Over the past decade, Arab economies have witnessed a notable shift in how individuals and businesses approach the use of cash. Liquidity circulating outside the formal banking system has increased, and holding funds in physical form has become a preferred option for a broad segment of society. This trend did not emerge by design; rather, it reflects a response to exceptional circumstances that reinforced the appeal of immediate liquidity as a source of perceived security and control.
Yet, the expansion of a cash-based economy is not a sustainable trajectory. As more liquidity remains outside formal financial channels, the efficiency of financial intermediation declines, limiting the system’s ability to channel savings into productive investment. At the same time, reliance on cash imposes tangible operational costs on businesses—ranging from cash handling and storage to heightened exposure to logistical risks and the complexities of reconciliation and audit.
Beyond these direct costs, a cash-heavy environment constrains financial innovation. Modern financial solutions—such as instant payments, digital wallets, and advanced point-of-sale systems—depend fundamentally on the flow of funds through banking and digital infrastructures. When transactions remain outside these channels, the opportunity to build reliable data ecosystems is diminished. This, in turn, weakens decision-making capabilities, risk management frameworks, and financial planning for both individuals and institutions.
Reducing reliance on cash, therefore, presents a strategic opportunity to reintegrate liquidity into the formal financial system. Increased use of banking channels supports broader financial inclusion, enabling underserved segments to access savings, credit, insurance, and digital payment services. It also enhances transparency and contributes to greater efficiency across the economic cycle.
Importantly, the objective is not to eliminate cash, but to restore balance. Cash will remain a valid and necessary means of payment. However, it should no longer be the dominant one. The aim is to create an environment in which digital and banking transactions become the natural choice—driven by their advantages in cost, speed, and security.
Achieving this shift requires a coordinated and structured approach. First, financial institutions must develop accessible, user-friendly products tailored to low-income individuals and small businesses, reducing barriers to account ownership and digital engagement. Second, strengthening financial and digital literacy is essential to demonstrate the practical benefits of non-cash transactions, particularly in terms of organization, convenience, and expense management. Third, sustained investment in technological infrastructure and cybersecurity is critical to ensuring data protection and building lasting trust in digital platforms.
The private sector also has a central role to play. Encouraging electronic salary payments, adopting modern payment solutions across commerce and services, and offering incentives for customers who favor digital channels can collectively accelerate this transition. Each electronic transaction contributes incrementally to reducing the footprint of the cash economy.
Ultimately, limiting the dominance of cash is not an end in itself, but a means to enhance efficiency, improve resource allocation, and support the development of a more resilient and sustainable financial system. As digital banking services become more accessible and convenient than managing physical cash, the transition toward a less cash-dependent economy will occur organically—driven by trust and efficiency rather than compulsion.
Dr. Mazen Haidar
Head of Sales and Retail Products – Credit Libanais SAL
Multiple scenarios replace single baseline thinking
Arab banks must adapt to shifting realities
The global economic landscape has rarely appeared as unsettled as it does today. Recent geopolitical developments, particularly the escalation of conflict in the Middle East, have once again exposed the fragility of long-standing economic assumptions. Energy markets have reacted sharply, supply routes have come under strain, and policymakers across the world find themselves confronting a familiar yet unresolved question: how to anticipate what lies ahead when the foundations of the system itself appear to be shifting.
For decades, economic forecasting rested on a relatively stable premise. From the mid-1980s until the onset of the COVID-19 pandemic, the global economy exhibited a degree of predictability that allowed central banks, ministries of finance, and financial institutions to operate with a high level of confidence. Inflation remained contained, supply chains functioned efficiently, and the transmission mechanisms of economic shocks were broadly understood. Within such an environment, forecasting tools evolved accordingly—favoring a central baseline projection supplemented by probabilistic ranges that reflected potential deviations.
This framework was not without merit. By anchoring expectations around a single, coherent outlook, policymakers were able to communicate clearly with markets and the public. The use of fan charts—illustrating a range of possible outcomes around the baseline—offered a structured way to express uncertainty while preserving analytical discipline. Implicit in this approach, however, was a critical assumption: that the future would, in essence, resemble the past.
That assumption has come under increasing strain.
The pandemic marked a decisive break from historical patterns. Supply chains, once considered resilient and efficient, proved vulnerable to disruptions that propagated rapidly across borders and sectors. Inflation dynamics, long subdued, re-emerged with unexpected force. Central banks, despite sophisticated models and extensive data, found themselves consistently underestimating the scale and persistence of price pressures. What had been treated as temporary distortions revealed deeper structural shifts within the global economy.
The current geopolitical environment reinforces this reality. The conflict affecting key energy corridors has introduced a new layer of complexity, particularly for economies that remain heavily dependent on imported energy. While historical precedents—such as past oil crises—offer some reference points, the present context differs in significant ways. The interplay of regional actors, the configuration of global energy markets, and the broader economic backdrop combine to create a situation without a direct parallel.
In such circumstances, the distinction between risk and uncertainty becomes more than a theoretical nuance. The economist Frank Knight articulated this difference over a century ago. Risk, in his framework, refers to situations where outcomes are uncertain but quantifiable; probabilities can be assigned based on historical experience. Uncertainty, by contrast, arises when the underlying structure itself is evolving in ways that defy prior observation. In these cases, probabilities lose their meaning because the range of possible outcomes cannot be reliably defined.
Today’s economic environment bears the hallmarks of what is often described as “Knightian uncertainty.” The challenge is not merely that outcomes are difficult to predict, but that the mechanisms driving those outcomes are themselves in flux. Under such conditions, traditional forecasting tools—particularly those that rely on historical relationships—risk providing a false sense of precision.
The limitations of conventional approaches are most evident in the reliance on single baseline forecasts. While useful in stable environments, a single projection struggles to capture fundamentally different trajectories that may arise from structural changes. Expanding the range of a fan chart does little to address this issue. A wider band may signal greater uncertainty, but it still assumes that the future can be described as a variation of the past. When the “story” of the economy is itself uncertain, such an approach becomes insufficient.
An alternative framework has begun to gain traction among leading central banks and economic institutions. Rather than presenting a single forecast, this approach emphasizes the development of multiple, well-defined scenarios. Each scenario represents a distinct and internally coherent narrative about how economic conditions may evolve, supported by corresponding projections for key variables such as growth, inflation, and interest rates.
The strength of this method lies in its ability to accommodate fundamentally different outcomes. For instance, in the context of current energy market disruptions, one scenario may assume that tensions remain contained, allowing supply chains to stabilize and prices to gradually revert toward previous levels. Another scenario may consider the possibility of escalation, leading to sustained supply constraints, elevated energy prices, and broader second-round effects on inflation and economic activity. A third scenario might explore intermediate dynamics, reflecting partial disruptions and uneven adjustments across regions.
Importantly, scenario-based forecasting is not merely an exercise in speculation. Each scenario is accompanied by a clear narrative explaining the economic logic at play, as well as specific indicators that would signal a shift from one trajectory to another. This structured approach enhances transparency and provides decision-makers with a more nuanced understanding of potential risks and opportunities.
Several major central banks have already begun to adopt this framework. The European Central Bank, for example, has moved away from traditional fan charts in favor of presenting multiple scenarios, explicitly acknowledging the limitations of probabilistic tools under conditions of elevated uncertainty. Similarly, Sweden’s Riksbank has incorporated alternative scenarios into its communications, while the Bank of Canada has, at times, refrained from issuing a single baseline forecast when no credible projection could be established.
These developments reflect a broader shift in how institutions approach uncertainty. Rather than striving for precision in an inherently unpredictable environment, the emphasis is increasingly placed on clarity, flexibility, and intellectual honesty. Credibility, in this context, is not derived from consistently accurate predictions—an unrealistic expectation in any case—but from the ability to articulate the range of plausible outcomes and to adjust assessments as new information emerges.
For the Arab region, the implications are particularly significant. Many economies across the Middle East and North Africa are deeply integrated into global energy markets, either as exporters or importers. Fluctuations in energy prices have direct consequences for fiscal balances, inflation, and external accounts. At the same time, ongoing efforts to diversify economic structures and enhance resilience add another layer of complexity to the policy environment.
In such a context, the adoption of more sophisticated forecasting frameworks is not merely an academic exercise; it is a strategic necessity. Financial institutions, in particular, must operate with a clear understanding of how different scenarios may affect asset quality, liquidity conditions, and capital adequacy. Policymakers, meanwhile, require tools that support informed decision-making without overstating the degree of certainty.
The shift toward scenario-based analysis also has implications for communication. In a region characterized by diverse economic structures and varying degrees of exposure to external shocks, clear and transparent communication becomes essential. By presenting multiple scenarios, institutions can convey the inherent uncertainty of the environment while providing stakeholders with actionable insights. This approach fosters a more informed dialogue between policymakers, markets, and the public.
Moreover, scenario-based forecasting aligns closely with broader trends in risk management. Stress testing, for example, already relies on the evaluation of extreme but plausible scenarios to assess the resilience of financial institutions. Integrating such thinking into macroeconomic forecasting creates a more coherent analytical framework, bridging the gap between high-level projections and institution-specific risk assessments.
Looking ahead, the challenge will be to refine these approaches and embed them within institutional processes. Designing meaningful scenarios requires a combination of analytical rigor and practical judgment. It involves not only the identification of key uncertainties but also an understanding of how these uncertainties interact across sectors and regions. This, in turn, calls for enhanced collaboration between economists, market analysts, and policymakers.
For Arab banks and financial leaders, several practical considerations emerge. First, there is a need to move beyond reliance on single-point forecasts in strategic planning. Incorporating multiple scenarios into decision-making processes can improve resilience and enable institutions to respond more effectively to changing conditions. Second, investment in analytical capabilities—particularly in areas such as data analysis and economic modeling—will be essential to support more sophisticated forecasting frameworks. Third, communication strategies should be adapted to reflect the complexity of the environment, balancing clarity with an honest acknowledgment of uncertainty.
In conclusion, the current phase of global economic uncertainty underscores the limitations of traditional forecasting methods and highlights the value of more flexible, scenario-based approaches. For the Arab banking sector, embracing this shift offers an opportunity to enhance resilience, strengthen decision-making, and reinforce credibility in an increasingly complex environment. By adopting frameworks that reflect the realities of structural change, institutions can better position themselves to respond to uncertainty—not with unwarranted confidence, but with informed and disciplined judgment.
In an era marked by increasingly complex interdependence, the relationship between capital, technology, and national security is undergoing a quiet but consequential shift. Global supply chains remain deeply intertwined, cross-border capital flows continue to shape economic outcomes, and technological capabilities have become central to both prosperity and sovereignty. Within this evolving context, governments are reassessing how financial instruments can serve broader strategic objectives—without compromising market integrity.
Among the tools gaining prominence is the fund of funds (FoF) model. Traditionally viewed as a mechanism to stimulate venture capital ecosystems, FoFs are now being repositioned as instruments of economic statecraft. Their potential lies not merely in mobilizing capital, but in directing it with purpose—toward sectors and capabilities deemed critical for long-term national and regional resilience.
From Market Development to Strategic Alignment
Historically, public FoFs were designed to address a clear gap: the lack of early-stage venture capital in emerging or underdeveloped markets. By pooling public and private capital and investing in venture funds, governments were able to catalyze entrepreneurial ecosystems and crowd in private investors. Israel’s Yozma program remains the most cited example, having successfully seeded a now globally recognized innovation ecosystem. Similar models were later adopted across different jurisdictions, including Europe, Australia, and parts of the Gulf.
These initiatives were largely commercial in orientation. Their primary objective was to generate returns while fostering domestic investment capacity. Over time, many succeeded in achieving both aims. However, the global environment in which they operated has changed significantly.
Today, the focus is no longer confined to market development. Governments are increasingly concerned with the strategic implications of capital allocation—particularly in sectors such as artificial intelligence, semiconductors, advanced materials, and autonomous systems. These are not merely high-growth industries; they are foundational to economic security and, in many cases, national defense.
As a result, FoFs are being recalibrated to serve dual purposes: advancing economic security while maintaining commercial discipline. This shift reflects a broader recognition that capital markets, left entirely to their own logic, may not always align with national or regional priorities.
Designing for Dual Objectives
The central challenge lies in balancing two distinct but interconnected mandates. On one hand, FoFs must operate within a credible commercial framework to ensure efficiency, accountability, and long-term sustainability. On the other, they must support clearly defined strategic objectives that may not always yield immediate financial returns.
