The conflict with Iran first broke out in June 2025 and escalated sharply in the months that followed. With a peace settlement now appearing near, attention is turning to what comes after: whether the Gulf can attract the investment capital its diversification agenda will require once the war has ended. The natural assumption is that capital returns as risk recedes. This note examines whether that assumption holds. We analyze the nine months immediately following the June 2025 onset, a period for which firm-level investment data are available. That window provides an early view of how capital behaved under elevated regional risk, and it suggests that the more consequential question is not whether capital returns, but in what form, and on whose terms.

When military action first escalated in June 2025, many expected a sharp pullback in foreign investment, a pause in multinational expansion plans, and a setback for the Gulf Cooperation Council’s diversification agenda. The Gulf Cooperation Council (GCC), a group that comprises Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Bahrain, and Oman, has pursued economic diversification for more than a decade through an agenda designed to reduce oil‑revenue dependence by expanding private‑sector employment in technology, financial services, and other knowledge‑intensive sectors.

Figure 1 shows the number of projects for these countries at the monthly level. A project in this dataset is an individual announced or completed foreign direct investment at the firm level, such as a factory opening, a headquarters expansion, or a new retail location, rather than the aggregate capital‑flow figures governments typically report. The figure shows that inbound project counts did decline, falling by 9.7 percent. The global market, however, grew by nearly 10 percent over the same period. In relative terms, the Gulf lost ground at a time when comparable markets were expanding. An analysis comparing the experiences of GCC countries with 70 similar economies suggests that inbound project counts were about 21 percent lower than they would likely have been absent the conflict (a point estimate of −20.7 percent) over the same period. The data run through February 2026, and whether these patterns persist or reverse as regional conditions evolve will become clearer as mid‑2026 data become available.

Although the number of projects fell and the GCC underperformed the global market, total capital expenditure remained essentially flat. The reason is straightforward. Large Chinese industrial projects largely offset the decline in U.S. technology and services projects. Other investors, including Western European, Japanese, and intra-GCC sources, also reduced their commitments, by a combined roughly $3.8 billion, but this was masked by the larger Chinese increase. These two types of investment serve very different purposes for Gulf economies, and that substitution, rather than the aggregate totals, is the central finding of this note.

Figure 1. GCC Inbound Projects, Monthly

Note: The monthly project count from March 2024 to February 2026 shows a clear step‑down after June 2025 that is real but moderate relative to the severity of the event. The headline pre‑to‑post decline of 9.7 percent is influenced by two unusually high pre‑conflict months, December 2024 and February 2025. When those outliers are set aside, the post‑conflict counts are broadly comparable to typical pre‑conflict months. The synthetic‑control estimate of roughly 21 percent provides the more reliable measure of the conflict‑attributable decline because it adjusts for underlying trends and expected growth.

Composition Matters More Than Volume

Project counts into the six GCC countries fell 9.7 percent against a global benchmark that rose 9.8 percent. The data show that while the number of projects fell, total capital committed remained roughly flat at $33.1 billion before the conflict, $32.3 billion after. That stability is less reassuring than it appears: the aggregate masks a significant compositional shift, with fewer technology and knowledge-economy deals replaced by a smaller number of larger industrial commitments, leaving the headline number unchanged while the underlying mix moved in ways that matter for long-run growth.

To examine the composition of inbound foreign capital, we assign each deal to one of four activity categories of our own construction, drawing on Orbis CBI sector and business-function codes as inputs.[1] Technology and media covers cloud infrastructure, software development, data centers, and communications. Knowledge-intensive services covers banking, regional headquarters, R&D, and professional business services. Industrial covers manufacturing, construction, and logistics. Commercial covers retail, hotels, entertainment, and sales offices.

Figure 2 plots project count and capital expenditure by activity category before and after the onset of the conflict. Four distinct patterns appear to be associated with the conflict period.

• Technology and media investment fell 34 to 36 percent in project count and between 26 and 58 percent in capital expenditure, depending on sector definition, the steepest decline of any category and the one most directly relevant to Gulf diversification ambitions.
• Knowledge-intensive services fell 28 percent in projects and 21 percent in capital.
• While the number of inbound industrial projects declined moderately, total industrial capital expenditure rose roughly 14 percent, driven by a handful of large-scale Chinese manufacturing and energy deals. That increase, combined with stable commercial capital, is the primary reason the aggregate capex figure remained roughly flat even as technology and knowledge-intensive capital fell sharply.
• The number of commercial investment projects in retail, hotels, and entertainment expanded significantly but was essentially flat in terms of capital.

Total capital held roughly flat. But the composition appears to have shifted away from the activity types that Gulf diversification strategies most depend on attracting.

Figure 2. Activity Composition Shift—GCC Inbound Investment.

Note: Project count and capital expenditure by activity category. Technology and knowledge‑intensive investment fell sharply. Industrial capex rose materially, driven by large Chinese manufacturing and energy deals, offsetting declines in technology and knowledge‑intensive categories. Commercial activity was essentially flat in capital terms. These patterns are consistent with a conflict‑related reallocation, although other contemporaneous factors may also have contributed.

