How the conflict over Iran affects the economies of the UAE and Saudi Arabia. Analysis (part 1)
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- How the conflict over Iran affects the economies of the UAE and Saudi Arabia. Analysis (part 1)
Since the beginning of the 21st century, Saudi Arabia and the UAE have been actively building their economies on the influx of foreign capital and the status of safe financial centers. This model relies on investor confidence and large-scale projects, including in technology, real estate and tourism, but now it is at risk: the conflict in the Middle East has already led to a decline in markets, and investment attractiveness has decreased. Izvestia's analysis of the impact of the war against Iran on the long—established investment model consists of several parts: in the first, we explain how the investment system of the Persian region is organized and what it is based on, and in the second, what economic losses the region is already suffering.
Attracting investments
• Saudi Arabia began attracting foreign investment back in the middle of the 20th century. In 1955, the authorities passed the first law that allowed foreign companies to operate in the country. In the following decades, the government gradually expanded the business environment.
• The main investors at that time were the United States and Great Britain, which invested in the oil industry and infrastructure. The active phase of capital raising began after 2000, and WTO accession in 2005 opened the market for international companies. From that moment on, the country began systematically attracting investments in various industries.
• The UAE began to develop an investment model in the 1980s and 1990s. The authorities have created free economic zones. In these zones, foreign companies have been granted the right to fully own a business. This has become a key factor in capital inflows. By the 2020s, the country has become one of the largest recipients of investments in the region: the annual inflow has reached about $30 billion, and the total accumulated volume of foreign investments has exceeded $200 billion. The UAE immediately relied on trade, finance and logistics, which allowed for faster economic diversification.
• The composition of investors has changed over time. At first, the main role was played by the United States and European countries. Later, Japan and South Korea joined them. They invested in industry and construction.
• The involvement of China and India has increased in recent years. China is actively investing in infrastructure and logistics. Indian businesses invest in real estate, trade and services. In Saudi Arabia, the annual inflow of investments is about $25-30 billion. In the UAE, this figure is kept at the level of $ 20-30 billion. Intraregional investments were also growing. The UAE is actively investing in projects in Saudi Arabia.
• Investment areas have also changed. Previously, the main flow went to the oil industry. Now the capital is distributed in different directions. The money goes into technology, finance, tourism, transportation and real estate. In the UAE, the non-oil sector forms more than 70% of the economy.
• In Saudi Arabia, its share exceeds 50%. The country has a Vision 2030 program. It is aimed at developing new industries and attracting capital. The number of projects is growing. Hundreds of new initiatives with foreign participation are being launched in just one period. Their value reaches billions of dollars.
Reputational costs
• If Saudi Arabia and the UAE finally move from careful balancing to direct participation in the war against Iran, then both countries will turn from "quiet harbors of capital" into front-line territory. In recent years, Riyadh has been selling to the world the image of a platform for megaprojects, tourism, sports and international investments. The UAE's economy is based not only on oil, but also on the status of Dubai and Abu Dhabi as a safe regional hub for capital.
• The market has already punished the UAE even for the risk of escalation. Against the background of Iran's threats to energy and water infrastructure, the Dubai index fell by 3% per day, the Abu Dhabi index by 1.5%.
• Saudi Arabia annually attracts tens of billions of dollars in direct investment — about $30 billion a year, and the authorities aim to bring this figure to $100 billion annually. The money comes from the USA, European countries, China, Japan and South Korea. Major projects are being implemented in the country: the city of NEOM worth more than $500 billion, tourist areas on the Red Sea, and international sporting events.
• The UAE has become even more entrenched as a financial center. Dubai and Abu Dhabi have become key platforms for capital allocation. The annual inflow of investments is about $20 billion. Most of the funds come from India, the UK, the USA, and China.
• There are also many free economic zones in the UAE with the possibility of 100% foreign ownership of a business. For example, the DIFC financial center, which is popular among foreigners, operates according to clear international rules. Saudi Arabia's PIF Sovereign Wealth Fund manages assets of over $700 billion, while UAE funds manage more than $1.5 trillion.
• International banks and funds are opening regional headquarters in Dubai, technology companies are moving offices there, and global investors are using the UAE as a base for working with the Middle East, Africa, and South Asia. During periods of global instability, capital often moves there because of the high level of security and predictability. However, this may change due to the scale of the conflict between the United States, Israel and Iran.
• Tourism is becoming the most vulnerable. In Saudi Arabia, in 2025, this sector of the economy brought in a record 447.2 billion Saudi riyals (approximately $119 billion), that is, more than 10% of GDP. The UAE's dependence on tourism and international mobility is even more noticeable. The tourism sector contributed 257.3 billion dirhams (approximately $70 billion) to the UAE economy last year, or 13% of GDP.
