In a stark warning to global markets, Gulf banks in countries such as the United Arab Emirates, Saudi Arabia, Qatar, Bahrain, Kuwait, and Oman could face a massive $307 billion drop in domestic bank deposits if the war in the Middle East worsens, according to a fresh analysis by S&P Global Ratings. This potential loss looms over a banking system already tested by recent geopolitical shocks and market uncertainty.
The warning comes amid the ongoing war involving the United States, Israel, and Iran, now well into its third week with no clear end in sight. While Gulf banks have shown resilience so far, the deteriorating geopolitical situation is raising concerns about investor confidence, possible shifts to perceived safer banks, and wider financial stress across the region.
Gulf Banks Still Holding Strong but Faces Rising Risk
S&P’s latest report makes a clear point: there have been no major foreign or local fund withdrawals from Gulf banks yet, and these financial institutions have largely continued to operate normally. Regional regulators and central banks have also moved quickly to reassure markets.
However, S&P warns that a prolonged conflict could change this picture fast if confidence weakens. The ratings agency’s data shows that if the war evolves into a more intense phase lasting weeks or longer, depositors may seek to move their money out of banks they view as riskier and into what they see as safer options, or even outside the region entirely.
According to S&P’s stress scenario, up to $307 billion in deposits could be withdrawn from banks across the Gulf Cooperation Council (GCC) region. Deposits form a huge base of funding for these banks, and such a move would represent a serious liquidity challenge.
Despite this risk, the report offered some reassurance. It noted that Gulf banks currently hold around $312 billion in cash or at central bank facilities, and could mobilize an additional $630 billion if needed by selling investment assets. That cushion could help absorb deposit withdrawals in a worst-case scenario.
Central Banks Act to Strengthen Banking Stability
In response to the crisis, the Central Bank of the United Arab Emirates (CBUAE) has unveiled a resilience package aimed at bolstering liquidity and stability in the banking sector. The measures include allowing banks to access up to 30 percent of their required cash reserves, providing liquidity support in both UAE dirhams and U.S. dollars, and temporarily relaxing some regulatory capital requirements.
The UAE central bank said these steps are designed to ensure financial stability and maintain normal operations of the banking system despite extraordinary regional pressures. Banks in the UAE already hold nearly $250 billion in liquid assets, with reserve balances making up more than $109 billion of that total, according to CBUAE data.
These actions reflect a broader trend among Gulf regulators, who have increased supervision and support for banks since the onset of hostilities. Four of the six GCC countries are considered to offer strong support systems for their banking sectors, according to S&P.
Operational Hurdles and Market Reactions
While deposit withdrawals have not emerged en masse, the conflict’s effects are already visible in other aspects of banking and finance in the region.
Some international banks, including Citigroup and Standard Chartered, have temporarily closed or reduced operations in UAE and Qatar offices due to safety concerns linked to threats against economic and banking centers. These moves, while precautionary, highlight the evolving complexity banks face as security risks grow.
The war has also disrupted cloud infrastructure used by many banks in the Gulf. Drones struck several Amazon Web Services facilities in the UAE and Bahrain, causing temporary digital outages and brief access issues for some banking customers.
On market floors, bank stocks in the UAE have taken a hit. Major lenders reported double-digit declines in share prices, reflecting investors’ concerns over the uncertain economic impact of the conflict.
Sector Strengths and Vulnerabilities
Even as risks mount, analysts say the Gulf banking system entered this crisis from a relatively strong position compared with many other regions. Banks in GCC countries benefit from high deposit bases, prudent capital buffers, and supportive government credit policies, which helped them weather previous global shocks such as the COVID-19 pandemic.
However, vulnerabilities remain. Bahraini retail banks, for example, appear more exposed due to recent increases in external debt and tighter funding conditions.
There are also concerns about broader economic ripple effects. Some sectors that banks lend heavily to — such as tourism, transportation, real estate, and retail — could see significant disruptions if the conflict continues or expands. That would increase the risk of nonperforming loans, though S&P says larger losses are not expected in the near term.
What Comes Next for Gulf Banking and the World
The evolving Middle East war has put Gulf banks and global markets on alert. While the immediate crisis has not yet triggered a major flight of deposits, the potential for a significant shift in depositor behavior remains real if conflict intensifies.
Financial institutions, central banks, and regulators across the region are racing to strengthen their positions and reassure clients. Liquidity support, regulatory flexibility, and enhanced supervision are central to these efforts.
For global investors and local depositors alike, the message is one of cautious watchfulness. The stability of Gulf banks is tied to broader geopolitical developments that have far-reaching impacts on energy markets, global trade routes, and international financial flows.
As the conflict continues, analysts will be watching key indicators such as deposit movements, credit quality, asset prices, and regulatory responses to understand how deep the financial impact might go.
In the meantime, central banks and policy makers in the Gulf are likely to remain focused on maintaining confidence, securing liquidity, and protecting financial stability in an increasingly uncertain world.
