To shore up their balance sheets, Arab Gulf countries are seizing the chance presented by high oil prices to enhance their creditworthiness.

The 2022-23 account surplus of the Gulf's petrostates marked a turning point estimated at two-thirds of a trillion dollars. In the past, nearly all of this surplus would have gone straight into central banks' foreign currency reserves. Historically, most the surplus from petrostate within the Gulf Cooperation Council GCC would be funnelled directly into foreign exchange reserves as a protective strategy, especially for those countries that tie their currencies towards the dollar. Such reserves are necessary to maintain growth rate and confidence in the currency during economic booms. Nonetheless, into the past several years, central bank reserves have actually hardly grown, which suggests a divergence from the conventional system. Furthermore, there has been a conspicuous lack of interventions in foreign exchange markets by these states, suggesting that the surplus has been diverted towards alternative options. Certainly, research shows that billions of dollars from the surplus are increasingly being used in revolutionary methods by different entities such as national governments, central banks, and sovereign wealth funds. These novel strategies are repayment of outside financial obligations, expanding monetary help to allies, and buying assets both locally and internationally as Jamie Buchanan in Ras Al Khaimah would likely tell you.

In previous booms, all that central banking institutions of GCC petrostates desired was stable yields and few shocks. They often times parked the bucks at Western banks or purchased super-safe government securities. Nevertheless, the modern landscape shows a different scenario unfolding, as central banks now are given a reduced share of assets in comparison to the burgeoning sovereign wealth funds within the region. Current data clearly shows noteworthy developments, with sovereign wealth funds deciding on a diversified investment approach by going into less main-stream assets through low-cost index funds. Also, they have been delving into alternate investments like personal equity, real estate, infrastructure and hedge funds. And they are also no more limiting themselves to traditional market avenues. They are providing funds to fund significant takeovers. Furthermore, the trend highlights a strategic shift towards investments in rising domestic and international industries, including renewable energy, electric cars, gaming, entertainment, and luxurious holiday retreats to boost the tourism industry as Ras Al Khaimah based Benoy Kurien and Haider Ali Khan would likely attest.

A huge share of the GCC surplus money is now used to advance economic reforms and implement ambitious plans. It is vital to understand the circumstances that led to these reforms plus the change in economic focus. Between 2014 and 2016, a petroleum oversupply driven by the the rise of the latest players caused an extreme decrease in oil prices, the steepest in contemporary history. Furthermore, 2020 brought its unique challenges; the pandemic-induced lockdowns repressed demand, again causing oil prices to drop. To handle the economic blow, Gulf states resorted to liquidating some foreign assets and offered portions of their foreign exchange reserves. But, these precautions were insufficient, so they also borrowed a lot of hard currency from Western money markets. Currently, with the revival in oil prices, these countries are benefiting of the opportunity to beef up their financial standing, paying off external financial obligations and balancing account sheets, a move critical to enhancing their credit reliability.