Achieving this balance requires deliberate design. First, governments must articulate a coherent economic security strategy that identifies priority sectors and technologies. This involves not only selecting areas of investment but also clarifying the intended outcomes—whether related to defense capabilities, civilian applications, or a combination of both.
Equally important is ensuring that supported companies contribute meaningfully to domestic or allied economies. This goes beyond legal domicile. It requires tangible commitments to research, development, and manufacturing within target jurisdictions. Without such criteria, capital risks flowing into entities that offer limited strategic value.
From a commercial perspective, clear return expectations are essential. FoFs should establish performance benchmarks for both the funds they invest in and the underlying portfolio companies. This is not merely a financial consideration; it is a safeguard against the erosion of discipline that can occur when strategic objectives dominate decision-making.
Private sector participation also plays a critical role. By requiring co-investment from private investors, FoFs can ensure that risk is shared and that market signals remain relevant. Over time, as ecosystems mature, the reliance on public capital should diminish, allowing private markets to assume a greater role.
Transparency in trade-offs is another key consideration. Governments must be explicit about the balance they are willing to strike between financial returns and strategic outcomes. This clarity helps manage expectations and reduces the likelihood of ad hoc adjustments driven by political pressures.
Different models illustrate how this balance can be achieved. In some cases, governments have capped their share of returns to incentivize private investors to assume greater ownership. In others, they have prioritized ecosystem development over immediate financial gain. Multilateral approaches, meanwhile, have sought to distribute investments across allied markets, reinforcing collective capacity.
Embedding Security Across the Investment Chain
As FoFs take on a more strategic role, the integration of security considerations becomes indispensable. This extends beyond high-level policy and into the operational fabric of the investment process.
At the fund level, governance structures must ensure that decision-makers are equipped to assess not only financial risks but also security implications. In sensitive sectors, this may involve vetting key personnel and establishing secure channels of communication with relevant authorities.
Transparency is equally critical. Investors—both domestic and international—should be required to disclose the origins of their capital. This enables authorities to identify and mitigate the influence of actors whose interests may not align with national or regional priorities.
Portfolio companies, too, must be subject to rigorous scrutiny. Complex ownership structures, opaque funding arrangements, and indirect links to high-risk jurisdictions can all pose challenges. FoFs, particularly when acting as anchor investors, are well positioned to set standards for due diligence and governance across the funds they support.
This influence should not be underestimated. By embedding robust requirements into their investment criteria, FoFs can shape the behavior of venture capital markets more broadly. Over time, such practices can contribute to the establishment of industry-wide norms that balance openness with prudence.
Strengthening Alliances Through Capital
One of the most compelling attributes of the FoF model is its capacity to operate across borders. In a world where economic and technological ecosystems are increasingly interconnected, national approaches alone may prove insufficient.
FoFs offer a practical mechanism for aligning investment strategies among allied countries. By pooling capital and coordinating priorities, governments can support shared objectives while distributing both risk and reward. This is particularly relevant in areas where the scale of investment required exceeds the capacity of any single country.
Multilateral initiatives have already begun to demonstrate this potential. By investing in funds that operate across multiple jurisdictions, these platforms facilitate the exchange of knowledge, the development of complementary capabilities, and the creation of more resilient supply chains.
For the Arab region, where economic integration remains an ongoing objective, such approaches hold significant promise. Coordinated investment strategies could help bridge gaps between markets, support the development of regional champions, and enhance collective competitiveness.
Beyond Innovation: The Imperative of Scale
While much of the discussion around FoFs has focused on early-stage innovation, this represents only part of the equation. The ability to develop new technologies is important, but it is equally critical to retain control over their production and distribution.
Recent geopolitical developments have underscored the risks associated with fragmented supply chains. Even where countries possess strong innovation capabilities, reliance on external suppliers for key components can limit their strategic autonomy.
For this reason, FoFs should be considered as part of a broader framework that includes support for manufacturing and supply chain development. This may involve backing funds that specialize in scaling industrial capacity, financing infrastructure, or enabling the commercialization of advanced technologies.
Such efforts must be aligned with other policy instruments. Public procurement, for example, can provide stable demand for emerging industries. Export controls can protect sensitive technologies, while targeted incentives can encourage investment in priority areas.
The objective is not to replace market mechanisms, but to guide them in ways that reinforce long-term resilience.
Implications for the Arab Financial Sector
For Arab economies, the evolving role of FoFs presents both an opportunity and a responsibility. The region is home to significant pools of capital, a growing base of entrepreneurial talent, and an increasing focus on technological development. At the same time, it faces structural challenges related to diversification, employment, and integration into global value chains.
Strategically designed FoFs could help address these challenges by channeling capital into sectors that align with national and regional priorities. They could also serve as platforms for collaboration among sovereign wealth funds, development finance institutions, and private investors.
However, success will depend on careful execution. Without clear mandates, robust governance, and strong alignment between stakeholders, such initiatives risk falling short of their potential.
A Forward-Looking Perspective
As the global economic landscape continues to evolve, the intersection of finance and strategy will become increasingly pronounced. Funds of funds, once viewed as technical instruments within the venture capital ecosystem, are now emerging as tools with broader significance.
Their effectiveness will ultimately be determined by the clarity of their purpose and the rigor of their design. When these elements are in place, FoFs can contribute to the development of innovation ecosystems that are both competitive and resilient.
For Arab banks and financial leaders, the path forward is clear yet demanding. It requires embracing a more strategic approach to capital allocation—one that goes beyond short-term returns and considers the long-term positioning of economies within a changing global order. Institutions should actively participate in or partner with FoF structures that align with national priorities, advocate for transparent and disciplined governance frameworks, and support initiatives that strengthen regional collaboration. By doing so, they can play a pivotal role in shaping an economic future that is not only prosperous, but also secure and sustainable.
World trade routes are the arteries of international commerce, connecting continents through sea, land, and air. The most dominant are maritime shipping lanes, which carry nearly 90% of global trade volume. This article overviews world trade routes and their strategic importance to the global supply chain. The article highlights the impact of US-Iran war in 2026 on world trade routes and on goods and services shipped along these trade routes and the disruption to global supply chain. The article concludes with strategies for Arab banks to build more resilient global supply chain and sustainable world trade routes along the supply chain.
Overview of World Trade Routes
World trade routes are structured around critical chokepoints. Each of these narrow passages handles enormous volumes of goods, from oil and gas to manufactured products, making them indispensable yet vulnerable points in the global economy. Major ports like Rotterdam, Singapore, Shanghai, Los Angeles, and Dubai serve as hubs where these flows converge and redistribute.
Beyond the seas, continental trade corridors also play a vital role. The modern revival of the Silk Road through China’s Belt and Road Initiative has expanded rail and road networks across Central Asia and into Europe. Africa’s trade with Europe is largely mediated through Mediterranean shipping and North African ports, while North America’s exchanges with Asia depend heavily on Pacific shipping lanes linking United States (US) West Coast ports to East Asia. Air cargo routes, though smaller in volume, are essential for high-value and time-sensitive goods such as electronics and pharmaceuticals. Hubs like Hong Kong, Dubai, Frankfurt, and Memphis dominate this sector.
The Suez Canal carries about 12% of global trade, while the Strait of Malacca handles nearly a quarter of maritime traffic. The Strait of Hormuz is critical for oil shipments, with around 20% of global petroleum passing through. Other strategic passages include the Bosporus Strait in Turkey and the Bab el-Mandeb near the Horn of Africa. Any disruption in these areas, whether from geopolitical conflict, piracy, or accidents, can ripple across global supply chains.
Looking ahead, climate change is reshaping trade geography. Melting Arctic ice is opening the Northern Sea Route, which could shorten shipping times between Europe and Asia. At the same time, congestion, environmental risks, and regional instability continue to challenge existing routes. Maritime shipping remains the backbone, air cargo is expanding, and new land corridors are emerging, but the balance of global trade depends on how these routes adapt to rising political and environmental challenges.
Strategic Importance of World Trade Routes to Global Supply Chain
World trade routes determine how raw materials, energy, and finished goods move across continents. Maritime shipping lanes, which carry nearly 90% of world trade, connect production centers in Asia with consumer markets in Europe, Africa, and the Americas. When these routes function smoothly, supply chains remain efficient, costs stay manageable, and goods arrive on time. However, disruptions at chokepoints such as the Strait of Hormuz, the Suez Canal, or the Panama Canal can ripple across the entire system, delaying shipments, raising costs, and making shortages.
Air cargo routes, though smaller in volume, are critical for high-value and time-sensitive goods like electronics and pharmaceuticals. Any disruption in these corridors immediately affects industries that rely on just-in-time delivery. Similarly, continental land corridors, such as rail links between China and Europe, provide alternatives that diversify supply chains, but they are also vulnerable to geopolitical tensions and infrastructure bottlenecks.
The global supply chain is highly sensitive to these routes because they act as single points of failure. A blockage in one canal or strait forces ships to reroute thousands of miles, adding weeks to delivery times and inflating costs. This not only affects energy markets and manufacturing but also cascades into consumer prices and availability of goods worldwide. In essence, trade routes are the circulatory system of the global economy, and any disruption in them directly impacts the health and resilience of supply chains.
The role of each major world trade route in the global supply chain is as follows:
Strait of Hormuz: This strait is the lifeline of global energy supply, carrying about one fifth of the world’s oil and liquefied natural gas. Its role in the supply chain is to connect Gulf producers with Asian and European consumers. Any disruption immediately translates into energy shortages, price spikes, and cascading effects across manufacturing and transportation worldwide.
Suez Canal: This canal links the Mediterranean Sea to the Red Sea, serving as the fastest maritime route between Europe and Asia. Its role in the supply chain is to shorten transit times for containerized goods, energy shipments, and raw materials. A blockage or slowdown forces vessels to reroute around Africa, adding weeks to delivery schedules and inflating costs across industries.
Panama Canal: This canal connects the Atlantic and Pacific Oceans, enabling efficient trade between the Americas and Asia. Its role in the supply chain is to facilitate container and bulk cargo flows, especially agricultural exports and manufactured goods. Disruptions affect North and South American supply chains, forcing longer detours and rising logistics costs.
Strait of Malacca: Located between Malaysia and Indonesia, this strait is one of the busiest shipping lanes in the world. Its role in the supply chain is to channel trade between Asia, the Middle East, and Europe, particularly oil and manufactured goods. A closure or congestion would cripple Asian economies and global manufacturing networks.
Bab el Mandeb Strait: This strait connects the Red Sea to the Gulf of Aden and the Indian Ocean. Its role in the supply chain is to secure the flow of goods and energy between Europe, Asia, and Africa. Instability or piracy in this corridor disrupts container shipping and energy flows, causing bottlenecks for European and African markets.
Cape of Good Hope Route This route around southern Africa acts as a fallback when the Suez Canal or Hormuz is blocked. Its role in the supply chain is as a contingency path, ensuring continuity of trade at the cost of longer transit times and higher expenses. It is vital for resilience but adds significant delays to global logistics.
Northern Sea Route (Arctic): Formed due to melting ice, this route shortens the distance between Europe and Asia. Its role in the supply chain is to provide an alternative corridor for container shipping, potentially reducing reliance on chokepoints. However, it remains seasonal and risky, limiting its current contribution to global trade.
Energy chokepoints like Hormuz and Malacca are most critical to global supply chain, while fallback and emerging routes like the Cape of Good Hope and Northern Sea Route are less central but important for resilience.
Goods and Services Traded Along World Trade Routes
World trade routes carry a diverse mix of goods and services, ranging from energy and raw materials to manufactured products, food, and high value services. Each corridor plays a distinct role in connecting producers and consumers across continents, shaping the resilience and efficiency of the global supply chain.
Each trade route is not only a pathway for physical goods but also a hub for critical services like logistics, insurance, and security. Energy dominates chokepoints such as Hormuz and Malacca, while manufactured goods and agriculture flow heavily through Suez, Panama, and Cape of Good Hope.
World Trade Routes Affected By Us-Iran War In 2026
The US-Iran conflict in 2026 has had a profound impact on world trade routes, with the Strait of Hormuz at the center of disruption. This narrow passage, through which about one-fifth of the world’s oil and liquefied natural gas shipments normally flow, has been effectively shut down. The closure has triggered the largest energy supply shock in modern history, forcing Gulf exporters such as Saudi Arabia, Qatar, Kuwait, and the United Arab Emirates (UAE) to seek alternative pipelines and routes, while import-dependent nations in Asia (China, India, and Japan) face severe shortages and rising costs.
