property credits.

The bigger picture

BMI slashed its growth forecast for the GCC to 4.5%, down from 4.8%. It also cut the UAE forecast by 0.6 percentage points to 5%, according to Kas-Hanna. This follows JPMorgan’s reported move to trim its 2026 non-oil growth forecasts for GCC economies by an average of 0.3 percentage points.

Disruptions to travel, trade, logistics, and other non-oil business activity are to blame, with the hydrocarbon sector expected to weather a likely short-lived hit, Kas-Hanna said.

There’s (semi) good news and bad news. The good-ish news: BMI sees the war dragging on for a maximum of eight weeks given the economic cost on all parties involved, she said. The bad news? Just more than four weeks of disruption to economic activity would see losses rise “materially,” Kas-Hanna said.

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