Dear readers, we have delayed the planned Kotok Report about the RFK healthcare recession. It’s coming, scheduled for April12. War dominates headlines as healthcare in America deteriorates. Please be patient.
This March 6 Reuters article about the Iran War & Gulf sovereign wealth funds (SWFs) argues that the Iran War may be just the sort of rainy day that justify drawing upon SWFs.
“Gulf sovereign wealth funds were built for a rainy day. This may be it.” | Reuters,
https://www.reuters.com/business/energy/gulf-sovereign-wealth-funds-were-built-rainy-day-this-may-be-it-2026-03-06
I thought about the pros and cons of the authors’ suggestions and had questions, so I sought out my longtime friend, SWF veteran Paul O’Brien. I encourage readers to spend four minutes on the Reuters piece so you can see why I asked Paul the specific questions I did.
Paul was the Deputy Chief Investment Officer at the Abu Dhabi Investment Authority. We’ve worked together on various projects for decades. I thank him for taking the time to answer my questions and for permitting me to share his views with Kotok Report readers. Readers, please note that rapidly changing events make an articulated viewpoint obsolete quickly; that applies to Paul and to me. This Q&A took place about three weeks ago. I follow with further comments.
Kotok: The Reuters article assumes a “sustained conflict” could force Gulf governments to tap their sovereign wealth funds. What thresholds would actually trigger that shift? Is there a way for a public investor to quantify them? Is there a way to know what the SWF would sell to raise cash?
O’Brien: We really cannot know the thresholds in advance, and most SWFs in the Gulf region do not make their balance sheets or transactions public. One signal investors could watch for would be bond issuance by Gulf governments. These governments do issue debt in public markets — as do some of the SWFs. An increase in bond issuance would be a signal of fiscal shortfall that could also involve asset sales. While we would not know specifically what assets were sold, all the SWFs have large holdings of public debt and equity that would be the first resort.
Kotok: Reuters cites disruptions to Saudi and Qatari energy facilities but doesn’t detail the scale or duration of the outages. How can an investor get to the facts, and what they mean for SWFs?
O’Brien: The Gulf countries will likely want to keep specific details secret, especially during a conflict. But tanker movements through the Strait of Hormuz are visible to the market. Also, national oil production statistics are available through OPEC and the International Energy Agency. The average investor may not have access to detailed, timely data; but big players in the oil market likely will.
[We now know more about outages and attacks since this interview occurred.]
Kotok: The piece highlights rising defense costs and supply‑chain risks. I’m curious about how those issues translate to SWFs, and if they do? Do SWFs act as fiscal buffers for these governments?
O’Brien: The Gulf SWFs fall into two broad categories, savings funds and development funds. The savings funds, for example the Abu Dhabi Investment Authority, can be fiscal buffers. They act as “savings accounts” for governments, accepting inflows when times are good and paying out to governments in bad times. The development funds, for example the Public Investment Fund of Saudi Arabia, own stakes in many public and private companies in their domestic economies. The development funds could deliver cash to governments, but in the current situation they would be more likely to provide financial support to their portfolio companies through loans or assisting with supply chain issues.
Kotok: Can SWFs be “stabilizers” if they hold illiquid investments? How much do they allocate to nonliquid assets?
O’Brien: The big Gulf SWFs all hold plenty of liquid, public markets securities. Details are confidential, but for example the Abu Dhabi investment Authority reports that public markets debt and equity typically make up 60% to 75% of total assets, against 25% to 40% in illiquid holdings like real estate and private equity. And even if some assets are illiquid, they are available to back bond issuance or borrowing from banks. Overall, each Gulf country is different, but all have access to significant sources of liquidity should they need them.
Kotok: The Reuters article leans heavily on analysts from JPMorgan, Oxford, and others. How do we know the perspectives aren’t skewed toward institutions with vested interests in Gulf capital flows?
O’Brien: Always look for a range of sources and don’t rely on any one publication or analyst. Reuters did that. Should the war continue and significant financial stresses emerge, there will be plenty of additional coverage that we can compare.
Kotok: The article ignores political consequences and domestic social issues and assumes only financial elements. Is that a mistake, or do SWFs avoid those issues?
O’Brien: The GCC SWFs are professional, technocratic investment institutions. But they are not independent of government in the way we would think of it in the West. For example, Mohammed Bin Salman, Crown Prince of Saudi Arabia, chairs the board of the Public Investment Fund. Sheikh Tahnoun Bin Zayed Al Nahyan, brother of the ruler of Abu Dhabi, chairs the board of the Abu Dhabi Investment Authority.
Kotok: A final question. How do you think this war will play out? Is there an upside scenario? For the region? For investors?
O’Brien: The range of possibilities is wide, but my operating assumption is that the United States and Israel can achieve their war aims in a matter of weeks and that Iran will have no good incentive to continue fighting. At that point the situation will depend on the degree of ongoing hostility with Iran. There is an upside scenario where new leadership in Iran builds a much more constructive relationship with the United States and its neighbors. This would open up plenty of attractive investment opportunities in Iran as well as probably favoring the world economy with low and stable oil prices.
