GCC Shariah assets shift inward as Iran war reshapes regional capital flows

Kuwait and the UAE experienced the largest drop in GCC Shariah portfolio values in Q1 2026, according to IFN Investor data, while the rest of the GCC recorded gains – pointing to internal redistribution rather than broad capital flight.

The data suggests the shift was driven more by physical movement of capital than simple equity market depreciation. While global Shariah equities pulled back 3.6% in Q1 2026, the S&P GCC Composite Shariah actually rose 2.2% during the same period, indicating regional resilience.

Prior to the outbreak of the war at end-February, it was business as usual in the GCC, with all six member countries seeing steady capital growth across their Shariah asset base over the year in 2025. Once the US-Israeli airstrikes on Iran began – and Tehran retaliated by firing at regional targets – it was a different story.

Kuwait was the worst impacted, with its total Shariah AuM shrinking 10% by end Q1 2026 to US$5.51 billion from US$6.13 billion in Q4 2025. The decline was also reflected year-on-year, at 3% lower than the US$5.68 billion recorded in Q1 2025.

Of the US$620 million that left Kuwaiti Islamic assets in Q1 2026, the largest portion – US$537 million – was from the money market.

The outflows coincided with Iranian strikes on Kuwait’s key infrastructure including its international airport, the Mina Al-Ahmadi and Mina Abdullah refineries, the Port Shuaiba industrial hub and domestic power and water desalination facilities.

Prior to these attacks, Kuwaiti Shariah AuM grew approximately 8% over the three quarters to Q4 2025.

In the UAE’s case, Shariah compliant assets ended Q1 2026 at US$8.34 billion, dipping 2% from the US$8.52 billion seen in Q4 2025. AuM had grown 148% over nine prior months – from US$3.44 billion in Q1 2025 – a testament to the Emirates’, particularly Dubai’s, standing as the GCC’s fastest-growing destination for capital.

Like Kuwait, the UAE took multiple hits to its energy, logistics and real estate sites from the war that materially impacted the "safe haven" image it has cultivated for the global elite.

The primary catalyst for the UAE decline was the Sukuk funds sector, which saw values drop 16% to US$902.28 million between Q4 2025 and Q1 2026 amid the shift from "front-line" debt and equity instruments.

The erosion of US$146 million in AuM came amid attacks on the Dubai International Financial Centre and Jebel Ali Port, the Fujairah and Ruwais refineries, the Habshan & Shah gas fields, the Al Taweelah aluminium facility, the Palm Jumeirah & Burj Al Arab resorts as well as Dubai International Airport.

Saudi Arabia acted as a regional liquidity sponge, with total assets expanding by 5% to US$56.2 billion in Q1 2026. Year-on-year, the growth was more pronounced, rising 17% from US$47.93 billion in Q1 2025.

Portfolio-wise, the Saudi money market also expanded by 12%, or US$2.83 billion, in Q1 2026 – more than five times the sectoral value that exited Kuwait – indicating that capital was being reallocated to the region's largest economy.

Bahrain witnessed a 51% surge in Shariah AuM to US$504.67 million in Q1 2026 – a recovery made more remarkable by the fact that it recouped nearly half of the value lost during its 2025 slump. The sudden spike came as Bahrain’s physical proximity to the Saudi Eastern Province effectively presented it as a financial 'suburb' of the Saudi haven in the wake of the war.

Oman, a long-time strategic ally of Iran, saw its Shariah compliant assets climb 2.5% to US$649.78 million in Q1 2026, extending a consistent growth trajectory that saw a 13% expansion over the previous year.

Qatar’s Shariah AuM demonstrated a resilient 3.7% quarterly increase to US$279.54 million, remaining largely insulated from the tremors within the Middle East despite an Iranian attack on its North Field gas – a lifeline of its economy.  

The internal migration of wealth suggests that while some capital may have left the Gulf, a significant portion sought shelter elsewhere within.