The ripple effects extend far beyond the Gulf. With Hormuz blocked, traffic through the Red Sea and the Suez Canal has surged, causing congestion and delays. This corridor, already vital for Europe’s energy and goods supply, is now under additional strain, and the risk of spillover instability in the Bab el-Mandeb Strait near Yemen has grown. Shipping companies are increasingly rerouting vessels around the Cape of Good Hope in South Africa, a detour that adds weeks to transit times and significantly raises costs.
Asian and Indian Ocean trade routes have also been disrupted, as tankers and container ships struggle to bypass the Gulf. The longer voyages caused container imbalances, surcharges, and logistical bottlenecks. Europe’s Mediterranean ports, including Rotterdam, Piraeus, and Genoa, are experiencing reduced throughput of Gulf-origin goods, leading to higher energy prices and supply chain delays across the continent.
The consequences are that oil prices have spiked, shipping costs have soared, and global supply chains are under pressure. The Strait of Hormuz remains the epicenter of disruption, but the shockwaves are felt across the Red Sea, Mediterranean, Indian Ocean, and even global shipping lanes via the Cape of Good Hope. US-Iran conflict has exposed the fragility of the world’s dependence on a handful of strategic chokepoints, underscoring how geopolitical instability in one region can reverberate across the entire global economy.
Ranking of trade routes most affected to least affected by the US-Iran conflict in 2026 is as follows:
Strait of Hormuz: Normally carrying about 20% of global oil and Liquified natural gas (LNG) shipments, its closure has caused the largest energy supply shock in modern history. Gulf exporters and major importers in Asia and Europe are directly impacted.
Red Sea and Suez Canal Corridor: With Hormuz blocked, this route has become overloaded. It is facing heavy congestion and rerouting pressure, while also being vulnerable to spillover instability from the conflict.
Bab el-Mandeb Strait: As the gateway between the Red Sea and the Indian Ocean, it has seen heightened security risks, piracy threats, and potential blockages. Its strategic importance makes it highly exposed to escalation.
Cape of Good Hope: Serving as the main alternative detour around Africa, this route is experiencing longer transit times, higher costs, and container shortages. While not directly in the conflict zone, it is heavily burdened by rerouted traffic.
Mediterranean Ports: Ports such as Rotterdam, Piraeus, and Genoa are indirectly affected, with reduced throughput of Gulf-origin goods, rising costs, and delays in supply chains. Their disruption is secondary compared to the chokepoints closer to the Gulf.
The Strait of Hormuz is the most severely affected, while Mediterranean ports experience the least direct disruption but still suffer from the global ripple effects.
Goods and Services Most Affected By Us-Iran Conflict In 2026
The US-Iran conflict in 2026 most severely affected energy commodities (oil and liquefied natural gas), shipping and logistics services, and downstream industries like manufacturing and food supply. The closure of the Strait of Hormuz caused the largest energy supply shock in modern history, with ripple effects across transport, consumer goods, and financial services.
Energy flows through Hormuz and Malacca were the most severely hit, causing cascading effects across shipping, manufacturing, food, and pharmaceuticals.
Logistics services (shipping, insurance, port handling) became costlier and slower due to rerouting around the Cape of Good Hope.
Agriculture and consumer goods faced inflationary pressures, while pharmaceuticals suffered from air cargo delays.
Financial services absorbed the shock through higher premiums, currency volatility, and inflationary spillovers.
Economic Sectors Affected By Us-Iran War In 2026
Energy is the most vulnerable sector because of its reliance on chokepoints like the Strait of Hormuz, while agriculture and food are affected but less immediately critical compared to energy and manufacturing. Pharmaceuticals, though smaller in volume, are highly sensitive because of their reliance on fast, secure air cargo routes.
Energy depends on chokepoints for oil flows, manufacturing relies on containerized shipping for inputs, consumer goods ride global maritime networks, pharmaceuticals depend on air cargo, and agriculture relies on bulk carriers.
Strategies towards More Resilient Global Supply Chain
Building a more resilient global supply chain requires strategies that reduce dependence on single chokepoints, diversify transport modes, and strengthen adaptability. Key approaches include:
Diversification of trade routes: Relying less on vulnerable chokepoints like the Strait of Hormuz or Suez Canal by developing alternative corridors such as the Northern Sea Route, trans Eurasian rail networks, and expanded use of the Cape of Good Hope ensures continuity even during disruptions.
Regionalization and Nearshoring: Shifting parts of production closer to consumer markets reduces exposure to long maritime routes. Nearshoring in regions like Eastern Europe, North Africa, or Southeast Asia helps shorten supply chains and increase responsiveness.
Multi Modal Transport Integration: Combining maritime, rail, road, and air cargo helps in greater flexibility. For example, rail links between China and Europe can complement sea routes, while air cargo can serve as a backup for high value goods during maritime delays.
Strategic Reserves and Buffer Stocks: Maintaining reserves of critical goods such as energy, food, and medical supplies cushions against sudden disruptions. This strategy stabilizes supply chains during crises.
Digital Supply Chain Visibility: Using Artificial Intelligence (AI), blockchain, and Internet of Things (IoT) to track shipments in real time enhances transparency. Early detection of bottlenecks allows companies to reroute or adjust production before disruptions escalate.
Resilient Infrastructure Investment: Expanding port capacity, modernizing canals, and securing vulnerable straits strengthens the backbone of trade routes. Investments in Arctic shipping infrastructure and alternative pipelines also add resilience.
Geopolitical Risk Management: Diversifying suppliers across regions and building redundancy into logistics networks reduces exposure to conflicts. Strategic partnerships and trade agreements can also mitigate risks.
Sustainability and Climate Adaptation: Preparing for climate driven disruptions, such as rising sea levels or Arctic ice melt, ensures long term resilience. Green shipping corridors and renewable energy integration reduce vulnerability to fossil fuel chokepoints.
International Cooperation and Security: Protecting chokepoints like Bab el Mandeb and Hormuz requires coordinated naval patrols and diplomatic agreements. Global cooperation reduces risks from piracy, conflict, and political instability.
Road Ahead For Arab Banks towards Resilient Global Supply Chain
Arab banks play a pivotal role in strengthening the resilience of the global supply chain by stabilizing financial flows, supporting diversification, and investing in infrastructure. Their strong capitalization and liquidity buffers allow them to absorb shocks from geopolitical crises, such as the US-Iran conflict, while continuing to provide trade finance and letters of credit that keep goods moving across borders. This financial stability ensures that importers and exporters can maintain operations even when risk premiums rise or shipping routes are disrupted.
Arab banks can strengthen their role in building a more resilient global supply chain by adopting a set of forward-looking strategies that combine financial stability, infrastructure investment, and digital innovation.
First, they should expand trade finance and risk mitigation tools. By offering more flexible letters of credit, currency hedging, and maritime insurance, Arab banks can help regional exporters and importers withstand shocks from geopolitical conflicts or route disruptions. This stabilizes flows of energy, food, and manufactured goods across vulnerable chokepoints.
Second, Arab banks should prioritize financing diversification and regionalization projects. Supporting investments in manufacturing hubs, logistics corridors, and free zones across the Gulf and wider MENA region reduces dependence on fragile maritime routes like the Strait of Hormuz.
Third, they can lead in digital supply chain visibility. By investing in fintech, blockchain, and Artificial Intelligence AI platforms, Arab banks can enhance transparency in trade finance and logistics. Real time tracking of shipments and predictive analytics allow companies to reroute goods quickly and anticipate bottlenecks before they escalate.
Fourth, Arab banks should deepen their role in infrastructure financing. Funding resilient ports, rail links, and multimodal transport corridors ensures smoother rerouting of goods during crises. Strategic investment in energy pipelines and renewable projects also reduces reliance on maritime chokepoints.
Finally, Arab banks should strengthen regional cooperation and sustainability initiatives. Through institutions like the Union of Arab Banks, they can harmonize regulations, coordinate cross border financing, and promote green logistics corridors. This not only builds resilience but also aligns supply chains with climate adaptation and sustainability goals.
In essence, Arab banks can move beyond traditional financial intermediation to become strategic enablers of resilience. By stabilizing trade finance, funding diversification, investing in infrastructure, and driving digital innovation, Arab banks ensure that global supply chains remain functional and adaptive even under geopolitical stress.
The World Government Summit 2026 took place in Dubai from February 3–5, under the theme “Shaping Future Governments.” It gathered over 6,250 global leaders, including heads of state, ministers, Nobel laureates, and Chief Executive Officers CEOs, making it the largest participation in the summit’s history. Key discussions focused on innovation, sustainability, global governance, and the role of technology in shaping future policies.
This article draws a roadmap for governments of the future in light of the closing statement and recommendations of the World Government Summit 2026 and emphasizes the role of Arab banks in supporting government transformation.
World Government Summit 2026 Key Facts
Key Details
Dates & Location: February 3–5, 2026, Dubai, UAE
Theme:Shaping Future Governments
Participants: 6,250+ leaders from governments, international organizations, academia, and the private sector
Agenda Themes
The summit was structured around five major themes
Theme
Focus Areas
Global Governance & Effective Leadership
Strengthening international cooperation, leadership
Societal Wellbeing & Capacity Building
Education, healthcare, resilience, development
Economic Prosperity & Emerging Opportunities
Investment, public finance, innovation-driven growth
Water & Sustainability: UAE’s Ministry of Foreign Affairs hosted sessions on mobilizing global leadership ahead of the 2026 UN Water Conference in Abu Dhabi.
Global Business Impact: CEOs and policymakers debated how governments can adapt to rapid economic shifts and technological disruption.
Regional Diplomacy: Sheikh Mohammed bin Rashid met with Caribbean leaders to strengthen ties and cooperation.
Strategic Importance
Largest international participation ever: signals Dubai’s growing role as a hub for global governance dialogue.
Policy innovation focus: governments explored AI, sustainability, and digital transformation as tools for resilience.
Preparatory role: linked to upcoming United Nations UN conferences, especially on water and sustainability.
looking Ahead of World Government Summit 2026
The World Government Summit 2026 concluded with a strong affirmation of global confidence in Dubai’s role as a hub for shaping future governance. In the closing remarks, Sheikh Mohammed bin Rashid Al Maktoum described the summit as a “global vote of confidence,” underscoring the unprecedented participation of more than 150 governments, 500 ministers, and over 60 heads of state. The statement highlighted the summit’s success in convening diverse leaders to address pressing challenges and opportunities across sustainability, technology, and economic transformation.
Looking ahead, the summit closing emphasized the UAE’s commitment to advancing international cooperation and innovation, linking the summit’s outcomes to upcoming global milestones such as the 2026 United Nations UN Water Conference in Abu Dhabi. The message reinforced the summit’s central theme, Shaping Future Governments, by calling for continued collaboration, policy innovation, and leadership to build resilient societies and prosperous economies worldwide.
Future Government Technologies
At the World Government Summit 2026, government leaders and technology innovators placed a strong emphasis on how emerging technologies can transform governance and improve the lives of citizens. Artificial intelligence was at the center of many discussions, with participants exploring its role in predictive policymaking, regulatory compliance, and the automation of public services. The consensus was that within the next three to five years, governments worldwide will need to adopt AI-driven frameworks to remain effective and competitive.
Digital identity systems and financial technologies also featured prominently. The Unified Payments Interface (UPI) was highlighted as a model for seamless, government-backed digital transactions, while AI-powered agents were discussed as tools for financial advisory, compliance monitoring, and expanding inclusion. These innovations were presented not only as technical solutions but as enablers of more transparent, accessible, and citizen-focused governance.
Smart city infrastructure and digital lifestyle platforms were another major theme. Telecom leaders explained how networks are evolving from simple communication channels into integrated digital ecosystems that support urban living. Governments examined how Internet of Things (IoT), AI, and advanced infrastructure can be used to manage cities more efficiently, reduce resource consumption, and improve quality of life. This shift toward citizen-centric design was seen as essential for building trust and ensuring that digital transformation benefits all segments of society.
Communication technologies are evolving as a critical dimension of governance. AI-driven storytelling and digital influence strategies were discussed as ways to strengthen transparency and citizen engagement. Leaders acknowledged that as technology reshapes communication, governments must balance authenticity with innovation to maintain credibility and trust.
The future of governance will be deeply intertwined with technology. From AI and fintech to smart cities and digital communication, governments are being called to embrace innovation not only to deliver services more efficiently but also to foster resilience, inclusivity, and stronger connections with their citizens.
The transforming role of governments of the future
The transforming role of governments in the future is being defined by rapid technological change, shifting global demographics, and the urgent need for sustainability. Governments are moving away from being primarily regulators and service providers toward becoming enablers of innovation, facilitators of collaboration, and guardians of resilience. This transformation is not just about adopting new tools but about reimagining the very architecture of governance.