Many thanks again to Paul for sharing his experience and wisdom.
Below, we offer readers a specialized reading list. I believe it is important to see multiple sources for news.
- Here’s an Al Jazeera’s report on the new Supreme Leader and the war status as of the date given: “Iran’s new supreme leader chosen as war pushes Gulf to the edge” | Al Jazeera, https://www.youtube.com/shorts/C_Jsh92w89g. (Note: Al Jazeera is funded in whole or in part by the Qatari government.)
- Here’s Iran International reporting: “Iran’s unseen new leader issues first message in writing” | Iran International, https://www.iranintl.com/en/202603125349. Note: Iran International is believed to be funded by Saudi sources.
- The new Supreme Leader issued one statement and cited the Koran in his opening. There is debate about why and what was implied in his message. Some argue it was the framework for a “holy war.” Others say it implies how the Koran’s teachings supersede other deity-attributable references like the Old Testament or the New Testament. I have not been able to find a reliable and independently verified translation of the new Supreme Leader’s written statement. For references I recommend seeing interviews on American media with Vali Nasr. Also look at two of his books: Iran’s Grand Strategy &The Shia Revival.
As I see it, by attacking the countries on the Arabian Peninsula, Iran has intensified the Shia-Sunni schism and ignited a new chapter in it. As I wrote when this conflict started, we are watching an expanding regional war with antagonists facing existential risk. All outcomes are possible, and none are predictable with high confidence.
SWFs were previously limited to the purposes outlined in Paul O’Brien’s answers. The rapidly evolving Iran War has changed that. Defense and war rearrange a government’s decision-making priorities. You cannot have a long term if the short-term risk is existential. Sovereign wealth funds must be added to the trillions of dollars now committed to war and national defense. The Iran War has permanently changed their nature.
Here’s just one example of a new possible SWF deployment:
More importantly, the $580 billion Qatar Investment Authority sovereign wealth fund owns high-profile equity stakes in European blue chips like Volkswagen (VOWG.DE), Glencore (GLEN.L), and Barclays (BARC.L), plus holdings in prime London real estate like Harrods, Heathrow Airport and Canary Wharf. Depending on how much further the Gulf conflict deteriorates, the QIA may find it prudent to shore up its finances by turning some of these crown jewels into cash.
(“Qatar has options amid Gulf’s worst financial hit” | Reuters, https://www.reuters.com/commentary/breakingviews/qatar-has-options-amid-gulfs-worst-financial-hit-2026-03-20/)
Further Reading
On Friday, March 27, Paul posted an update on LinkedIn:
We’ve now moved into the “one month” phase of the conflict. Institutional investors have likely turned from immediate crisis response to a more measured consideration of the consequences. Economic impacts are becoming clearer: Inflation will move meaningfully above pre-war expectations. Growth will take a hit, especially in the Gulf region and in countries most exposed to essential commodities that pass through the Strait of Hormuz. Adjustments to fiscal policy become more likely.
Tactical moves in public markets will get more attention. If portfolio volatility over the past four weeks have exceeded investor risk appetites, some risk reduction would be advisable. But the extreme uncertainty about goals and constraints among the combatants should give pause. Close attention to risks and position management are essential.
Strategic changes to asset allocation and commitments to private assets should remain limited for now. Hopefully we will not reach the “one quarter” stage of this conflict. But contingency planning for that outcome is advisable. The range of future outcomes has if anything widened. Investment committees should make sure they keep an open mind and are not anchoring on any one scenario.
https://www.linkedin.com/posts/activity-7442966165959835649-aaOV/
Bruce Mehlmann on March 22 devoted his “Six-Chart Sunday” missive to “The Art of War in the 21st Century.” Here’s a snippet and a book recommendation:
Nations are increasingly weaponizing economic strengths. Edward Fishman’s 2025 bestseller, Chokepoints: How the Global Economy Became a Weapon of War, catalogues how governments increasingly leverage tools such as sanctions, control over critical technologies and financial restrictions to advance foreign policy goals. [Note:In the US, the book’s title is Chokepoints: American Power in the Age of Economic Warfare.]
“Six-Chart Sunday – The Art of War in the 21st Century” | Bruce Mehlman’s Age of Disruption, https://open.substack.com/pub/brucemehlman/p/six-chart-sunday-the-art-of-war-in?utm_campaign=post-expanded-share&utm_medium=web
Here’s the headline about the failed Iranian Diego Garcia long-range missile attack attempt, for those who missed it.
“Iran’s Strike Attempt on Diego Garcia Reveals Missile Range” | Bloomberg,
https://www.bloomberg.com/news/articles/2026-03-21/iran-s-failed-diego-garcia-strike-is-show-of-missile-capability
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