Iran war puts global lending under pressure

The global flow of credit is being jeopardized by the increased risk of petrocapital amid the extension of the Iran war, warns an analysis signed by Ryan Smith and published by OilPrice.com, taken over by ZeroHedge, which claims that the very circuit through which the oil profits of the Gulf states return to international financial markets risks being fractured at a time when liquidity is already more precious than ever.

According to the cited source, if until now public attention has been captured almost exclusively by the explosion of oil and gas prices, the real stakes are starting to shift more and more clearly to the area of global finance, where the war in Iran threatens to hit not only the cost of energy, but the very supply of capital to the markets. The central idea is that the Gulf oil states are not only exporters of hydrocarbons, but also major providers of capital to the international financial system, and when their revenues are compressed, when their energy infrastructure is attacked, when their banks and financial centers become military targets, and when investors begin to flee to safer havens, not only a regional crisis occurs, but the risk of a global credit blockage looms.

The cited analysis mentions that Fitch Ratings showed as early as March 5 that the Gulf monarchies could absorb a shock only in the scenario in which the Strait of Hormuz would remain effectively closed for less than a month and there would be no major damage to the energy infrastructure, but these premises seem increasingly fragile as the conflict prolongs and expands.

This is where the truly dangerous dimension of the subject comes in: petrocapital does not only mean money from oil, but also the financial stability that this money has provided for decades. The Persian Gulf has become, in recent years, not just a source of energy, but a global center for financial intermediation, wealth management, real estate investment, trade finance, banking services and institutional placements. In the United Arab Emirates, the assets of the banking and financial sector have exceeded 5.42 trillion dirhams, or about 1.48 trillion dollars, according to Reuters, which shows the huge size of the stakes. In other words, when the Emirates, Qatar or other nodes in the Gulf are shaken financially, the shock wave does not remain local, but quickly hits the international markets that depend on the capital, liquidity and confidence generated there.

More seriously, the problem is no longer just one of accounting or cash-flow, but one of operational security. Reuters reported that Citigroup and Standard Chartered began evacuating their Dubai offices and asking employees to work from home as early as March 11, following Iran's threats against Gulf banking interests linked to the US and Israel. Reuters later reported that Citigroup had kept most of its branches and offices in the United Arab Emirates closed indefinitely, while HSBC closed several UAE locations and most of its branches in Qatar. In parallel, other international groups, including Bloomberg and the London Stock Exchange Group, have allowed or encouraged the temporary relocation of staff from the region.

The moves are devastating in their message: major financial institutions are no longer behaving as if Dubai and the rest of the Gulf were a safe haven for capital, but as if they were a direct operational risk zone.

The same message was amplified by the Washington Post's report that Iran has explicitly shifted to a strategy of economic warfare, targeting the economic infrastructure of its Gulf neighbors, including the international financial center of Dubai, the airport, the Jebel Ali port, and other symbolic nodes of regional globalization. While the exact extent of the damage varies from one account to another, the essential point is that the safety paradigm has broken down: the Gulf can no longer be presented without reservation as a territory immune to military shocks, and this shift in perception is enough to force capital repositioning and aggressive risk reviews. Reuters has already shown that Swiss wealth managers expect additional capital inflows from the Gulf as investors seek "Swiss safety” and the Swiss franc once again enjoys safe-haven status. In other words, money is not disappearing, it is moving, and its movement from the Persian Gulf to defensive jurisdictions could dry up the very markets and financing channels that depended on petrocapital.

The systemic risk, however, comes not only from the withdrawal of capital, but also from the superposition of this withdrawal on top of an already tense global debt market. Carmine Di Noia, the OECD's director for financial and corporate affairs, warned in early March that inflationary pressures such as the energy crisis is a "major stress test” for debt markets, at a time when borrowing and refinancing needs are huge. The OECD shows that the global bond market has reached $109 trillion, or 93% of global GDP, and refinancing is facing higher costs, shorter maturities and increasing sensitivity to volatility.

In parallel, Reuters notes that tensions in private credit have already been transmitted to Wall Street, with some major banks tightening lending and some funds limiting investor withdrawals. This is exactly the combination that markets fear: expensive energy, persistent inflation, increasingly sought-after safe assets, declining risk appetite and a large source of regional capital under fire.

Signs of panic and retreat are already visible in several segments. Reuters reported that emerging market bond funds saw net outflows of $1.1 billion in the week ended March 11, the first weekly drawdown since January, amid concerns that war and rising energy prices could disrupt the "Goldilocks” scenario that investors had been banking on at the start of the year. Reuters also noted that the dollar's surprise appreciation, fueled by its safe-haven status amid conflict and energy shocks, risks further tightening global financial conditions, especially for emerging economies with dollar-denominated debt. And when capital outflows from emerging markets are combined with expensive energy and a strong dollar, the usual result is reduced access to finance and higher borrowing costs.

In developed markets, the picture is no more reassuring. Reuters writes that the European Central Bank is forced to remain tough on its rhetoric, as the war in Iran reignites fears about inflation in the euro zone, and government bond yields rise with expectations of higher financing costs and possible monetary tightening. The Guardian reported in parallel that oil has approached or exceeded $ 110-113 per barrel, gas has risen sharply, stock markets have fallen, and monetary authorities and governments are warning of major risks to the global economy. In other words, the war is not only hitting the energy supply, but also the price of money.

Inside the Gulf, the pressure on the banking system is becoming more concrete. S&P Global Ratings has warned that Gulf banks face, in a severe escalation scenario, a risk of deposit outflows of up to $ 307 billion. For now, S&P considers the risk manageable, given the high liquidity in the system and access to reserves and marketable assets, but the mere fact that a rating agency is publicly quantifying such a risk shows how quickly the discussion has moved from "energy shock” to "bank resilience” and "possible funding withdrawals.” In response, the central bank of the United Arab Emirates launched a liquidity support package on March 17, including expanded access to reserves and funding facilities in dirhams and dollars, precisely to keep credit flowing and avoid the geopolitical tension turning into a classic banking crisis. According to the cited analysis, the fear in the market is not only about the price of oil, but also about the disruption of the circuit through which the money generated by oil is recycled into bonds, loans, capital markets, projects and financial assets around the world. When war simultaneously strikes production, transportation, physical security, investor confidence, and bank operations, petrocapital becomes less stable, less predictable, and less willing to circulate. It is precisely this degradation of predictability that can transform the current tension into a credit crunch: financiers become more selective, banks conserve liquidity, funds reduce exposures, investors migrate to safe-haven assets, and the markets that need money the most remain emptier, more expensive, and more volatile. The cited source also shows that if the war is prolonged, the most dangerous scenario is that of a world economy caught between energy inflation, a flight to safety, a liquidity squeeze, and a sudden increase in the cost of financing. In such a context, companies will find it harder to find money for investments and refinancing, states will borrow more expensively, emerging markets will be hit doubly by expensive energy and the strong dollar, and the financial hubs in the Gulf could move from the role of capital providers to that of a source of stress for the system.