One of the most significant shifts is the integration of artificial intelligence and digital platforms into policymaking and service delivery. Future governments will rely on predictive analytics to anticipate societal needs, automate routine functions, and personalize citizen services. This will allow them to move from reactive problem-solving to proactive governance. At the same time, governments will need to safeguard trust by ensuring transparency, ethical AI use, and robust data protection.
Another dimension of transformation lies in economic and social resilience. Governments are expected to become architects of inclusive growth, leveraging fintech, digital identity systems, and smart infrastructure to ensure equitable access to opportunities. They will also play a central role in preparing societies for demographic changes, urbanization, and evolving labor markets, focusing on lifelong learning and capacity building.
The future role of governments will also be deeply tied to global cooperation and sustainability. Climate change, water scarcity, and resource management are challenges that transcend borders, requiring governments to act as conveners of international collaboration. Platforms like the World Government Summit illustrate how governments are increasingly positioning themselves as hubs for dialogue, innovation, and collective action.
Governments of the future will be judged not only by their ability to deliver services efficiently but by their capacity to adapt, innovate, and inspire trust in an era of constant disruption. They will need to balance agility with accountability, harness technology while protecting human values, and lead societies toward resilience and prosperity in a rapidly changing world.
Strategic vision of government of the future
Governments of the future will evolve from traditional regulators into agile enablers of innovation, resilience, and global cooperation. Their role will be defined by the integration of advanced technologies such as artificial intelligence, digital identity systems, and smart infrastructure, enabling proactive policymaking and personalized citizen services. At the same time, they will safeguard trust through transparency, ethical governance, and inclusive design.
As societies face demographic shifts, climate challenges, and rapid economic transformation, governments will act as conveners of international collaboration and architects of sustainable growth. Their success will be measured not only by efficiency in service delivery but by their ability to adapt, inspire confidence, and lead communities toward prosperity in an era of constant disruption.
ROLE OF GOVERNMENTS IN ADDRESSING GLOBAL GEOPOLITICAL CHALLENGES
Governments today face an increasingly complex geopolitical landscape shaped by multipolar power shifts, economic interdependence, digital threats, and environmental stress. Their role in addressing global geopolitical challenges is no longer confined to traditional diplomacy or defense. Governments of the future should adopt a multidimensional approach that blends strategic foresight, technological agility, and collaborative leadership. In an evolving world, governments of the future must act as stabilizers, mediators, and innovators balancing national interests with global responsibilities.
One of the most critical functions of modern governments is diplomatic engagement. As global tensions rise, governments must lead in building coalitions, mediating conflicts, and shaping international norms. This requires active participation in multilateral forums and regional alliances, where coordinated responses to crises can be forged. Governments must also navigate the delicate balance between sovereignty and cooperation, especially in areas like climate diplomacy, migration, and global health.
Economic governance has become a strategic tool in geopolitical competition. Governments must manage trade policies, secure supply chains, and regulate cross-border investments while responding to sanctions, tariffs, and resource dependencies. The weaponization of economic tools, such as technology bans or financial restrictions, has made it essential for governments to develop resilient economic strategies that protect national interests without isolating themselves from global markets.
Cybersecurity and information sovereignty are now central to geopolitical stability. Governments must defend against cyberattacks, regulate digital platforms, and counter disinformation campaigns that threaten democratic institutions and public trust. This involves not only national cybersecurity frameworks but also international cooperation to establish norms and accountability in cyberspace. As digital warfare becomes more sophisticated, governments must invest in infrastructure and talent to stay ahead of emerging threats.
Environmental challenges, particularly climate change and resource scarcity, are increasingly geopolitical in nature. Governments must lead in climate negotiations, enforce sustainability commitments, and manage transboundary resources such as water and energy. These efforts are vital not only for ecological preservation but also for preventing conflict and displacement. The United Arab Emirates UAE’s leadership in hosting the 2026 United Nations UN Water Conference exemplifies how national initiatives can shape global environmental agendas.
Ultimately, governments of the future must evolve into agile, globally engaged actors capable of managing complexity across domains. Their success will depend on how well they integrate diplomacy, technology, and inclusive governance to address overlapping geopolitical risks. In an era of disruption and fragmentation, the ability to inspire trust, foster cooperation, and lead with resilience will define the effectiveness of governments on the world stage.
Governments of the future response to global challenges
Invest in digital infrastructure, promote cyber norms
Climate stress
Lead global negotiations, enforce sustainability policies
Disinformation
Regulate platforms, promote media literacy
ROLE OF ARAB BANKS IN SUPPORTING GOVERNMENT TRANSFORMATION
Arab Banks play a crucial role in supporting government transformation, particularly as states adapt to new economic realities, technological disruption, and the demand for more inclusive growth. Their role extends beyond traditional financial intermediation to becoming strategic partners in national development agendas. By mobilizing capital, facilitating innovation, and ensuring financial stability, banks provide the backbone for governments to implement reforms and deliver on long-term visions.
One of the most significant contributions Arab banks can make is in financing infrastructure and public projects. Governments often rely on banks to structure funding for large-scale initiatives such as smart cities, renewable energy, and digital infrastructure. Through public-private partnerships, Arab banks help bridge the gap between limited public budgets and the scale of investment required to modernize economies. This financial support enables governments to accelerate transformation without overburdening fiscal resources.
Arab Banks can also play a vital role in advancing digital transformation. By investing in fintech, digital payment systems, and secure identity platforms, they provide the tools governments need to deliver efficient, transparent, and citizen-centric services. Initiatives such as mobile banking, instant payment systems, and blockchain-based registries align closely with government priorities for inclusion and trust. In this way, Arab banks can act as enablers of digital governance, ensuring that citizens can access services seamlessly and securely.
Another dimension of the role of Arab banks lies in promoting economic resilience and inclusion. Arab banks can support governments by extending credit to small and medium enterprises, fostering entrepreneurship, and ensuring that vulnerable populations have access to affordable financial services. This strengthens social stability and aligns with government goals of reducing inequality and building sustainable economies. Moreover, banks’ expertise in risk management and compliance helps governments design regulatory frameworks that balance innovation with stability.
Banks contribute to global cooperation by facilitating cross-border trade, investment, and financial flows. In an era of geopolitical uncertainty, their ability to provide liquidity, manage currency risks, and support international projects reinforces governments’ capacity to engage in global markets. By aligning financial strategies with national transformation agendas, banks become indispensable partners in shaping the future of governance and economic development.
Roadmap for governments of the future
The roadmap for governments of the future, shaped by the closing statement and strategic recommendations of the World Government Summit 2026, outlines a decade-long transformation anchored in trust, innovation, and global cooperation. Between 2026 and 2028, governments are expected to lay the foundation for institutional resilience by investing in digital infrastructure, launching national digital identity systems, and expanding access to financial technologies. This phase prioritizes transparency, ethical governance, and public sector modernization.
From 2028 to 2030, the focus shifts toward innovation and citizen-centric governance. Governments will deploy smart city technologies, integrate Artificial Intelligence (AI) into urban planning, and lead regional sustainability efforts, particularly in water security and climate diplomacy. Cybersecurity becomes a strategic imperative, with nations strengthening digital defenses and promoting international norms for cyber conduct. Economic diversification also takes center stage, with support for small and medium size enterprises SMEs, digital commerce, and resilient supply chains forming the backbone of inclusive growth.
The final phase, spanning 2030 to 2035, envisions governments as agile global actors shaping future norms and systems. Predictive analytics and AI-driven policy design will enable real-time governance, while cross-border collaboration on climate, migration, and digital ethics will define leadership on the world stage. Institutional agility will be key, as governments redesign their models to be more adaptive, participatory, and responsive to citizen needs. Stewardship of global public goods (such as water, health, and education) will become a hallmark of effective governance, reinforcing the UAE’s call for international cooperation as expressed during the summit.
This roadmap reflects a strategic evolution from foundational reform to global leadership, aligning with the summit’s theme of “Shaping Future Governments.” It calls on states to embrace transformation not as a choice, but as a necessity for resilience, prosperity, and trust in an era of rapid change.
At a time when geopolitical tensions, climate anxieties, and economic fragmentation dominate headlines, it is easy to overlook a fundamental truth: over the past century, humanity has achieved an extraordinary expansion in prosperity. The scale of improvement in health, income, education, and opportunity has few parallels in recorded history. For financial leaders and policymakers across the Arab world, this historical perspective is not merely academic. It provides a strategic framework for assessing what is possible over the coming decades—and what role emerging economies must play in shaping that outcome.
A hundred years ago, global living conditions were starkly different. Life expectancy averaged between 30 and 40 years. One in three children did not survive beyond the age of five. Approximately 60% of the world’s population lived in extreme poverty, and literacy rates hovered near one-third. Economic stagnation had characterized centuries prior, with modest gains insufficient to materially alter human vulnerability.
The contrast with today is profound. Global life expectancy has risen to approximately 73 years. Extreme poverty has fallen below 10% of the global population. Literacy now approaches 90%. Real per capita incomes, which barely shifted for centuries, doubled in the 19th century and then expanded roughly sixfold between 1925 and the present. These figures represent more than statistical progress—they reflect expanded opportunity, greater resilience, and broader participation in economic life.
Yet progress remains incomplete. While extreme deprivation has declined, roughly 4.7 billion people still live below what some analysts describe as the “empowerment line”—a threshold beyond basic subsistence that enables individuals to make meaningful life choices, access quality services, and participate in productive economic activity. The central question for the 21st century is not simply how to reduce poverty further, but how to ensure that prosperity becomes universal and durable.
One ambitious proposition suggests that by 2100, even the world’s poorest populations could attain living standards comparable to those of Switzerland today. Switzerland serves as a benchmark not because of geography or culture, but because it combines high income levels, long life expectancy, robust education systems, and comprehensive social support. It represents what might be described as a society of “plenty”—where security and options are broadly accessible.
From a macroeconomic perspective, this aspiration is less radical than it first appears. Achieving such an outcome would require global GDP per capita to grow at approximately 2.6% annually over the remainder of the century—only marginally above the 2.3% annual average observed over the past quarter-century. By 2100, the global population could reach 12 billion, while the global economy could expand to roughly 8.5 times its current size.
For financial leaders, these projections raise two critical considerations. First, the feasibility of sustained growth at that scale. Second, the distribution of that growth across regions.
Technological advancement is expected to play a decisive role. Artificial intelligence, advanced materials, biotechnology, and digital infrastructure are already enhancing productivity across sectors. However, the larger contribution to global expansion is likely to come from emerging economies closing the gap with advanced markets. Historically, catch-up growth—driven by adoption of existing technologies, infrastructure build-out, and institutional improvement—has generated some of the fastest periods of economic expansion.
For the Arab world, this dynamic is particularly relevant. Several regional economies possess youthful populations, strategic geographic positioning, and improving financial systems. If capital allocation, regulatory frameworks, and human capital development align effectively, the region could capture a meaningful share of the incremental global output required over the coming decades.
Energy represents a foundational constraint—and opportunity. A world of universal prosperity would require global energy generation to double or even triple. More strikingly, clean electricity production would need to expand approximately thirtyfold relative to today’s levels. Such scale may appear daunting, yet historical precedents suggest that large energy shifts can occur within compressed timeframes.
China increased its combined solar, wind, and nuclear output tenfold within a decade. The United States saw shale energy rise from marginal contribution to a dominant source in roughly twenty years. France constructed a nuclear-powered electricity system within a single decade in the 1970s. These examples demonstrate that when capital, policy, and technology converge, energy systems can expand rapidly.
For Arab economies—many of which are major energy producers—the implication is not retreat from traditional strengths, but strategic diversification. Hydrocarbon revenues, where present, can serve as a bridge to large-scale investments in renewables, grid modernization, storage technologies, and regional energy integration. Gulf states have already begun this process through solar mega-projects and green hydrogen initiatives. North African economies possess significant solar and wind potential that could supply both domestic demand and export markets.
Food security presents another dimension. Projections indicate that a global population of 12 billion could sustain a protein-rich diet without expanding agricultural land, provided moderate yield improvements continue. Advances in irrigation efficiency, crop genetics, and agricultural management have historically exceeded required benchmarks. For arid and semi-arid Arab countries, investment in water-efficient agriculture, desalination technologies, and supply chain modernization will remain central to resilience.
