Shariah boards, post-war clauses may slow freeing of stranded Gulf capital

Ceasefires and peace negotiations in the Middle East have set off an aggressive race to reclaim stranded financial assets. But institutional investors might be confronting a compliance architecture significantly heavier than the pre-war baseline.

An institutional migration is underway across the GCC’s largest sovereign wealth funds as cooling regional tensions prompt a strategic rebalancing away from defensive wartime postures, notes Ehab Elsonbaty, a partner at New York’s DLA Piper.

Still, the unwinding process could lag political headlines by months, leaving vast pools of capital in a state of inertia despite the return of peace, Ehab shares with IFN Investor.

“For Shariah-sensitive capital, the private credit appetite in particular is driving demand for compliant structures – commodity Murabahah, Sukuk and the like – rather than conventional debt,” said the legal architect for cross-border sovereign transactions.

In practice, reversing those defensive postures means executing fresh counterparty diligence even on long-standing relationships. It requires remapping complex ownership chains and careful unwinding of ring-fenced holding structures without triggering tax leakage or covenant breaches.

Restarting these pipelines also hinges on refreshing legal opinions and securing updated Shariah pronouncements where wartime structures were amended before capital can finally flow again at scale, Ehab stressed.

The economic stakes of untangling this legal web could be significant.

The IMF has projected a 7% cumulative output loss across the GCC from the war.

At the height of the conflict, more than 80 regional energy and corporate facilities suffered operational damages or severe disruptions, the International Energy Agency estimated. A separate assessment by energy consultancy Rystad Energy estimates that total repair and restoration spending across these war-linked, energy-adjacent assets could reach as much as US$58 billion.

Despite these friction points, Ehab notes that GCC appetite for North American growth equity and AI infrastructure has been steadily building and is expected to accelerate as risk premia normalize. To bypass conventional debt, funds are increasingly utilizing specialized Shariah vehicles like commodity Murabahah and Sukuk, though deployment remains strictly gated until internal investment mandates and ESG guidelines are fully refreshed. 

Unwinding conflict-era protections will require sponsors to renegotiate country-risk baskets and material adverse effect clauses – the legal provisions that allow investors to walk away from a deal if conditions collapse. This specific unwinding process will inherently lag diplomatic breakthroughs because any modifications to core Islamic contracts, such as Ijarah or Wakalah structures, must go back to individual Shariah boards for formal auditing before capital can move. 

Meanwhile, updating formal bilateral investment treaties between state governments will be notoriously slow. As a result, funds are instead pivoting to tiered arbitration in neutral seats and specialized political-risk insurance, heavily relying on frameworks like the World Bank’s Multilateral Investment Guarantee Agency and the IsDB’s counterpart, the Islamic Corporation for the Insurance of Investment and Export Credit, to legally shield their post-war assets.