【Iran Crisis】S&P Warning: If Iran Conflict Persists, Gulf Region Banks Could Face Over $2 Trillion in Deposit Outflow Risk

Standard & Poor’s Global Ratings warns that if the conflict between the U.S. and Iran escalates further, banks in the Gulf region could face a domestic deposit outflow of up to $307 billion (approximately HKD 2.39 trillion). The agency notes that if the fighting continues, it could trigger a transfer of funds within the same banking system to institutions viewed as “high-quality assets,” potentially leading to broader external and local capital withdrawals.

S&P states that so far, there are no signs of large-scale capital outflows from Gulf banks. Since the outbreak of war last month, the banking system has shown some resilience. However, with geopolitical tensions still uncertain, the regional financial system remains under potential pressure. After threats of attacks by the Iranian Revolutionary Guard on economic centers and banks linked to the U.S. and Israel, some international lenders have temporarily suspended most customer-facing operations in the UAE, reflecting market caution amid rising tensions.

Under a hypothetical stress scenario, S&P estimates that during the most intense phase of the war between the U.S., Israel, and Iran—lasting two to four weeks—there could be a deposit outflow of $307 billion from the six Gulf Cooperation Council (GCC) countries’ banking systems. The agency also acknowledges that spillover effects and intermittent security incidents could prolong the crisis.

Overall Risk Remains Manageable

Despite these concerns, S&P believes the overall risk remains manageable. The report states that banks in the GCC hold about $312 billion in cash or central bank deposits, enough to absorb some liquidity pressures in the short term. Additionally, by liquidating investment portfolios at roughly a 20% discount, an extra buffer of about $630 billion could be released.

The agency adds that four of the six GCC countries are considered highly supportive of their banking systems. Since hostilities began, regional regulators have strengthened oversight.