Global insights

Future of finance playing out in the Middle East

Gulf economies are accelerating efforts to diversify beyond hydrocarbons, directing investment into non-oil industries, infrastructure and technology. Regulatory, labor and ownership reforms are encouraging private-sector participation and attracting foreign capital. Sustaining momentum will depend on governments’ ability to follow through on announced reforms that attract private investment and strengthen local markets.

These changes align with the future of finance mega force, as financial systems deepen and capital-market channels expand, reshaping how funding is raised and allocated. Public investment remains significant, but the emphasis is increasingly on private and market-based finance that mobilizes domestic savings for long-term investment and strengthens the region’s links with global capital flows.

Evolving funding models

Oil revenues are coming under pressure as prices soften, driving Gulf governments to look beyond traditional funding channels. Brent crude has declined by about 50% from its post-Covid pandemic peak of roughly USD $128 per barrel in early 2022, according to LSEG data, reflecting a combination of easing demand growth and the gradual return of OPEC+ supply to the market. Prices are expected to remain contained as voluntary production cuts continue to unwind through late 2025, with the group signalling a pause on further increases in early 2026. The International Energy Agency (IEA) projects a widening supply surplus next year that could place additional downward pressure on prices, while global oil demand is expected to peak in the 2030s, according to the BII Transition Scenario (BIITS).

Fiscal balances have also narrowed: Saudi Arabia and Kuwait have posted only one fiscal surplus in the past decade. Loans-to-deposit ratios in Saudi Arabia, Qatar and Kuwait stood at above 100% as of Q2 2025 based on our analysis of financial reports of 22 banks. In our view, this limits their capacity for additional lending, prompting greater reliance on market-based funding sources.

The result is a growing shift toward market-based finance to sustain long-term investment. Since 2022, Saudi Arabia’s total funding volume has roughly tripled, with a growing share coming from non-sovereign channels such as state-asset monetization and equity issuance (see chart).

Mobilizing domestic savings

The next stage of market development lies in building a stronger domestic investor base. Pension assets in Saudi Arabia equal about 31% of GDP, according to a 2024 IMF Financial Sector Assessment Program (FSAP) report, leaving meaningful room for growth, in our view. As these pools expand, they can become natural anchors for local bond and sukuk markets, providing long-term funding and valuation stability. International experience underscores the potential: in Chile, pension assets rose from 22% of GDP in 1990 to 76% in 2020, World Bank data show, transforming local liquidity.

Additional financial reforms are expanding local funding channels. Efforts to securitize residential mortgages and to ease rules on foreign real-estate ownership in Saudi Arabia and Kuwait show how financial reforms are freeing up bank capacity and diversifying sources of capital.

As similar reforms take hold across the Gulf Cooperation Council (GCC), institutionalized savings could broaden domestic demand, enhance governance and strengthen the region’s resilience to external funding cycles.

Integrating into global capital markets

A maturing financial ecosystem has the potential to boost the appeal of Gulf economies for global capital. One area already seeing fast growth is energy infrastructure. International investors have committed about USD $50 billion in Saudi Arabia and the UAE in recent years according to our analysis of recent energy infrastructure deals. Large-scale foreign-investment partnerships are establishing a recurring model for inflows through long-term concessions and asset monetization.

The region’s alignment with mega forces is reinforcing this momentum. Major artificial intelligence (AI) projects like OpenAI’s Stargate complex in the UAE and Google and the Public Investment Fund’s cloud region in Saudi Arabia highlight the rise of digital infrastructure as an asset class. In renewables, the 2024 JinkoSolar joint venture in Saudi Arabia underscores how the low-carbon transition is embedding local manufacturing and technology transfer.

Integration of local assets into global benchmarks is likely to lower barriers to market access. In equities, discussions to lift Saudi Arabia’s foreign-ownership limit to 100% could bring about USD $10 billion of passive inflows, according to estimates from UBS, EFG Hermes, HSBC and other major brokers. In fixed income, Saudi Arabia’s addition to the JPMorgan EMBI watchlist could draw roughly USD $5 billion of initial flows ahead of a likely 2026 inclusion.

Investment implications

Short-term funding challenges and long-term transformation goals are intersecting, creating both risks and opportunities. We are constructive on the region as these pressures accelerate structural shifts aligned with global mega forces. Hard-currency sovereign and quasi-sovereign bonds continue to offer quality carry, supported by robust sovereign balance sheets, index-inclusion momentum and sustained global demand for duration and yield diversification. The combination of steady sovereign issuance and tighter spreads underscores resilient investor demand and growing confidence in GCC sovereign credit.

The region’s growing role in the future of finance — through capital-market deepening and institutional savings — offers diversification within emerging market allocations. At the same time, the convergence of digital disruption and AI and the transition to a low-carbon economy is creating investable opportunities in digital infrastructure and energy systems. Yet progress remains uneven. Global rate volatility, policy-execution risks and varying market depth require selectivity in the long-term.

We favor a granular, multi-asset approach emphasizing sovereign and high-quality corporate credit, private infrastructure and transition-linked assets that can capture compounding returns as the region’s financial architecture matures. In our view, the Gulf’s investment story is no longer just about energy — it’s about building the financial architecture of the future.