Asian Banks' Exposure to Gulf Loans Compounded by Middle Eastern Turmoil

Middle East Crisis Threatens Asian Banks' Multibillion Dollar Loans

Asian and Chinese banks extended a record $15 billion in loans to the Middle East last year, with most of the capital flowing to Saudi Arabia and the United Arab Emirates. However, the escalating conflict between Iran and the US/Israel threatens to reshape lending strategies and cast uncertainty over the banks' pursuit of opportunities in the region.

The $2 trillion economic transformation of Saudi Arabia and the UAE's ambitious infrastructure drive, both heavily dependent on foreign capital, are at risk of being complicated by the conflict. Asian banks are adopting a wait-and-see approach, though early signs suggest some are considering pausing deals with Gulf borrowers.

Risk limits for Middle Eastern exposure are likely to be reassessed in the near-to-mid term, according to people familiar with the matter. The conflict has already had a ripple effect across Asian markets, with investors flocking to safe havens such as the dollar and gold. Credit default swaps tracking Asian high-grade debt widened about 4 basis points on Monday, the biggest move since September.

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Abu Dhabi National Oil Co., the UAE's biggest oil producer, has halted plans to market its first-ever 14 billion yuan ($2 billion) yuan-denominated bond. Additionally, a Gulf financial institution's attempt to secure a multibillion-dollar loan from Chinese investors appears unlikely to proceed for now. Chinese banks' headquarters may be reluctant to approve transactions from the region at present.

China, with its large capital exposure to the region, could be the most vulnerable to broader financial fallout. The escalating conflict adds another layer of instability to a global economy already grappling with Trump's tariff policies and growing uncertainty over artificial intelligence's impact on labor markets.