Natural resource constraints are often cited as barriers to large-scale growth. Yet assessments of key materials—such as iron for steel production—suggest sufficient reserves exist to support projected expansion. Known usable iron content totals approximately 230 billion tons, with 88 billion tons currently classified as economically extractable reserves. Importantly, reserve estimates have historically expanded as technology improves and exploration advances. Similar patterns apply to other critical materials.
Environmental sustainability remains a legitimate concern. Critics argue that an 8.5-fold expansion in global economic output would inevitably exacerbate greenhouse-gas emissions and ecological degradation. However, empirical evidence increasingly demonstrates the potential for emissions to decouple from GDP growth. Many advanced economies have already begun reducing carbon intensity while maintaining economic expansion.
A wealthier global economy may, in fact, possess greater capacity to finance clean-energy systems, climate adaptation measures, and research and development. Investment in grids, renewables, batteries, carbon capture, and energy efficiency requires substantial capital. Robust growth can generate the fiscal space and private-sector returns necessary to fund these initiatives. The objective is not growth at any cost, but growth aligned with decarbonization pathways capable of limiting global warming to approximately two degrees Celsius.
Despite the absence of insurmountable physical barriers, psychological and political constraints are emerging. Surveys in advanced economies reveal declining confidence in future prosperity. In France, for example, only 9% of respondents believe the next generation will be better off. No advanced economy other than Singapore registers above 30% on similar measures. This erosion of optimism may influence policy decisions, investment patterns, and societal risk tolerance.
For the Arab region, the lesson is nuanced. While some advanced economies question the benefits of further expansion, emerging markets cannot afford to adopt a post-growth posture prematurely. The region still faces structural challenges: unemployment, fiscal pressures, infrastructure gaps, and uneven productivity. Sustained economic expansion remains essential for social stability and improved living standards.
Central banks and financial institutions therefore occupy a pivotal position. Macroeconomic stability, credible monetary policy, and prudent regulation form the foundation for long-term investment. Deep and liquid capital markets can mobilize domestic savings and attract international flows. Islamic finance, with its asset-backed structures, may offer additional avenues for financing infrastructure and energy projects aligned with sustainable objectives.
Regional cooperation also deserves renewed attention. Cross-border payment systems, harmonized regulatory standards, and integrated energy markets could reduce transaction costs and enhance resilience. The Arab Monetary Fund and regional development institutions can facilitate coordinated strategies, particularly in infrastructure financing and digital payment systems.
Education and human capital remain decisive variables. A future defined by advanced technologies requires skilled labor forces capable of leveraging those tools effectively. Investment in STEM education, vocational training, and research institutions will determine whether regional economies merely consume imported technologies or actively participate in their development.
Ultimately, the proposition that universal prosperity by 2100 is attainable rests on a simple but powerful premise: growth is not a zero-sum exercise. Over the past century, expansion in output has coincided with longer lives, greater literacy, and reduced poverty. The challenge is to ensure that the next phase of growth is inclusive, environmentally responsible, and institutionally sound.
For Arab banks and banking leaders, several strategic priorities emerge. First, align capital allocation with long-term productivity drivers—energy infrastructure, digital systems, logistics, and human capital development. Second, expand green and sustainable finance instruments to support the region’s energy diversification while maintaining financial discipline. Third, deepen regional financial integration to unlock scale and resilience. Fourth, invest in data capabilities and risk management frameworks capable of supporting complex, long-duration projects. Finally, maintain confidence in disciplined growth as a cornerstone of social and economic stability.
A century ago, fragility defined much of human existence. Today, the possibility of universal prosperity is credible. Realizing it will require sustained commitment to economic expansion, technological adoption, and institutional strength. For the Arab financial sector, the task is not simply to observe these trends, but to shape them—prudently, strategically, and with a clear understanding that long-term prosperity remains both achievable and essential.
For more than half a century, global financial stability has rested on a quiet assumption: that the United States would not only supply the world with liquidity through the dollar, but would also safeguard the institutional architecture underpinning the international economic order. The dollar’s position as the principal reserve currency has provided predictability to trade, capital flows, and sovereign finance. Yet the growing unpredictability of American policymaking has prompted a fundamental question for central bankers and policymakers worldwide: is it prudent for the global system to hinge so heavily on a single national currency?
This question is no longer theoretical. The asymmetry embedded in the dollar-based system has long been understood. To provide the world with dollar liquidity, the United States must run persistent current-account deficits—importing more than it exports—while issuing debt instruments that foreign governments and institutional investors are willing to hold as reserves. The system works because US Treasury securities are considered safe, liquid, and backed by a deep financial market infrastructure. In return, the United States benefits from consistently low borrowing costs and considerable fiscal latitude.
It was this dynamic that led France’s former finance minister Valéry Giscard d’Estaing to describe the dollar’s status as an “exorbitant privilege.” The phrase captured an enduring structural reality: the issuer of the reserve currency enjoys advantages not available to other sovereign states. These advantages have allowed the United States to finance deficits at scale, drawing on global savings without facing the constraints typically imposed on other economies.
Yet such privilege carries implicit responsibilities. As former People’s Bank of China Governor Zhou Xiaochuan observed in the aftermath of the 2008 global financial crisis, global monetary stability ultimately depends on a currency issued by a sovereign whose domestic priorities may not always align with global interests. When national policy objectives diverge from systemic stability, the spillovers are felt far beyond the issuing country’s borders.
In recent years, concerns about policy unpredictability in Washington have intensified. Public tensions between the US executive branch and the Federal Reserve, coupled with assertive foreign policy postures, have introduced a degree of uncertainty into the international financial environment. For many observers, these developments underscore a vulnerability inherent in the current arrangement: the world’s monetary anchor is inseparable from the domestic political cycle of a single country.
This context revives debates that first gained prominence after the 2008 crisis. In 2009, Zhou proposed exploring the development of a global reserve asset decoupled from the domestic policy considerations of any one sovereign issuer. While such proposals did not fundamentally alter the architecture of the system, they signaled a growing recognition that excessive dependence on a single currency carries systemic risk.
At the same time, China began promoting the internationalization of the renminbi. For decades, the world’s largest exporter relied almost exclusively on the dollar to invoice and settle trade. This dependence led to a significant accumulation of dollar reserves, peaking at approximately $3.8 trillion in 2014. Such a position, while reflective of China’s export success, also meant that a substantial portion of its national savings was tied to US assets and policy decisions.
In the years that followed, China gradually reduced its holdings of US Treasury securities—from roughly $1.3 trillion in 2015 to around $700 billion today. This adjustment was not merely a portfolio reallocation; it reflected a broader strategy to diversify reserve assets and mitigate exposure to external policy shifts. For a large, export-driven economy, outsourcing payments systems and savings to another sovereign entails risks that prudent policymakers cannot ignore.
The issue of global imbalances—long discussed in international forums—has resurfaced with renewed urgency. Under France’s recent leadership of the G7, these concerns have returned to the agenda. In the early 2010s, similar discussions within the G20 centered on distributing adjustment burdens more equitably across major economies. Chinese policymakers argued that a more balanced monetary system would not only reduce reliance on the dollar but also enhance systemic stability by offering greater choice in payments and reserve holdings.
At that time, there was cautious optimism about gradual progress toward a multicurrency system. The International Monetary Fund played a constructive role, encouraging the integration of emerging-market currencies into the global framework. The inclusion of the renminbi in the IMF’s Special Drawing Rights (SDR) basket in 2016 was widely interpreted as a milestone. During China’s G20 presidency that same year, the idea of a more diversified reserve structure gained traction as a stabilizing evolution rather than a disruptive shift.
However, the geopolitical environment has since become more complex. Strategic competition among major powers has intensified, and trust among key stakeholders has eroded. Recent analytical reports, including those from leading economic research institutions in Geneva, caution that a multicurrency system in a fragmented geopolitical climate could introduce new vulnerabilities. Without effective coordination mechanisms, currency competition may amplify volatility rather than reduce it.
This tension lies at the heart of the current debate. On one hand, heavy dependence on the dollar exposes the global economy to concentrated risk. On the other, an unmanaged transition toward multiple competing reserve currencies could generate instability. The challenge is not merely structural but institutional: a multicurrency framework requires robust policy coordination, credible dispute-resolution mechanisms, and a shared commitment to systemic stability.
For the Arab world, these dynamics carry particular significance. Many Arab economies maintain currency pegs to the dollar, rely heavily on dollar-denominated trade, or hold substantial dollar reserves. Sovereign wealth funds across the Gulf are deeply integrated into US financial markets. Meanwhile, regional central banks depend on the predictability of global dollar liquidity conditions to manage exchange rates, inflation, and capital flows.
At the same time, economic ties with China and other emerging markets are expanding rapidly. China is now a major trading partner for many Arab states, particularly energy exporters. Discussions around settling portions of trade in alternative currencies have gained visibility. While such shifts remain modest relative to overall dollar volumes, they reflect a broader strategic recalibration.
It would be premature to conclude that the dollar’s dominance is nearing an abrupt end. The US financial system retains unparalleled depth, liquidity, and institutional credibility. No alternative currency currently offers the same combination of market size, legal predictability, and global acceptance. Even the euro, despite its scale, faces structural constraints rooted in fiscal fragmentation within the European Union. The renminbi, while increasingly used in trade settlement, remains subject to capital controls and policy considerations that limit full reserve status.
Nevertheless, the concentration of influence within a single currency system presents a vulnerability. When global stability depends on one sovereign setting and upholding the rules, confidence in that sovereign’s policy continuity becomes a critical variable. Should that confidence weaken, uncertainty reverberates across markets.
In this context, a carefully managed diversification of reserve assets—rather than abrupt displacement—appears the most realistic path forward. The IMF’s SDR mechanism, though limited in scale, offers a template for cooperative monetary evolution. Regional financial arrangements, swap lines, and cross-border payment systems can also contribute to resilience if designed within a framework of transparency and coordination.
For Arab policymakers, the question is not whether to abandon the dollar, but how to position regional financial systems in a world where currency configurations may gradually broaden. This requires strategic foresight rather than reactive measures. Central banks must continuously assess reserve composition, liquidity buffers, and exposure to external shocks. Sovereign wealth funds should evaluate currency risk management within diversified portfolios. Commercial banks need to strengthen capabilities in multicurrency trade finance and payment infrastructure.
Moreover, regional cooperation can play a meaningful role. The Arab Monetary Fund and other regional institutions could facilitate dialogue on reserve diversification strategies, payment system interoperability, and contingency planning. Strengthening regulatory frameworks and deepening local capital markets would reduce vulnerability to external volatility regardless of the global currency mix.
The future of the international monetary system will likely be shaped not by dramatic rupture but by incremental adjustments. A system that accommodates several major currencies, anchored by credible multilateral institutions, could distribute risk more evenly. Yet such a system will function effectively only if major powers demonstrate sustained commitment to cooperation rather than unilateral advantage.
For now, credible alternatives to the dollar remain limited. Absent meaningful policy shifts in the United States or the emergence of a robust multilateral framework capable of operating independently of US leadership, uncertainty will persist. The prudent course for regional stakeholders is therefore to prepare for gradual diversification while maintaining constructive engagement with existing institutions.
Recommendations for Arab Banking Leaders
In light of these developments, Arab banks and financial authorities should adopt a forward-looking strategy grounded in resilience and measured diversification. First, central banks should conduct periodic stress assessments of reserve portfolios under various currency realignment scenarios. Second, commercial banks should expand expertise in non-dollar settlement mechanisms to serve clients engaged in Asia–Middle East trade corridors. Third, policymakers should support regional payment infrastructure capable of interfacing seamlessly with multiple currency systems. Finally, sustained engagement in multilateral forums—whether through the IMF, G20 outreach mechanisms, or regional financial bodies—remains essential to ensure that Arab perspectives contribute to shaping the evolving monetary order.
The question is not whether there is life after the dollar, but how to ensure stability and prosperity regardless of how the global currency landscape evolves. For the Arab banking sector, preparedness, prudence, and institutional cooperation will be the defining imperatives in the years ahead.