• Saudi Arabia and the UAE concentrate a significant part of the regional business and capital. In the UAE, the share of expats exceeds 88%, while in Saudi Arabia, the number of foreign companies with licenses increased by more than 40% in 2023-2024 alone. The risk of escalation directly affects the business and workforce already located in the region.
• The participation of Saudi Arabia and the UAE in the war is hitting their main asset — the reputation of safe platforms for money. And along with them, everyone who has already invested in this stability is losing. The money that went to the Persian Gulf as a peaceful and profitable region is rapidly losing value.
Foreign investments
• In addition to oil and gas, the Gulf states attract large investments in other industries. Technology has become one of the main directions in the UAE. The American company Microsoft is implementing a program for about $15 billion. She develops cloud services and participates in artificial intelligence projects with G42. This is a large company from the UAE that works with AI and big data (we explained more about what it is and why the big data market is growing at a great pace here). NVIDIA also came to the country from the USA, which supplies equipment for data centers. The Silver Lake Foundation from the USA invests hundreds of millions of dollars in digital technologies and AI.
• The UAE's financial sector is actively growing at the expense of Western companies. Major investment funds BlackRock and Nuveen from the USA, as well as Brevan Howard from the UK, have opened offices in Abu Dhabi and Dubai. They manage hundreds of billions of dollars in assets. HSBC and Standard Chartered banks use the country as a regional base. International cash flow management is concentrated here.
• China plays an important role in logistics. COSCO Shipping invests in ports. Other Chinese corporations are developing warehouses and transportation hubs. They strengthen the UAE's role as a global trade hub.
• Real estate and tourism in the UAE are also developing at the expense of private investors. The money comes from India, the UK, Russia and Europe. The total inflow of investments is about $45 billion per year. A significant part goes into the construction of housing and tourist facilities. At the same time, Indian companies are actively financing residential projects. International hotel chains from the USA and Europe are developing the hotel business.
• In Saudi Arabia, the main focus is on large-scale construction projects. The NEOM project is estimated at more than $500 billion. It involves companies from different countries. American Bechtel is working on the infrastructure. South Korea's Samsung C&T and Hyundai Engineering are building large facilities worth billions of dollars.
• The industry is developing with the participation of Japan and South Korea. These countries are investing in factories and machinery. The contracts are estimated at billions of dollars. The goal is to create our own production in the country.
• Logistics in Saudi Arabia is also growing at the expense of China. Chinese companies are investing in ports, railways and industrial zones. These projects cost tens of billions of dollars. They include the country in global trade routes.
• Tourism and the entertainment industry are developing rapidly. Saudi Arabia spends tens of billions of dollars on resorts and cultural projects. Companies from the USA and Europe are involved in the projects. These are hotel chains and organizers of major events.
• Against the background of all this, there is a separate risk for foreign investors. For example, the UK has invested about £6.5 billion (about $8.3 billion) in Saudi Arabia and £4.2 billion (about $5.4 billion) in the UAE. But these are only direct statistics. Taking into account loans, funds and participation in projects, the real amounts are much higher — and they will be at risk.
• France is one of the major investors in Saudi Arabia (about 69 billion riyals of investments). The war will hit both Saudi Arabia itself and foreign investors, who are already heavily involved in its economy.
• For Europe, scaling up the war would be a double blow. On the one hand, their investments and projects in the region are getting cheaper. On the other hand, prices are rising and disruptions in the supply of fuel and gas are intensifying.
• The economies of the two countries are already tied to external capital and technology. More than 60,000 new companies are registered in the UAE every year, and Saudi Arabia is increasing the number of investment licenses to tens of thousands per year. This creates a constant flow of new projects, which directly depends on the perception of risks on the part of investors.
• The growing risks are already affecting the region's financial system. In the UAE, the banking sector holds about $250 billion in liquidity, but companies are facing higher loan costs and tougher financing conditions.
• The real estate market is starting to react to geopolitics. The volume of transactions in the UAE decreased by 37% year-on-year and by 49% in a month. Individual properties are being sold at a discount of 12-15%, and shares of the largest developers have fallen by more than 25%.
• Investment transactions in the region are continuing, but the pace is slowing down. Rising military spending and pressure on the budgets of the Gulf states are reducing opportunities for new investments. This is especially important for projects that rely on government funding.
When writing the material, Izvestia talked and took into account the opinions of:
- Igor Semenovsky, political scientist, Associate Professor at the Financial University under the Government of the Russian Federation;
- American political scientist Malek Dudakov.
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