Tensions in the region add another layer of instability to global economy.

The multibillion-dollar ramp-up in loans by Asian banks to the Middle East faces growing uncertainty as Iran’s escalating conflict raises the risk of broader financial fallout.

Asian and Chinese banks, which have emerged as the Gulf’s top financiers, extended more than US$15 billion in loans last year – a record high and triple the previous year – with most of the capital flowing to Saudi Arabia and the United Arab Emirates, according to Bloomberg-compiled data. 

That surge now faces a critical test, as the Iran crisis threatens to reshape lending strategies and cast uncertainty over the banks’ pursuit of opportunities in the region.

At the same time, the escalating conflict threatens to complicate Saudi Arabia’s US$2 trillion economic transformation and the UAE’s ambitious infrastructure drive – both heavily dependent on foreign capital. 

“It really depends on how badly the conflicts will go,” said Gary Ng, senior economist at Natixis. “Banks may control the exposure and demand a higher interest rate, but not necessarily exit” if the situation is contained, he added.

For now, most Asian banks are adopting a wait-and-see approach, though early signs suggest some are considering pausing deals with Gulf borrowers, following missile strikes by the US and Israel that killed Iran’s supreme leader. 

Risk limits for Middle Eastern exposure are also likely to be reassessed in the near to mid term, according to people familiar with the matter. 

Abu Dhabi National Oil, the UAE’s biggest oil producer, has halted plans to market its first-ever renminbi-denominated bond, which could have raised as much as 14 billion yuan. 

Separately, a Gulf financial institution had sought a multibillion-dollar loan from Chinese investors in recent weeks, but the deal appears unlikely to proceed for now, separate people familiar with the matter said. 

Chinese banks’ headquarters could be reluctant to approve transactions from the region at present, they said, asking not to be identified discussing private matters.

For a global economy already grappling with US President Donald Trump’s tariff policies and growing uncertainty over artificial intelligence’s impact on labour markets, the latest spike in Middle East tensions adds another layer of instability – one that has already rippled across Asian markets. 

Investors are now flocking to safe havens such as the US dollar and gold, while stocks slump. 

Credit default swaps tracking Asian high-grade debt widened about four basis points on Monday (Mar 2), the biggest move since September, according to traders.

Meanwhile, some investors remain wary of broader fallout, with many agreeing that China, with its large capital exposure to the region, could be the most vulnerable.