The World Economic Forum’s Annual Meeting in Davos 2026, held from 19 to 23 January under the theme “A Spirit of Dialogue,” brought together more than 60 heads of state, 400 political leaders, and over 800 Chief Executive Officers CEOs to debate the most pressing global challenges. Artificial intelligence (AI) dominated the agenda, with tech leaders like Elon Musk, Jensen Huang, and executives from Microsoft and Google DeepMind talking about its risks and opportunities, while energy discussions revealed sharp divides between advocates of fossil fuels and those pushing for renewables and nuclear power. At Davos 2026, Microsoft CEO Satya Nadella issued a stark warning that the rapid expansion of artificial intelligence risks becoming a bubble if its benefits remain confined to tech giants and wealthy nations. Speaking alongside BlackRock CEO Larry Fink, Nadella emphasized that AI must deliver tangible productivity gains across sectors like healthcare, education, agriculture, and manufacturing to justify its soaring valuations. He cautioned that if AI tools fail to reach small businesses, frontline workers, and underserved regions, the technology could mirror past bubbles driven by hype rather than real-world impact. Nadella urged policymakers and industry leaders to prioritize inclusive deployment and ensure that AI enhances the broader economy, not just the digital elite.
DAVOS 2026 KEY FACTS
The World Economic Forum’s Annual Meeting in Davos 2026 took place from 19–23 January 2026 under the theme “A Spirit of Dialogue.” It gathered over 60 heads of state, 400+ political leaders, and 830 CEOs, making it one of the largest and most influential editions ever. Major debates centered on AI, energy transition, and geopolitical tensions.
Dates & Theme
Dates: 19–23 January 2026
Theme:“A Spirit of Dialogue” – emphasizing cooperation amid global fragmentation.
Attendance
60+ heads of state and government leaders.
400+ political leaders and ministers.
830 CEOs and chairs from leading global companies.
Record participation from business, politics, and civil society.
Major Topics
Artificial Intelligence (AI):
Dominated discussions, with leaders like Elon Musk, Jensen Huang (Nvidia), and CEOs of Microsoft, Anthropic, and Google DeepMind debating AI’s future, risks, and opportunities.
Energy & Climate:
Divisions over fossil fuels vs. renewables.
Renewed interest in nuclear power as part of the energy transition.
Heightened tensions between the United States and NATO allies over the Greenland crisis.
Major speeches by Donald Trump, Ursula von der Leyen, and Mark Carney.
Launch of the Board of Peace initiative.
Davos 2026 was defined by AI dominance, energy debates, and geopolitical rifts, while addressing as well concrete initiatives on labor rights and water sustainability.
WHAT IS AN AI BUBBLE?
An AI bubble refers to a situation where excitement and investment in artificial intelligence technologies grow disproportionately compared to their actual, widespread economic impact, causing inflated valuations and unrealistic expectations. Much like past bubbles in dot-coms or housing, the risk is that companies and investors pour resources into AI without sufficient evidence that it delivers sustainable productivity gains across industries, leading to speculation rather than genuine value formation. If AI adoption remains concentrated among a few tech firms or fails to translate into broad societal benefits, the bubble could eventually burst, causing financial losses and disillusionment, while slowing down meaningful innovation.
Davos 2026 Warning of AI Bubble
At Davos 2026, Microsoft CEO Satya Nadella warned that the AI boom risks becoming a bubble if its benefits remain concentrated among tech giants and wealthy nations. He emphasized that AI must deliver real-world productivity gains across diverse industries to avoid collapse.
What Constitutes an AI Bubble
Criteria for Bubble Risk
Nadella’s Warning
Concentration of benefits
AI used only by tech firms and rich countries
Lack of real-world impact
No productivity gains in core sectors
Excessive hype and capital
Focus on valuations over outcomes
Supply-side obsession
Tech-centric growth without societal value
Nadella’s warning is a call to re-center AI around human productivity and economic inclusion. Without this, the sector risks repeating the dot-com bubble, high valuations, low impact, and eventual disruptions.
Implication of AI Bubble on Policymakers and Industry
The implications of an AI bubble for policymakers and industry would be profound, reshaping both governance and market dynamics. For policymakers, a burst would expose the fragility of regulatory frameworks, forcing governments to accelerate oversight of AI deployment, strengthen data protection regimes, and craft clearer standards for accountability. It could also trigger public backlash against perceived overhype, compelling regulators to balance innovation with consumer protection while managing the political fallout of failed investments in national AI strategies. For industry, the collapse of inflated valuations would lead to capital flight, consolidation, and the failure of startups that lack sustainable business models, concentrating power further in the hands of a few dominant players. Established firms would face reputational risks if their AI promises fail to deliver, while sectors like banking, healthcare, and manufacturing could see stalled digital transformation projects. More broadly, both policymakers and industry would need to rebuild trust by shifting focus from speculative hype to demonstrable productivity gains, inclusive adoption, and resilient digital ecosystems that can withstand market corrections.
Key Drivers of AI Buble
The key drivers of an AI bubble are a mix of economic, technological, and social forces that inflate expectations beyond sustainable reality.
One major driver is excessive capital inflows, with venture funds and corporate investors pouring money into AI startups at valuations disconnected from their actual revenue or productivity impact. Closely tied to this is hype amplification, where media narratives and corporate announcements exaggerate AI’s near‑term capabilities, leading to unrealistic expectations. Another driver is concentration of benefits, as AI adoption remains largely confined to tech giants and wealthy economies, raising the risk that broader productivity gains never materialize. Speculative business models also play a role, with companies promising transformative AI solutions without clear pathways to profitability or scalable deployment. Finally, regulatory uncertainty and the absence of standardized frameworks can fuel speculative growth, as firms race ahead without clarity on compliance, ethics, or long‑term governance.
Together, these drivers lead to a fragile ecosystem where valuations are inflated by optimism rather than grounded in widespread, measurable impact precisely the conditions that Satya Nadella warned about at Davos 2026.
WIDER IMPACT OF AN AI BUBBLE
The wider impact of an AI bubble would ripple across economies, societies, and governance structures, much like the dot‑com crash but with deeper consequences given AI’s integration into critical systems. Economically, a burst would erode investor confidence, leading to sharp corrections in tech valuations and reduced funding for startups, which could stall innovation pipelines. This contraction would disproportionately affect small and mid‑sized firms that rely on venture capital, consolidating power further in the hands of a few dominant players. Socially, the disillusionment could undermine public trust in AI, slowing adoption in essential sectors like healthcare, education, and agriculture, and leaving communities skeptical of promised benefits. On the labor front, workers who had been retrained or displaced in anticipation of AI‑driven productivity gains might face instability if those gains fail to materialize, causing friction in employment markets. Globally, the bubble’s collapse could widen the digital divide, as developing economies that invested heavily in AI infrastructure without immediate returns might struggle with debt and stalled modernization. Politically, governments would face pressure to regulate more aggressively, balancing innovation with oversight, while also managing public backlash against perceived overhype. In short, the implosion of an AI bubble would not only be a financial correction but a systemic shock, reshaping trajectories of technology adoption, economic development, and global trust in digital transformation.
RISKS OF AI BUBBLE
The risks of an AI bubble extend far beyond financial markets, causing vulnerabilities across technology, society, and governance. Economically, inflated valuations could collapse once investors realize that many AI ventures lack sustainable revenue or real-world utility, leading to capital flight, startup failures, and consolidation of power among a few dominant firms. This would stifle innovation and reduce competition. Socially, the burst could erode public trust in AI, making communities skeptical of its promises and slowing adoption in critical areas like healthcare, education, and agriculture. On the labor front, workers retrained or displaced in anticipation of AI-driven productivity gains may face instability if those gains fail to materialize, intensifying unemployment and inequality. Globally, developing economies that invested heavily in AI infrastructure could be left with debt burdens and stalled modernization, widening the digital divide. Politically, governments would face pressure to impose stricter regulations, while also managing public backlash against perceived overhype and wasted resources. In essence, the collapse of an AI bubble would not only be a financial correction but a systemic disruption, undermining confidence in digital transformation and reshaping the trajectory of technological progress.
STRATEGIES FOR ARAB BANKS TO ADDRESS THE AI BUBBLE
Arab banks face unique exposure to the risks of an AI bubble because they are simultaneously under pressure to modernize, attract global capital, and align with regulatory reforms across the Gulf Cooperation Council GCC and wider MENA region. To address these risks, their strategies must balance prudence, inclusion, and long‑term value creation rather than chasing hype.
A first strategy is anchoring AI adoption to real productivity gains, deploying AI in core banking functions such as risk management, compliance automation, fraud detection, and customer service, rather than speculative ventures. This ensures that investments generate measurable efficiency improvements. Second, banks should adopt a phased investment approach, piloting AI solutions in limited domains before scaling, thereby avoiding overexposure to unproven technologies. Third, regional collaboration is critical: Arab banks can pool resources through joint innovation hubs or sandboxes, reducing duplication and spreading risk while aligning with evolving regulatory frameworks like those in Saudi Arabia, UAE, and Kuwait. Fourth, they must prioritize regulatory alignment and transparency, ensuring AI deployments comply with central bank guidelines, data protection laws, and Sharia‑compliant finance principles, which will shield them from reputational and legal fallout if the bubble bursts. Fifth, talent and capacity building is essential by training staff to integrate AI responsibly and building internal expertise rather than relying solely on external vendors. Finally, Arab banks should diversify their digital strategies, investing not only in AI but also in complementary technologies such as blockchain for digital registries, cybersecurity infrastructure, and open banking platforms, so that their modernization agenda is resilient even if AI valuations collapse.
SHORT TERM VERSUS LONG TERM PRIORITIES FOR ARAB BANKS
To address the risks of an AI bubble, Arab banks should adopt a phased strategy that balances short-term caution with long-term resilience. In the short term, they must focus on piloting AI in core banking functions like fraud detection, compliance automation, and customer service, while ensuring regulatory alignment with GCC frameworks and avoiding speculative investments. Simultaneously, they should build internal capacity through staff training and participate in regional sandboxes to share risk and insights. Over the long term, banks should scale AI across advanced domains such as credit scoring and predictive analytics, establish AI centers of excellence, and contribute to shaping regional and global governance standards. Diversifying their digital infrastructure, by integrating blockchain registries, cybersecurity systems, and open banking platforms, will ensure that their modernization agenda remains robust even if AI valuations falter, positioning Arab banks as leaders in sustainable digital finance.
Short and long‑term priorities for Arab banks to address the AI bubble
Dimension
Short‑Term Priorities (1–3 years)
Long‑Term Priorities (3–10 years)
AI Deployment Focus
Pilot AI in core banking functions (fraud detection, compliance automation, customer service chatbots) to generate measurable efficiency gains
Scale AI across advanced domains (credit scoring, portfolio optimization, predictive risk modeling) with proven ROI
Investment Approach
Phased, cautious investment in AI startups and vendor solutions; avoid speculative ventures
Build proprietary AI platforms and regional innovation ecosystems to reduce reliance on external vendors
Collaboration & Ecosystem
Participate in GCC regulatory sandboxes and joint pilot programs to share risk and knowledge
Establish cross‑border AI innovation hubs and regional data‑sharing frameworks to strengthen resilience
Regulatory Alignment
Ensure compliance with central bank guidelines, data protection laws, and Sharia‑compliant finance principles
Shape regional regulatory standards and contribute to global AI governance frameworks
Talent & Capacity Building
Train staff in AI literacy and responsible use; build small internal teams for pilot projects
Develop deep in‑house expertise, create AI centers of excellence, and integrate AI into leadership pipelines
Technology Diversification
Invest in complementary digital tools (blockchain registries, cybersecurity, open banking APIs) to hedge against AI volatility
Build a balanced digital finance ecosystem where AI is one pillar among multiple resilient technologies
Risk Management
Monitor AI valuations and exposure; stress‑test portfolios for bubble scenarios
Institutionalize AI risk governance frameworks, embedding them into enterprise risk management and capital planning
This comparative view highlights how Arab banks can stabilize their AI adoption in the near term while building sustainable, regionally integrated digital finance ecosystems in the long term.
STRATEGY TIMELNE FOR ARAB BANKS
Between 2026 and 2030, Arab banks can sequence their AI strategies to mitigate bubble risks by starting in 2026 with pilot deployments in core banking functions such as fraud detection and compliance automation, followed in 2027 by ensuring regulatory alignment and participating in GCC sandboxes to test scalable models. By 2028, banks should invest in talent development and internal AI literacy to reduce vendor dependence, while expanding regional collaboration hubs. In 2029, the focus shifts to scaling AI across domains like credit scoring and portfolio optimization, supported by robust governance frameworks. By 2030, banks should diversify their digital infrastructure, integrating blockchain registries, cybersecurity, and open banking platforms, while contributing to regional and global AI standards to ensure long-term resilience and inclusive growth.
