The multibillion-dollar surge in loans by Asian banks to the Middle East is facing fresh uncertainty as Iran’s escalating conflict with the US and Israel raises the risk of wider financial fallout and disrupts capital flows to the Gulf
The multibillion-dollar surge in loans by Asian banks to the Middle East is facing fresh uncertainty as Iran’s escalating conflict with the US and Israel raises the risk of wider financial fallout and disrupts capital flows to the Gulf.
Asian and Chinese banks, which have emerged as the Gulf’s largest financiers in recent years, extended more than $15 billion in loans to the region in 2025, a record high and nearly triple the previous year, according to Bloomberg-compiled data. Much of that capital flowed into Saudi Arabia and the United Arab Emirates, funding energy, infrastructure and diversification projects.
That momentum is now under scrutiny as the Iran crisis threatens to reshape lending strategies and complicate risk assessments for banks that have aggressively expanded in the region.
Trump signals prolonged military readiness
Adding to market anxiety, US President Donald Trump said Washington has a “virtually unlimited” supply of weapons as tensions rise in West Asia following coordinated US and Israeli strikes on Iran.
In a post on Truth Social, Trump said US munitions stockpiles at the “medium and upper medium grade” had “never been higher or better”, adding that wars could be fought “forever” and “very successfully” using existing supplies. He said that while the US has significant high-end weapons capacity, it is “not where we want to be,” with some stockpiles positioned in allied countries.
His remarks come amid growing fears that the conflict could widen, disrupt energy flows and complicate global supply chains.
Conflict clouds Gulf funding plans
The escalation comes at a delicate time for both Saudi Arabia and the UAE.
Riyadh is in the midst of a sweeping $2 trillion economic overhaul under its Vision 2030 programme, aimed at diversifying the kingdom away from oil. Meanwhile, Abu Dhabi and Dubai are pushing ahead with ambitious infrastructure and industrial expansion plans that rely heavily on foreign capital and cross-border financing.
Any prolonged instability could raise borrowing costs, delay bond issuances and prompt lenders to reassess exposure limits.
“It really depends on how badly the conflicts will go,” said Gary Ng, senior economist at Natixis SA. “Banks may control the exposure and demand a higher interest rate but not necessarily exit” if the situation is contained, he said.
For now, most Asian banks are adopting a wait-and-see approach. However, early signs suggest some lenders are considering pausing fresh deals with Gulf borrowers as geopolitical risks intensify.
According to a Bloomberg News report risk limits for Middle Eastern exposure are likely to be reassessed in the near to mid term, particularly if the conflict widens or shipping routes are threatened.
Deals stall as risk premiums rise
Signs of caution are already emerging.
Abu Dhabi National Oil Company (Adnoc), the UAE’s largest oil producer, has halted plans to market its first-ever yuan-denominated bond, which could have raised up to 14 billion yuan. The move underscores the unease among issuers and investors amid heightened geopolitical risk.
Separately, a Gulf financial institution that had sought a multibillion-dollar loan from Chinese investors in recent weeks is now unlikely to proceed with the transaction, according to people with knowledge of the discussions.
Banking executives said Chinese lenders’ headquarters may be reluctant to approve large new transactions from the region until there is greater clarity on the trajectory of the conflict.
Hormuz risk looms large
The main source of market anxiety remains Iran’s influence over shipping through the Strait of Hormuz — the critical chokepoint through which much of the oil and liquefied natural gas exports of Saudi Arabia, the UAE and other Gulf producers pass.
Any disruption to traffic through the strait could trigger a spike in energy prices, pressure current accounts across Asia and complicate financing conditions for energy-importing nations such as India, China and Japan.
The financial ripple effects are already visible. Credit default swaps tracking Asian high-grade debt widened by about 4 basis points on Monday — the sharpest move since September — according to traders. Regional equity markets have come under pressure, while investors have sought refuge in the US dollar and gold.
For a global economy already grappling with trade tensions and slowing growth, the renewed Middle East conflict adds another layer of instability. If tensions ease quickly, lending momentum could resume, albeit at higher spreads. But if the crisis drags on or spills into energy infrastructure and shipping lanes, Asian banks’ Gulf push may face its sternest test yet — just as the region seeks billions to fund its transformation plans.
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