In February 1953, eight years before independence, Kuwait set up an investment board in London to place its surplus oil revenue abroad. It was the world’s first sovereign wealth fund. Few people outside the Gulf noticed. Thirty-seven years later, the idea behind it was tested in the hardest way possible.
When Iraq invaded in August 1990, Kuwait lost its territory in a day. It did not lose its wealth. Within hours, Washington and London froze Kuwaiti state assets, not to punish Kuwait but to keep them out of the invader’s reach. The investments built up over four decades sustained the government in exile and helped pay for liberation and reconstruction. A state had lost its land and kept its means because the law of state property protected its sovereignty when its borders could not.
That lesson matters again. Saudi Arabia is under fire and the Gulf’s sovereign funds are among the largest pools of capital in the world. Saudi Arabia’s Public Investment Fund manages about $900 billion. The Kuwait Investment Authority is estimated to manage about $1 trillion. The question is what protects that wealth in a war.
In 1990, freezing orders protected a state’s assets. In 2022, Western governments froze about $300 billion of Russia’s central bank reserves after the invasion of Ukraine. The legal tool was the same. The outcome was the opposite. The difference was legitimacy: in one case the state was the victim of aggression, in the other it was the aggressor.
Missiles can strike airports and pipelines. They cannot reach a well-governed fund
Dr. Bashayer Al-Majed
For Gulf funds, the lesson is precise. Sovereign assets abroad are protected less by their size than by the legal standing of the state that owns them. Customary international law gives strong immunity to central bank assets, weaker protection to state property used for commercial purposes and far less to states that place themselves outside the law. A state that acts within the UN Charter, as Saudi Arabia does in defending itself, keeps the law on its side, in its courts and in everyone else’s.
The second protection is governance. In 2008, a group of sovereign funds agreed the Santiago Principles, 24 standards on transparency, accountability and investment purpose. In April 2009, meeting in Kuwait City, they adopted the Kuwait Declaration, which created the International Forum of Sovereign Wealth Funds to carry those standards forward.
This is not bureaucratic detail. Host countries increasingly screen foreign state investment on national security grounds. A fund that can show that its decisions are commercial, its governance clear and its purposes published is treated as an investor. A fund that cannot is treated as a political actor. In a crisis, that distinction decides whether capital moves freely or is stopped at the border.
Kuwait and Saudi Arabia have built their funds for different purposes but the region needs both. Kuwait’s model, with its Future Generations Fund created in 1976, is a long-term store of value invested largely abroad: a shock absorber and a savings account for citizens not yet born. Even this model has had to defend its rules when budgets were tight, as Kuwait did in 2020. Saudi Arabia’s PIF is an engine of transformation, investing heavily at home to build the non-oil economy that Vision 2030 requires, alongside a substantial international portfolio.
In wartime, each model does a different job. External reserves absorb shocks that hit the domestic economy. Domestic investment builds the resilience that makes the next shock smaller. A region that combines the two is harder to destabilize than either model alone.
Three steps would turn financial strength into legal strength. First, Gulf funds should review where their assets sit and under which legal systems and treat jurisdiction as a strategic risk, not an administrative choice. Second, they should keep raising their governance standards under the Santiago Principles because transparency is cheaper than suspicion. Third, the GCC should formalize how members support one another in a crisis. It has done so before: in 2018, Saudi Arabia, the UAE and Kuwait agreed a $10 billion package for Bahrain. A standing framework would make that solidarity predictable rather than improvised.
Kuwait learned in 1990 that a state’s wealth can outlast the occupation of its territory, if the law stands behind it. The lesson for the Gulf today is the same. Missiles can strike airports and pipelines. They cannot reach a well-governed fund held under the protection of the law. The Gulf’s deepest reserves are not only measured in dollars. They are measured in legitimacy.
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Dr. Bashayer Al-Majed is a Professor of Law at Kuwait University, and a Visiting Fellow at Oxford. She is a civil law expert and works toward empowering women in the Middle East and advancing legal equality. Her primary research field is comparative private law, with a particular focus on commercial contracts and dispute resolution. She has written and lectured extensively