DUBAI—Persian Gulf sovereign-wealth funds have suffered some of the worst losses from falling asset prices in Russia since the invasion of Ukraine.
Abu Dhabi’s
and the
were some of the most active sovereign-wealth funds in Russia over the past decade and are now among the most exposed to Russia’s growing financial isolation. Until March, Middle East government funds held 69% of all assets bought by state-owned investors in Russia, according to Global SWF, a New York organization that tracks sovereign-wealth fund investments.
The financial commitments are one reason U.S. partners in the Middle East have so far stayed neutral or tempered criticism of Moscow’s invasion of Ukraine. While companies such as
Exxon Mobil Corp.
and government funds from Norway and Denmark have announced exits from Russia, Persian Gulf investors haven’t indicated they are selling.
“They have bet more on the Russian economy than other funds have,” said Diego Lopez, managing director at Global SWF. “They identify Russia as a long-term play and could be looking at buying cheap assets.”
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The punishing economic sanctions enacted by the U.S. and Europe against Russian entities and wealthy individuals, and Moscow’s countermeasures like currency controls, have complicated the Middle East wealth funds’ investments. Some of the funds’ Russian co-investors, for example, are now under sanctions.
Any Russia losses the Middle East funds have experienced are on paper for now. But the prospect of recovering any Russian losses seem grim, with President
appearing intent on continuing the war and the West looking unified in its response.
The Qatar Investment Authority has suffered some of the biggest losses. Its exposure to Russia is largely via equity stakes in companies such as
Rosneft Oil Co.
and
PJSC, whose share prices have dropped roughly 50% over the past month.
QIA, as the Doha-based sovereign-wealth fund is known, has taken a $6 billion hit on its Russia investments this year, Global SWF estimates. The value of Russian assets fell to roughly $9.6 billion as of March 1, down from $16 billion on Dec. 31, the research firm said. Abu Dhabi Investment Authority’s investments lost about $600 million over that same period, the research firm added.
Abu Dhabi’s Mubadala also bet big in Russia in recent years. It set up an office in Moscow dedicated to the country and has gone one step further than most sovereign-wealth funds, which largely have exposure to liquid equities and bonds, and directly invested in private companies and infrastructure.
The fund first agreed on a joint $4 billion program with the Russian Direct Investment Fund in 2013 and has since done numerous deals, including a $480 million investment in a St. Petersburg shopping mall in 2019 and a $171 million deal in December for a 1.9% stake in Russian petrochemical company Sibur.
In total, Mubadala says it has 45 investments worth $6 billion in Russia and countries in the Commonwealth of Independent States, whose members include former Soviet states.
Saudi Arabia’s Public Investment Fund in recent years has deepened ties with the Russian Direct Investment Fund, announcing in 2015 a $10 billion fund to invest in Russia. It is unclear whether the Saudi fund has deployed any of that commitment. Other funds with exposure to Russia include the Kuwait Investment Authority and Bahrain’s Mumtalakat Holding Co.
Mubadala said it was monitoring the situation in Russia and Ukraine. ADIA declined to comment. The funds for Qatar, Kuwait, Saudi Arabia and Bahrain didn’t respond to requests for comment.
Persian Gulf state-owned investors are some of the biggest in Russia, but the exposure remains tiny compared to the overall size of the funds. Mubadala’s $6 billion exposure, for example, represents roughly 2.5% of its $250 billion in assets. Middle East funds represent about a third of the total assets of all sovereign-wealth funds, and about 13% of all state-owned investors, which includes government-owned pension funds, according to Global SWF.
Russia and Persian Gulf states have deepened political and economic ties in recent years, in part because Middle East states believe the U.S. has shifted focus from the region to Asia in recent years. Events such as the U.S. withdrawal from Afghanistan last summer have cemented that view, edging the countries closer to Russia and China.
Since 2017, Moscow has joined key Middle East oil producers in managing petroleum supplies in a deal that has helped fuel a crude price rally. The oil alliance known as OPEC+ this week stuck with a plan to increase output slightly, with oil prices exceeding $110 a barrel. Prices at that level will boost the coffers of many Persian Gulf governments, and then ultimately their sovereign funds.
Russia also has offered alternatives to U.S. arms to Persian Gulf nations that are under threat from their neighbors, while intervening on the side of President
Bashar al-Assad
in the Syrian civil war and would-be strongman Gen.
Khalifa Haftar
in Libya’s conflict.
Investments by sovereign-wealth funds are an important element of that realignment.
“I suspect that officials at Middle Eastern funds will be hitting pause on any new Russian investments, while monitoring the moves of their global counterparts and keeping a close eye on sanctions,” said Robert Mogielnicki, resident scholar at the Arab Gulf States Institute, a Washington, D.C., think tank.
Write to Rory Jones at Rory.Jones@wsj.com
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