We all know that the Gulf exports massive amounts of crude oil, refined products, LNG, fertilizer, helium, aluminum - and they all have to pass through the Strait of Hormuz, currently shut tight due to the Iran War. But, this is a blog about money...
Apropos, there is something else that the Gulf States export in massive quantities: Investment capital, ie money. How much? It's not easy to calculate precisely since the countries in question tend to be secretive in their dealings. However, we do know this: they have Sovereign Wealth Funds (SWF), loosely modeled after Norway's own fund. How big are they? Here is a chart of the world's lagest SWFs by asset size.
Sovereign Wealth Fund Assets By Nation/Area
The Gulf oil producers create huge capital surpluses and invest them in a wide variety of assts all over the world - they export money used to fund everything from US Treasury bonds, equities and private credit to data centers.
Is the Gulf money export machine going to slow down? There is a possibility that it will, even if the Iran War ends soon and Hormuz opens up again. Why?
- Spending to repair/rebuild damaged infrastructure.
- Increased defense spending: the US has not provided an effective umbrella and the Gulf states now realize that they have to build up their own defensive capabilities.
- They must make up the lost commodities income shortfall, amounting to some $30-40 billion so far (note: they will make it up quickly once the Strait is open AND prices stay high for a time = inflation for the rest of us).
What does this mean for global asset prices? At the very least, the tailwind provided by Gulf money will slow down or even cease altogether.
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