U.S. and China Diverge Within the Same Sectors

Chinese investment into the Gulf roughly doubled, rising to $14.5 billion from $7.1 billion on a mainland-only basis, while U.S. capital fell to $2.2 billion from $6.6 billion (a 67 percent decline). In aggregate dollar terms, China more than covered the U.S. shortfall, but other investors (e.g., Europe, Japan, and intra-GCC) also reduced commitments, resulting in a net decline of $0.8 billion in total capital.[2]

Figure 3 shows capital expenditure by activity category for the U.S. and China. The firm-level data reveal that, before the conflict, the two investor groups had broadly similar footprints: industrial projects were the single largest category for both, and both also placed weight on technology, though the U.S. tilted more toward high-tech than China did. After the onset of the conflict, both pulled back sharply from technology and knowledge services.  The decisive difference lies in industrial capital: U.S. industrial investment fell by roughly three-quarters, while Chinese industrial investment more than doubled. The two did not move into different sectors so much as move in opposite directions within the sector that mattered most to both, with the U.S. retreating as China deepened its position in manufacturing, chemicals, and energy, consistent with broader Chinese outbound investment priorities. A complementary explanation is strategic. As Western capital pulled back, Gulf governments appear to have actively sought Chinese investment to fill the void, and China had strong reasons to respond. Chinese energy imports from the Gulf are substantial, and a conflict that threatens those supply chains creates a direct state interest in deepening commercial relationships with Gulf producers. The pattern is consistent with Chinese government support for outbound investment into the region and raises an important forward‑looking question: if U.S. and other Western investors remain absent after the conflict ends, China is positioned not merely to fill a temporary gap but to establish a durable commercial presence that could reshape the region’s long‑term financing relationships.

Figure 3. The Sector Distribution of U.S. vs. China Capital into GCC.

Note: Capital expenditure by activity category for U.S. (left) and China (right). Both investor groups were concentrated in industrial projects before the conflict; the divergence is in direction, with U.S. industrial capital contracting while Chinese industrial capital expanded.

How much of this divergence is attributable to the conflict specifically, and how much reflects pre-existing trends in U.S.–China technology competition or changing American regulatory signals about Gulf engagement, cannot be fully determined from simple comparison of two nine-month windows. What the data do establish is the pattern: industrial capital was the largest category for both investors before the conflict, and within it the two diverged sharply, with U.S. industrial investment contracting while Chinese industrial investment expanded.

The distinction matters because manufacturing and knowledge-services investments serve different development purposes. Economies pursuing a transition toward higher-value-added activity depend on attracting institutional investment such as headquarters, financial infrastructure, technology platforms, the kind that appears to have declined most sharply. Industrial investment is economically valuable, but it does not serve as a direct substitute for the high value-added sectors.

Several additional indicators point in the same direction, although each admits alternative explanations. Figure 4 shows both patterns. Total employment created by new inbound investments fell 36 percent, to 40,000 from 62,000, even as project counts declined only 10 percent. The most likely explanation is compositional, because technology and knowledge‑services projects generate far more jobs per dollar than industrial ones, but the data do not directly demonstrate this. Separately, the share of projects at the “rumor” stage rose to 21 percent from 15 percent, suggesting that more potential investors are signaling interest without yet committing.

Figure 4. Defensive Signals—GCC Inbound Deal Quality.

Note: Jobs created fell 36 percent on a 10 percent project-count decline. The share of projects recorded at the ‘rumor’ stage rose from 15 percent to 21 percent. ICT and knowledge services typically create more jobs per dollar than industrial sectors, which would be consistent with the employment gap given the sectoral shift, though the data do not directly establish this.

Gulf Capital Seeks New Destinations

The same reorientation visible in the inbound data, with U.S. technology capital retreating and Chinese industrial capital advancing, also appears in how Gulf states deployed their own money abroad. Outbound capital recorded to the United States fell sharply in aggregate, though both the pre- and post-conflict U.S. figures are dominated by single large transactions; alongside that decline, Gulf capital moved toward non-aligned emerging economies, raising questions about the durability of Gulf–U.S. financial ties. Where the inbound data show who stopped investing in the Gulf and who filled the gap, the outbound data show the Gulf itself making analogous choices: moving capital away from Western markets and toward partners less entangled in the geopolitical pressures the conflict accelerated.

Figure 5 shows the GCC’s outbound capital expenditure by destination at the monthly frequency. On the outbound side, Gulf sovereign wealth funds appear to have redirected capital toward Southeast Asia, where outbound investment more than doubled in the post-conflict window, to $10.9 billion from $4.6 billion. Vietnam and Indonesia received the largest share. Both countries maintain balanced diplomatic relationships, which may make them attractive destinations for Gulf capital that seeks to avoid the geopolitical alignment costs. The reallocation away from Western markets was concentrated in the United States; outbound capital to Western Europe fell far less sharply, suggesting the shift was U.S.-specific rather than broadly anti-Western. The sectoral pattern supports this interpretation. Outbound projects in Southeast Asia were concentrated in manufacturing, energy, and infrastructure rather than in technology or other knowledge-intensive services. While this outbound shift does not compensate for the loss of inbound technology and knowledge-economy capital, it signals a broader reorientation of Gulf capital toward markets where geopolitical alignment is not a precondition for commercial relationships.

