War Pushes Gulf Sovereign Investors to Accelerate Localization
The major Gulf investment funds are shifting strategies in subtle and overt ways.
By Mohamed El Dahshan
The war in the Gulf has had a complex and manifold impact on the economies of the region. While its shock is "asymmetric," the war inevitably affects all sectors of Gulf economies and has led the sovereign investment funds of the Gulf Cooperation Council states to adjust their strategies.
In the April 2026 edition of the World Economic Outlook, the International Monetary Fund (IMF) downgraded its growth projections for all Gulf countries. While Qatar, Kuwait, and Bahrain are moving into recession territory for 2026, Saudi Arabia, the UAE, and Oman remain firmly above 3%, owing not only to their maritime access beyond the Strait of Hormuz, but also to their energy mix. GCC economic diversification policies and infrastructure investments have enabled important mitigation the war’s economic impacts.
The Saudi Central Bank governor has, for instance, credited “decades of structural reforms and strategic investment in infrastructure and institutions, equipping the Kingdom with the capacity and flexibility to absorb shocks while sustaining investor and consumer confidence” for softening the impact of the ongoing crisis. Likewise, the UAE has in recent years accelerated efforts to diversify the national economy, reduce reliance on oil, optimize national resources, and create an attractive business environment for growth. in March 2026, the UAE Ministry of Economy and Tourism (MOET)’s Economic Integration Committee, referred to the country’s “advanced and resilient economic model that enables it to handle regional and international crises.”
The war also brought to the fore the interplay of security and renewable energy, which will certainly impact investment trends. Attacks on power plants, and perhaps even more critically on water desalination facilities, could represent “a watershed moment” for the energy transition; both globally, with the world reeling from disruptions in the oil supply chain, but likewise in the Gulf, where power stations found themselves targeted during the war. Diversifying energy sources may foremost become a security goal, ahead of an environmental one.
But the cyclical nature of GCC foreign investments is not new. For decades, the challenge has been the oil price boom-bust cycles, correlating with expansion and contraction cycles in public spending and investment. One factor that accelerated the GCC diversification drive was the oil price collapse in 2014-2016, triggered by a booming US oil production, and capital accumulated in sovereign wealth funds became financial buffers in the event of crises. The “rainy day” is afoot; subtle and overt policy changes are unfolding and will continue to do so over the course of the year.
The immediate term will therefore be dominated by repair, recovery, and stabilization. Damage to hydrocarbon facilities has been estimated at $25 billion, with some of the worst damage, such as Qatar’s Ras Laffan LNG facility, projected to take up to 5 years to repair — but countries will certainly endeavor to accomplish this in shorter amounts of time. Domestic infrastructure spending, safety nets, and policies boosting local purchasing power will likely also see a boost in the form of tax holidays and exemptions. Regional stabilization will be among the spending priorities of the GCC, beginning with the smaller GCC countries, such as Bahrain and Oman, and moving outwards to key regional partners like Jordan and Egypt.
While economic recovery is anticipated for the second half of 2026 and early 2027 – contingent on the duration of the war – a return to the status quo ante should not. Beyond the immediate priorities outlined above, two investment trends are thus to be anticipated.
First, localization is set to accelerate in 2026. Leading the trend is Saudi Arabia’s Public Investment Fund (PIF). Notwithstanding a decade-long FDI binge, the PIF is a longtime advocate of localization, motivated both by economic interest, but with a large subtext of sovereignty. In its latest five-year strategy, announced mid-April (though touted as early as October of last year), the Fund hopes to focus on impact and value creation, by building competitive domestic “ecosystems” in the verticals it is most invested in.
GCC sovereign funds are set to double-down on medium- and long-term investment plans in risky sectors as they change economic diversification and transformative returns.
The six ecosystems listed in the Saudi strategy are tourism and entertainment, urban development, advanced manufacturing, industrials and logistics, clean energy and renewables, infrastructure, and Neom, Crown Prince Mohammed Bin Salman’s flagship project. Compared to the 13 “strategic sectors” listed in the 2020-2025 strategy, this realignment is more than cosmetic and reflects a significant shift of priorities. Yet when pressed about international investments, PIF governor Yasir Al-Rumayyan was unambiguous: “What I want everyone to understand, we are not scaling back on our international investments.”
Qatar remains committed to its Third National Development Strategy (NDS3), unveiled in 2024, as a roadmap to its 2030 National Vision. NDS3 seeks to consolidate areas of competitive advantage that emerged with the structural and business environment reforms of the previous NDS iterations, and prioritizes the development goals of the National Vision. The NDS’s multitudinous objectives are organised into four loosely defined pillars — Energy, Diversification, Business Environment, and Innovation — giving policymakers ample leeway for adaptation. Investment authorities have, over the past weeks, touted technology, AI, sustainable energy, and advanced manufacturing as priority investment sectors and continue to emphasize innovation and diversification as long-term investment drivers.
And only this month, the UAE’s “Make it in the Emirates“ event, an initiative and product showcase originally created to encourage local manufacturing in the aftermath of the COVID-19 pandemic, witnessed record participation and deal announcements, with Minister of Industry Sultan Al Jaber resolutely announcing at the meeting that “In the UAE, we do not simply endure hardships. We emerge from them stronger”, and nudging the conversation away from “In-Country Value” – the UAE’s favored term for industrial localization — to supply chain localization.
This leads us to the second trend: GCC sovereign funds are set to double-down on medium- and long-term investment plans in risky sectors as they change economic diversification and transformative returns.
This resolve is exemplified by the Qatar Investment Authority (QIA), which aims to “make longer-term commitments and strategic investments in our internal capabilities and relationships.” QIA continues to tout the growing share of renewables in its portfolio, while embracing riskier tech investments. Of the seven investments it has announced since the beginning of the year, four were AI products, and two related to space exploration.
Meanwhile, Mubalada’s tech investment fund has partnered with BlackRock on a $30 billion AI infrastructure fund. PIF’s “Vision portfolio” also includes multiple AI companies, a sector that the Kingdom is so sanguine about, it has designated 2026 its “year of artificial intelligence.”
And just a few days ago, on April 30th, the Abu Dhabi Investment Office (ADIO) unveiled its rebranded identity, “Beyond Capital,“ centered on its “legacy ahead” and focusing on economic transformation beyond investment promotion and attraction, and on human capital development and societal impact. Much like its Saudi counterpart, ADIO is seeking to develop “priority clusters,” while “continuing to advance export growth, strengthen supply chain resilience and deepen global partnerships.”
While it may be true that the impact of the war may only be fully understood after it ends, GCC economies are attempting — and succeeding — in keeping a step ahead, in both the news, and the planning cycles. While long-term trends are holding the line, the countries appear to have used the external pressure to realign priorities and push forward with local development plans — a priori, to investor plaudits.
Mohamed El Dahshan is a development economist. He is Managing Director of OXCON, an economic development consulting firm focusing on fragile, conflict, and violence-affected and transition countries. He is also an Associate Fellow at the Bourse & Bazaar Foundation.
Section: (rihla-initiative) Photo: IRNA