The recent Gulf conflict has shown that financial resilience depends on far more than strong bank balance sheets. The crisis has highlighted how liquidity, funding access, and sovereign support can bolster financial institutions and underpin confidence during periods of acute uncertainty. At the same time, it has also exposed the economic vulnerabilities that could intensify if geopolitical uncertainty persists.
Our latest report, Lessons in Financial Resilience From the Gulf, examines the pressure points that could determine how well the region’s financial systems withstand periods of stress. It also outlines key lessons from the conflict that can help prepare financial leaders for future geopolitical shocks.
Gulf economies were impacted differently by the conflict
Exposure to regional conflict varies across Gulf Cooperation Council (GCC) economies based on their export routes, trade dependence, and proximity to disruption. For example, Qatar, Kuwait, and Bahrain have faced the largest impacts because of their geography and reliance on the Strait of Hormuz for hydrocarbon exports. Saudi Arabia and, to a lesser extent, the United Arab Emirates, have more opportunities to mitigate disruption by using alternative export routes, including the Saudi East-West pipeline.
Beyond the immediate financial and economic impacts, the conflict has also tested the region's crisis management frameworks. Sudden disruptions to trade, energy exports, and investor confidence can weaken borrower cash flows, raise funding costs, and increase demand for central bank support. Preparedness begins with understanding where these vulnerabilities are concentrated.
How central banks strengthened financial resilience
At the start of the conflict, affected central banks moved quickly to protect depositor and market confidence. Authorities provided liquidity support by increasing the reserves available to financial institutions, introducing domestic currency liquidity facilities, and lowering reserve requirements.
They also increased regulatory flexibility, allowing institutions to draw on prudential and capital buffers rather than compelling them to cut lending. Governments also offered targeted borrower support, including flexibility over loan classification where customers had been affected by temporary cash flow disruption.
While the breadth of support varied by country, many of these meatsures resembled the steps taken during the COVID-19 pandemic. The key difference was central banks’ assessment of the underlying shock. COVID-19 presented a broad-based threat to household and corporate solvency. By contrast, the recent conflict has been treated primarily as a liquidity and confidence shock.
The experience shows that crisis preparedness depends on the ability to respond rapidly and decisively to the specifics of a situation. Liquidity facilities, regulatory flexibility, and targeted borrower support are most effective when they can be deployed quickly so that confidence in institutions and the economy is preserved.
Financial stability in the GCC does not eliminate underlying risks
Central bank support appears to have helped prevent the conflict from causing acute stress to the region’s financial systems. The measures stabilized funding conditions, maintained confidence in banking systems, and preserved access to liquidity.
However, our analysis suggests that containing immediate stress does not remove underlying vulnerabilities entirely. Funding conditions remain tighter than before the conflict, and a prolonged period of geopolitical uncertainty could further test bank resilience, sovereign support, and the links between the two.
Exhibit 2 shows how the cost to banks of obtaining domestic interbank and foreign currency funding rose sharply in the UAE, one of the Gulf’s deepest money markets. Funding premiums eased after support measures were announced, but they remain materially above pre-conflict levels. This suggests banks still face higher liquidity costs than before the crisis.
Strong capital ratios alone are not enough during geopolitical shocks
In early 2026, before the escalation of conflict in the Gulf, banks in the region showed strong capital holdings and liquidity. Aggregate liquidity coverage ratios were well above the 100% regulatory minimum, while average common equity tier 1 (CET1) ratios were around 13.2%. But regulatory ratios may not reflect bank resilience to sudden confidence shocks, rapid deposit withdrawals, or reductions in foreign funding.
Unlike domestic liquidity, foreign currency liquidity cannot be created directly by central banks, depending instead on foreign-exchange reserves, sovereign resources, and continued access to external funding markets. Since sovereign wealth funds are often invested in long-term assets that are difficult to convert into foreign-currency liquidity at short notice, the total value of a sovereign wealth fund is not always a reliable indicator of the amount of funding that can be deployed rapidly to support the financial system.
For instance, Bahrain and Qatar rely materially on external funding, much of it denominated in US dollars. Foreign liabilities account for 70.3% of Bahrain’s bank funding and 33% of Qatar’s. While banks in both countries can access foreign currency through their central banks, neither central bank has announced dedicated US-dollar liquidity facilities comparable to those introduced by the UAE.
Such perceptions of sovereign resilience and banking-system resilience are closely linked with Gulf banks holding substantial domestic sovereign debt, with governments and public-sector entities often acting as major bank depositors and shareholders. While this sovereign-bank nexus can be a source of strength, it can also become a conduit for stress in times of prolonged uncertainty.
Any sustained deterioration in funding conditions or a withdrawal of foreign funding could put greater pressure on these banking systems. Thus, the effectiveness of any crisis response depends not only on the scale of resources available, but on how quickly those resources can be mobilized and liquidity assured.
Financial resilience must be built before the next crisis
The experience of the past six months reinforces an important lesson: While lasting financial resilience is not built during a crisis, it is tested during one.
The ability of central banks to act quickly, the capacity of banking systems to absorb initial shocks, and the containment of financial stress all reflect the strength of the Gulf’s financial buffers and sovereign resources. But the conflict also exposed how quickly liquidity, funding confidence, and sovereign credibility can become intertwined during a geopolitical shock.
The central banks that have performed best are not necessarily those with the highest regulatory ratios, but those with the clearest access to liquidity, the strongest operational readiness, and the most credible sources of support. Those lessons, explored in our report, are likely to remain relevant long after the immediate effects of the conflict have faded.