One outbound transaction in the post-conflict window deserves separate treatment. In June 2025, GlobalFoundries—majority-owned by Abu Dhabi’s Mubadala Investment Company—announced a reported $16 billion expansion of its semiconductor manufacturing in New York and Vermont. Because it was announced just after the June 2025 onset, this single deal accounts for essentially all U.S.-bound Gulf outbound capital recorded in the post-conflict window. It complicates a simple reading of reorientation away from the United States: even as aggregate Gulf outbound capital to the U.S. fell sharply, the single largest post-conflict commitment was to American strategic-technology infrastructure. This matters because outbound capital can also support GCC economic priorities: if some channels for inbound technology investment narrow, Gulf investors may try to preserve access to strategic capabilities by deepening ties with high-tech firms abroad. A state-owned investor committing a large sum to American strategic-technology infrastructure may therefore reflect a different but related route to the same diversification objective.

Figure 5. GCC Outbound Capex by Destination, Monthly.

Note: Monthly Gulf outbound capital by destination shows that U.S.-bound flows are shaped almost entirely by two large one-off transactions: the $40 billion Edgnex data‑centre commitment in January 2025, which falls in the pre-conflict window, and the $16 billion Mubadala–GlobalFoundries semiconductor deal in June 2025, which falls in the post-conflict window. Outside these two transactions, U.S. allocations are modest across the period, while Southeast Asia shows steady and continuous growth.

Compositional Shift, Not Collapse

The aggregate investment data do not support the prediction of a broad Gulf investment collapse in the nine months following the beginning of the conflict. Project counts fell modestly, total capital barely moved, and outbound commitments included at least one very large transaction signed in the months just before the conflict.

What the firm‑level data show instead is a reallocation. By activity type, technology and other knowledge-intensive investment declined in both project count and capital committed, while industrial capital expenditure rose materially on large Chinese deals and commercial capital held roughly stable. By investor origin, U.S. capital retreated across the sectors in which it had been active while Chinese capital more than offset the U.S. decline in capital terms, concentrated in the industrial sector that had been the largest category for both; other investors, including Western European and intra-GCC sources, also reduced commitments. By destination, Gulf outbound capital shifted toward non‑aligned Asian markets. Each pattern is individually consistent with a conflict‑related effect, although the observational design cannot rule out that some portion reflects trends already underway.

The more durable question is whether this compositional shift, if it persists, is consequential for Gulf economic goals. Technology and knowledge‑intensive investment are the categories most closely associated with the diversification agenda that Gulf governments have committed to. If the patterns documented here continue, the more important effect of the conflict period may not be the modest aggregate decline but the divergence between what the Gulf needs to attract and what, at least over this nine‑month window, it appears to have received.

The April 2026 escalation has made that question more urgent. The disruption documented in this note may represent the early phase of a longer‑duration effect rather than a temporary shock. As mid‑2026 data become available, a key issue will be whether the compositional gap has widened further and whether Chinese industrial capital has continued to advance into the space that U.S. knowledge‑economy capital vacated.

The headline figures show only a modest aggregate decline. What they obscure is a reallocation that may prove consequential: U.S. capital retreating from the knowledge‑economy sectors the Gulf most needs, and Chinese capital advancing into industrial and energy sectors consistent with China’s broader outbound investment priorities. If that pattern hardens, the more lasting effect of the conflict may not be economic damage but a structural shift in who finances Gulf development and on whose terms.

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About this analysis

Data: Moody’s Orbis Cross-border Investment database extracted May 19, 2026; used with permission. The analysis covers 96,180 global project records. Comparison windows are nine months pre-conflict (June 2024–February 2025) and nine months post-conflict (June 2025–February 2026), excluding the most recent three months because of reporting lag. The unit of analysis is the individual announced or completed deal at the company level, not balance-of-payments aggregates. Capital expenditure figures combine company-reported, press-sourced, and modelled estimates; project counts are more reliable. Activity categories (Technology & Media, Knowledge-Intensive Services, Industrial, Commercial) are the authors’ classifications based on Orbis CBI sector and business-function codes; results may vary under alternative classification schemes. China capex uses mainland China only (excluding Hong Kong SAR, Macao SAR, and Taiwan); including Hong Kong SAR raises the pre-conflict figure to $9.1B and reduces the percentage change to +59 percent. ICT capex uses sector-code definition (Computer Software, Computer Hardware, Communications, Media & Broadcasting), giving −36 percent projects and −58 percent capex; a broader definition including business-function codes gives −34 percent and −26 percent respectively. All sectoral decompositions were rerun on the June 2024–February 2025 and June 2025–February 2026 windows. A synthetic control using 70 comparison countries estimates the conflict-attributable decline at approximately −20.7 percent on Gulf inbound project count (rank p-value = 0.000); sector-level decompositions are observational and do not carry the same causal identification.