This article presents a comprehensive overview of the growth of onchain finance globally and in Arab countries with a focus on growth and key providers of onchain finance in Saudi Arabia, United Arab Emirates, Qatar, Kuwait, and Lebanon. The article highlights challenges facing onchain finance followed by a SWOT (strengths, weaknesses, opportunities, and threats) analysis. Key technologies and infrastructure, regulation, and major platforms offering onchain finance are considered. The article concludes with the future of onchain finance and the road ahead for Arab banks to embrace onchain finance.
Onchain Finance at a GLANCE
Onchain finance refers to financial activities and services that are executed and recorded directly on blockchain, without relying on traditional intermediaries like banks or brokers. It encompasses decentralized finance (DeFi) applications such as lending, borrowing, trading, and asset management, all governed by smart contracts, and self-executing code that enforces rules transparently and automatically. By operating on public blockchains like Ethereum, onchain finance offers greater transparency, accessibility, and programmability, enabling users to interact with financial products in a secure environment.
Onchain finance and traditional finance differ fundamentally in architecture, accessibility, and transparency. Traditional finance relies on centralized institutions like banks and clearinghouses to manage transactions, enforce trust, and maintain records, often resulting in slower settlement times, limited access, and higher fees. In contrast, onchain finance operates on decentralized blockchain networks, where smart contracts automate financial processes, reduce intermediaries, and enable real-time, borderless transactions. This shift empowers users with greater control over assets, transparency through public ledgers, and inclusion for the unbanked. However, onchain finance also faces challenges such as regulatory uncertainty, scalability, and user education, making it a complementary, rather than replacement, model for the evolving financial ecosystem.
Accessibility: Open to anyone with internet access, promoting financial inclusion across borders.
Security: Cryptographic protocols enhance data integrity and reduce reliance on centralized systems.
Scalability: Many blockchains struggle with high transaction volumes and network congestion.
User Experience: Interfaces and workflows can be complex for non-technical users.
Smart Contract Risks: Bugs or poorly written code can lead to financial losses.
Regulatory Uncertainty: Legal frameworks are still evolving, creating compliance challenges.
OPPORTUNITIES
THREATS
Tokenization of Assets: Real-world assets like real estate and commodities can be fractionalized and traded onchain.
Cross-Border Payments: Enables fast, low-cost international transactions without intermediaries.
Decentralized Lending and Insurance: Opens new models for credit and risk management.
Integration with AI and IoT: Enhances automation and real-time financial decision-making.
Regulatory Crackdowns: Governments may impose restrictions or bans on certain onchain activities.
Market Volatility: Crypto assets are highly volatile, affecting stability and user confidence.
Cybersecurity Risks: Protocols may be targeted by hackers or exploited through vulnerabilities.
Centralization Risks: Some platforms may claim decentralization but retain control over governance or assets.
Challenges Facing Onchain Finance
Onchain finance faces a complex set of challenges globally and within Arab countries, stemming from both technological and regulatory barriers. Worldwide, issues such as smart contract vulnerabilities, scalability limitations, and fragmented blockchain standards hinder seamless adoption. Regulatory uncertainty remains a major obstacle, with inconsistent policies across jurisdictions posing compliance risks for developers and users alike. In Arab countries, these challenges are compounded by limited blockchain infrastructure, low public awareness, and the need to align onchain financial products with Islamic finance principles. Additionally, the absence of unified regional frameworks and digital identity systems restricts cross-border interoperability and trust. Overcoming these hurdles will require coordinated efforts between governments, financial institutions, and tech innovators to build secure, inclusive, and Sharia-compliant onchain ecosystems.
Regulation of Onchain Finance
Regulation of onchain finance is evolving rapidly across the globe, with governments seeking to balance innovation with consumer protection and financial stability. In major economies like the United States (U.S.), European Union (EU), and Singapore, regulators are introducing frameworks for stablecoins, decentralized finance (DeFi), and tokenized assets, while enforcing anti-money laundering (AML) and know-your-customer (KYC) standards. In Arab countries, the regulatory landscape is mixed: Gulf nations such as the United Arab Emirates (UAE), Bahrain, and Saudi Arabia are leading with sandbox programs and licensing regimes for crypto exchanges and blockchain platforms, aiming to become regional fintech hubs. Meanwhile, other Arab states remain cautious, often lacking clear legal definitions for digital assets. Harmonizing regulations across the region and aligning them with global standards will be key to unlocking the full potential of onchain finance in the Arab world.
Online Platforms Offering Onchain Finance
Several online platforms are leading the way in offering onchain finance services, ranging from decentralized lending to tokenized asset management. These platforms leverage blockchain technology to deliver transparent, automated, and borderless financial solutions.
Leading Online Platforms offering Onchain Finance
Platform
Category
Key Features
Website
Aave
Lending & Borrowing
Decentralized lending protocol with variable/stable interest rates
aave.com
Compound
Lending & Borrowing
Algorithmic money markets for crypto assets
compound.finance
Maple Finance
Institutional Credit
Under-collateralized loans for institutions
maple.finance
Uniswap
Decentralized Exchange
AMM-based token swaps on Ethereum
uniswap.org
Curve Finance
Stablecoin Exchange
Low-slippage trading optimized for stablecoins
curve.fi
Balancer
Liquidity & Portfolio
Customizable liquidity pools and portfolio rebalancing
balancer.fi
Enzyme Finance
Asset Management
Onchain vaults for managing crypto portfolios
enzyme.finance
Centrifuge
Real-World Asset Tokenization
Tokenizes invoices, real estate, and other offchain assets
centrifuge.io
Ondo Finance
Tokenized Treasuries
Offers tokenized exposure to U.S. Treasuries and yield-bearing assets
ondo.finance
Nexus Mutual
Insurance
Covers smart contract and protocol risks
nexusmutual.io
InsurAce
Insurance
Multi-chain insurance for DeFi protocols
insurace.io
Circle (USDC)
Payments & Treasury
Stablecoin infrastructure for payments and treasury management
circle.com
Celo
Mobile Payments
Blockchain platform focused on mobile-first financial tools
celo.org
Tokeny
Tokenized Securities
Issuance and compliance for tokenized financial instruments
tokeny.com
Chainlink
Oracle Infrastructure
Decentralized data feeds for price, weather, and real-world events
chain.link
Size of Global Onchain Finance Market
According to Precedence Research, the global onchain finance market is projected to reach approximately $32.36 billion in 2025, driven by rapid growth in decentralized finance (DeFi) and tokenized real-world assets. This figure reflects the expanding scope of blockchain-based financial services, including lending, trading, and asset management conducted via smart contracts. One of the fastest-growing segments is the tokenization of real-world assets (RWAs), which surged from $5 billion in 2022 to over $24 billion by mid-2025, a 380% increase. According to Health Markets statistics (healthmarkets.com), onchain revenue from blockchain application fees grew by 126% in the first half of 2025, signaling strong user demand and ecosystem. With a compound annual growth rate (CAGR) of over 53%, the market is expected to surpass $1.5 trillion by 2034, underscoring its transformative potential across global finance.
Size and growth of the global onchain finance market (Source: Precedence Research)
Metric
Value
Year
Notes
Market Size
$32.36 billion
2025
Includes DeFi, tokenized assets, and onchain financial services
Tokenized Real-World Assets (RWAs)
$24 billion
Mid-2025
Up from $5 billion in 2022 (380% growth)
Onchain Revenue Growth
+126%
H1 2025
Driven by blockchain application fees
Projected Market Size
$1.5 trillion
2034
Based on a compound annual growth rate (CAGR) of over 53%
DeFi Total Value Locked (TVL)
~$60 billion
2025
Reflects capital in decentralized finance protocols
Onchain Finance in Arab Countries
Onchain finance in Arab countries is rapidly evolving, driven by digital transformation, youth adoption, and progressive regulatory frameworks. Across the Middle East and North Africa (MENA), Arab nations are embracing blockchain-based financial services, especially decentralized finance (DeFi) and tokenized assets, as part of a broader digital finance revolution. Countries like the UAE, Saudi Arabia, and Bahrain are leading with initiatives in open finance, expanding beyond open banking to include investments, insurance, and credit services. According to Statista, the regional market is forecasted to grow from $1.65 billion in 2022 to $11.74 billion by 2027, reflecting a compound annual growth rate (CAGR) of 45%. This surge is fuelled by high smartphone penetration, improved internet infrastructure, and government-backed fintech strategies that aim to enhance financial inclusion and economic participation. Arab regulators are also collaborating through regional fintech working groups to harmonize standards and foster innovationamf.org.ae.
Key aspects of onchain finance in Arab countries
Country
Initiatives
Regulatory Stance
Market Highlights
UAE
Dubai and Abu Dhabi host blockchain hubs; active in tokenized assets and DeFi
Pro-innovation; clear crypto regulations
Leading MENA region in blockchain adoption and fintech investment
Saudi Arabia
Vision 2030 includes digital finance; partnerships with blockchain firms
Supportive but cautious; exploring Central Bank Digital Currencies (CBDCs)
Growing interest in tokenized real estate and digital banking
Bahrain
Early adopter of crypto regulation; hosts regional DeFi platforms
Progressive; crypto licenses issued
Strong fintech ecosystem with open banking and onchain finance integration
Egypt
Exploring blockchain for remittances and financial inclusion
Conservative; limited crypto access
High potential due to large unbanked population and mobile penetration
Jordan
Blockchain pilots in government and finance sectors
Monitoring developments
Emerging interest in decentralized identity and finance
Qatar
Fintech sandbox includes blockchain startups
Restrictive on crypto; open to innovation
Focused on institutional use of blockchain for finance and compliance
Lebanon
Grassroots crypto adoption amid banking crisis
Unregulated; informal crypto use
Onchain finance used for remittances and preserving wealth
Growth of on Chain Finance in Saudi Arabia
Saudi Arabia is actively embracing onchain finance, with major institutions like Saudi Awwal Bank (SAB) integrating blockchain technologies to modernize financial services. In 2025, SAB, one of the kingdom’s largest banks with over $100 billion in assets, partnered with Chainlink to deploy cross-chain interoperability and developer tools for next-generation onchain applications. This move reflects Saudi Arabia’s broader strategy to diversify its economy and lead in fintech innovation under Vision 2030. By leveraging Chainlink’s infrastructure, SAB aims to develop secure, transparent, and programmable financial services that align with global trends in decentralized finance (DeFi) and tokenized assets. The partnership signals growing institutional confidence in blockchain as a foundation for future banking and financial ecosystems in the region. As such, onchain finance in Saudi Arabia is experiencing accelerated growth, fueled by institutional adoption, government strategy, and rising fintech investment.
Leading providers of onchain finance in Saudi Arabia
Provider
Role in Onchain Finance
Notable Initiatives
Saudi Awwal Bank (SAB)
Major institutional adopter of blockchain for financial services
Partnered with Chainlink in 2025 to deploy cross-chain interoperability and smart contracts
Chainlink
Blockchain infrastructure provider enabling secure data and interoperability
Supplies SAB with Cross-Chain Interoperability Protocol (CCIP) and developer tools
Local Fintechs
Emerging players exploring DeFi, tokenization, and digital banking
Participating in regulatory sandboxes and pilot programs
Government Entities
Supporting ecosystem through Vision 2030 and fintech strategy
Encouraging blockchain adoption via policy and infrastructure investment
These partnerships and initiatives are positioning Saudi Arabia as a rising hub for onchain financial innovation in the Middle East.
Growth of Onchain Finance in Uae
Onchain finance in the UAE is experiencing rapid growth, driven by government-backed innovation, regulatory clarity, and strategic investments in blockchain infrastructure. The UAE has positioned itself as a global leader in digital finance, with initiatives like the Arab Emirates AE stablecoin, pegged to the dirham, designed to facilitate onchain payments, trade, and tokenized asset flows. According to Digipay, the country’s fintech market is projected to grow from $2.97 billion in 2024 to $6.42 billion by 2030, reflecting a compound annual growth rate (CAGR) of 13.8%. Regulatory bodies such as the Central Bank of the UAE (CBUAE) and innovation hubs like the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) are actively fostering blockchain adoption. These efforts are transforming the UAE into a regional powerhouse for decentralized finance (DeFi), tokenized real-world assets, and programmable money.
