Can Gulf banks fund postwar recovery?

The recent US and Israeli attacks on Iran have inflicted significant damage to the Gulf region's infrastructure and essential institutions. Oil installations, ports, airports, and critical facilities such as electricity and water systems have been affected. This has led to a notable decline in oil flows through the Strait of Hormuz, with production falling to 4.9 million barrels per day in the second quarter of 2026 - a 77% decrease from the previous year.

Higher energy prices have offset some of the losses, yet shipping and insurance costs have risen, placing additional strain on public finances.

In response to these disruptions, Gulf governments are likely to increase their borrowing needs. Saudi Arabia has projected financing requirements of approximately $57.9bn for 2026, with $44bn earmarked for budget deficits and $13.9bn for debt repayment. Qatar has also issued $3bn in international bonds, demonstrating that debt markets remain a key financing tool for Gulf nations.

Commercial banks across the Gulf Cooperation Council (GCC) now hold over $4tn in assets, with outstanding loans at listed Gulf banks reaching around $2.47tn by the end of Q4 2025.

Commercial banks' ability to provide funding will depend on factors such as liquidity, capital requirements, credit growth, and borrowing costs. As of March 2026, credit facilities extended by GCC banks reached approximately $2.17tn, a 9.2% increase year-on-year. Saudi Arabia accounted for more than 41% of total Gulf credit, followed by the UAE at around 27% and Qatar at about 18%. Other GCC members contributed the remaining 14%.

Despite geopolitical tensions, S&P Global Ratings projects that bank lending across the GCC will grow at an average rate of 5% to 6% in 2026. Saudi Arabia and the UAE are expected to see high single-digit growth, driven by government projects and investment despite the war and shipping disruptions. However, the actual amount of future borrowing will be contingent on oil prices, fiscal deficits, capital expenditure requirements, and global financial market conditions.