Onchain finance providers in UAE
Provider
Role in Onchain Finance
Notable Initiatives
Tawreeq Holdings
Supply Chain Finance (SCF) and Sharia-compliant onchain liquidity solutions
Offers tokenized working capital tools for SMEs across MENA (tawreeqholdings.com)
Comarch Middle East FZ LLC
eInvoicing and data management solutions with blockchain integration
Pre-approved by UAE Ministry of Finance for electronic invoicing
Cygnet Digital IT Solutions
Blockchain-based invoicing and digital finance infrastructure
Accredited for UAE’s eInvoicing system by Ministry of Finance in United Arab Emirates
Defmacro Software DMCC
Blockchain-powered tax and finance platforms
Operates ClearTax UAE with onchain compliance tools
Dubai International Financial Centre (DIFC)
Regulatory and innovation hub for fintech and blockchain startups
Hosts accelerators and sandbox programs for DeFi and tokenized finance
Abu Dhabi Global Market (ADGM)
Financial free zone supporting blockchain and digital asset firms
Provides licensing and regulatory clarity for onchain finance ventures
These providers contribute to the UAE’s emergence as a global hub for decentralized finance, tokenized assets, and programmable money.
Growth of Onchain Finance In Qatar
Onchain finance in Qatar is steadily gaining momentum, supported by the country’s fintech strategy and its commitment to digital transformation under Qatar National Vision 2030. The Qatar Financial Centre (QFC) is actively fostering the integration of blockchain and Islamic finance, offering incentives like 100% foreign ownership, profit repatriation, and a competitive tax system to attract global fintech. The digital payments market is projected to reach 2.87 million users by 2028, while neobanks and blockchain-based platforms are emerging as key players in reshaping financial services. Regulatory bodies such as the Qatar Central Bank are promoting innovation through sandbox programs and strategic partnerships, positioning Qatar as a rising hub for onchain finance in the Gulf region.
Key providers of onchain finance in Qatar and their roles
Provider
Role in Onchain Finance
Notable Initiatives
Qatar Financial Centre (QFC)
Regulatory and business platform for fintech and blockchain firms
Offers sandbox programs and incentives for blockchain-based financial services
Qatar Central Bank (QCB)
Oversees financial regulation and innovation
Exploring central bank digital currency (CBDC) and blockchain integration
Qatar Development Bank (QDB)
Supports fintech startups and digital transformation
Provides funding and incubation for blockchain-based financial solutions
Qatar FinTech Hub (QFTH)
Accelerator for fintech and DeFi startups
Hosts global blockchain startups and supports onchain finance innovation
Local and Regional Fintechs
Emerging players in tokenized assets, digital payments, and Islamic DeFi
Participating in QFC and QFTH programs
These institutions are laying the groundwork for a growing onchain finance ecosystem in Qatar, particularly in areas like Islamic finance, tokenization, and digital compliance.
Growth of Onchain Finance in Kuwait
Onchain finance in Kuwait is gaining traction as the country accelerates its digital transformation agenda, blending traditional banking with emerging blockchain technologies. Driven by government initiatives and a growing fintech ecosystem, Kuwait is witnessing increased adoption of blockchain for secure, transparent, and efficient financial services. The Kuwait FinTech Blockchain market is projected to grow significantly between 2025 and 2031, supported by application providers, infrastructure developers, and middleware firms across banking, insurance, and non-banking financial. Key trends include the rise of digital payments, Artificial Intelligence AI-enhanced customer experiences, and blockchain-based compliance tools. This momentum positions Kuwait as an emerging player in the Gulf’s onchain finance landscape.
Raised funding from Qatar FinTech Hub Accelerator; supports digital commerce
Tap Payments
MENA-wide payment gateway simplifying transactions for businesses and individuals
Offers blockchain-ready infrastructure for secure digital payments
KFIC Finance
Financial services firm with expertise in retail, commercial finance, and asset management
Provides customized financial solutions with potential for blockchain integration
Qatar FinTech Hub (Investor)
Supports regional fintechs including Kuwaiti startups
Invested in UPayments and other blockchain-enabled platforms
These providers are contributing to Kuwait’s gradual shift toward blockchain-powered financial services, especially in payments, asset management, and digital finance.
Growth of Onchain Finance in Lebanon
Onchain finance in Lebanon is growing out of necessity, as citizens seek alternatives to the Lebanese banking system and to address challenges posed by the devalued national currency. Between 2019 and 2023, the Lebanese pound lost over 90% of its value, and banks imposed severe withdrawal limits, leaving millions without access to their savings. In response, stablecoins, digital currencies pegged to the United States US dollar, have emerged, enabling people to preserve value, send remittances, and transact without relying on traditional intermediaries. The adoption of blockchain-based finance is reshaping Lebanon’s financial landscape, with digital wallets, fintech platforms, and informal crypto networks. While regulatory clarity remains a challenge, the demand for decentralized and resilient financial tools continues to drive innovation in Lebanon.
Lebanon Onchain finance ecosystem led by fintech startups and software firms
Provider
Role in Onchain Finance
Notable Initiatives
Bluering
Credit automation and risk management software
Offers digital credit solutions for banks and financial institutions
PinPay
Digital payments and mobile money services
Enables secure online transactions and merchant payments
Letsgrant
Consumer lending and financial services
Provides fintech tools for digital credit and lending
Facilitates peer-to-peer and merchant transactions
These companies are helping to fill the gap left by Lebanon’s traditional banking sector, offering blockchain-based alternatives for payments, lending, and financial access.
Future of Onchain Finance
The future of onchain finance globally and in Arab countries is poised for transformative growth, driven by technological innovation, shifting regulatory landscapes, and rising demand for decentralized financial alternatives. Globally, onchain finance is evolving from speculative crypto trading into a foundational layer for programmable money, tokenized assets, and real-time financial infrastructure, with young generation (Gen Z) and Millennials leading adoptionmul. In the Arab world, particularly the Gulf Cooperation Council (GCC) countries, governments are embracing blockchain to diversify economies and reduce reliance on traditional monetary systems. The Middle East and North Africa (MENA) region has already captured over $338 billion in onchain value, with institutional activity dominating the space. As regulatory clarity improves and digital identity frameworks mature, Arab nations are expected to become hubs for Sharia-compliant DeFi, cross-border payments, and tokenized trade finance, positioning the region as a key player in the global onchain economy. Onchain finance is unlikely to fully overtake traditional finance, but it is rapidly reshaping its foundations by introducing programmable infrastructure, tokenized assets, and real-time settlement. The future points toward convergence rather than replacement.
Road Ahead For Arab Banks to Embrace Onchain Finance
Arab banks should proactively embrace onchain finance by integrating blockchain infrastructure into their core operations, starting with tokenized payments, digital identity verification, and smart contract-based lending. By collaborating with regional fintech hubs and regulatory sandboxes, Arab banks can pilot Sharia-compliant DeFi products, streamline cross-border transactions, and enhance transparency in asset management. Investing in blockchain talent and public education will be key to building trust and usability. As Gulf nations push toward digital economies, early adoption of onchain finance will position Arab banks as leaders in innovation, resilience, and financial inclusion across the MENA region.
On October 10, 2025, the Union of Arab Banks (UAB) convened the 12th edition of the U.S.–MENA Private Sector Dialogue (PSD) at the headquarters of the Bank of New York (BNY) in New York City, USA. This high-level forum was organized in cooperation with the Federal Reserve Bank of New York (FRBNY) and with the participation of the International Monetary Fund (IMF), the United Nations Security Council, and the U.S. Department of the Treasury. The event brought together a distinguished group of senior officials, regulatory authorities, and banking leaders from both the United States and the Arab region.
Held under the theme “Advancing Financial Compliance in a Rapidly Evolving Global Landscape,” the 2025 edition of the U.S.–MENA Private Sector Dialogue convened at a time of profound regulatory and technological transformation. Financial institutions worldwide are contending with heightened prudential standards, intensified AML/CFT scrutiny, and the emergence of sophisticated threats such as trade-based money laundering and cyber-enabled financial crime. Concurrently, technological disruption—particularly the growing use of artificial intelligence in compliance—has reshaped how risks are identified and managed. These developments have compounded longstanding structural pressures, including the fragility of correspondent banking relationships and the challenges of integrating digital assets into regulated financial systems. In this context, the Dialogue served as a timely platform for fostering transregional cooperation, enabling U.S. and MENA stakeholders to confront shared compliance challenges and safeguard cross-border financial integrity. Since its inception in 2006, the PSD has aimed to build trust, deepen regulatory engagement, and promote collaborative solutions—a mission the 2025 conference reaffirmed with clarity and purpose.
About the U.S.–MENA PSD
The U.S.–MENA Private Sector Dialogue is a long-running initiative designed to foster closer regulatory and banking cooperation between the USA and the Arab world. First established in 2006 by public and private sector stakeholders from both sides, the PSD has since held numerous gatherings aimed at strengthening mutual understanding. It operates as a policy-focused bridge between U.S. authorities (such as the Treasury and Federal Reserve) and MENA-region financial regulators, central banks, and banking executives. By institutionalizing this dialogue, the PSD provides a sustainable platform for tackling issues of common concern – from money laundering and sanctions compliance to financial innovation and inclusion – in a frank and collaborative setting.
The vision behind the initiative is based on promoting the stability and integrity of the banking sector across both regions. Concretely, the UAB and its partners pursue several key objectives through the PSD framework. This initiative seeks to:
Promote robust AML/CFT standards and strengthen anti-corruption measures.
Support compliance with evolving regulations to safeguard the financial system against security threats.
Foster constructive engagement and communication between U.S. and MENA banking communities.
Strengthen collaboration among regulators, supervisors, and the private sector in addressing shared compliance challenges.
By pursuing these goals, the U.S.–MENA PSD helps align regulatory expectations and best practices across jurisdictions. It has become a “much-anticipated event” on the annual banking calendar, drawing a broad coalition of institutions – including the IMF and other international bodies – to collectively advance financial integrity and inclusion. In essence, the PSD functions as a trusted forum for policy discussions: it enables US and Arab bankers and regulators to share experiences, discuss emerging trends, and coordinate responses to financial crime and compliance risks. Over time, this dialogue has contributed to building greater trust between correspondent banking partners, improving the transparency and resilience of MENA banks, and ensuring that progress in AML/CFT is carried forward through joint efforts. The 2025 edition continued this tradition, reinforcing the PSD’s importance as a driver of cross-border cooperation in an era of rapid change.
Highlights from the Opening Speeches
Mr. Mohamed El Etreby, Chairman, Union of Arab Banks
In his keynote remarks, Mr. El Etreby expressed an optimistic yet resolute tone about the evolving role of compliance in modern finance. He noted that each year the U.S.–MENA PSD strengthens “the bridge between the Arab region and the United States – a bridge built on trust, cooperation, and a shared commitment to safeguarding the integrity of the global financial system”. Acknowledging the conference theme, he observed that we live in an age of exponential change – with new technologies disrupting finance, shifting geopolitical currents, and threats from financial crime, cyber-attacks, and sanctions testing institutional resilience. In this context, “with challenge comes opportunity.” Compliance, once viewed as a regulatory burden, is now “the passport to credibility, sustainability, and growth in global markets”, and the foundation upon which trust is built – with trust itself “the very currency of modern finance”. El Etreby outlined the remarkable transformation of the compliance function over the past two decades: what began as a narrow focus on AML and KYC has expanded into a comprehensive framework encompassing counter-terrorism financing, sanctions, tax transparency, cyber-security, and even ESG considerations. Compliance is no longer reactive, he stressed, but has become predictive and technology-driven, leveraging advanced analytics, real-time transaction monitoring, artificial intelligence, and blockchain solutions to detect anomalies and mitigate risks before they escalate. This evolution means compliance is a “living, adaptive system” that must continuously evolve to counter increasingly sophisticated threats.
Crucially, Mr. El Etreby emphasized that Arab banks are not standing idle in this evolution. “We are moving forward,” he said, “transforming compliance from a defensive shield into a proactive driver of innovation, resilience, and competitiveness.” Regional banks are investing in people, by training new generations of compliance leaders, and harnessing technology – deploying AI, machine learning, and RegTech tools – to stay ahead of emerging risks. They are also embracing transparency not merely to satisfy regulators but because customers, partners, and societies demand it. The vision, as El Etreby articulated, is for the MENA region to not just meet international standards but to set an example of compliance leadership, leveraging the region’s youthful energy and potential to be at the forefront of global best practices. He highlighted the PSD as more than just a conference – rather, “the US-MENA Dialogue is a living partnership” that keeps Arab banks connected to global markets and U.S. institutions engaged in one of the world’s most dynamic regions. This cooperation is essential not only to reduce risks but also to expand opportunities. In a pointed reference to de-risking, El Etreby argued that “compliance should not lead to exclusion. It should lead to inclusion.” Effective risk management, in his view, ought to facilitate legitimate flows of trade, investment, and remittances that uplift communities and power development, rather than inadvertently cutting off regions from the financial system. He closed by urging boldness, adaptability, and collective action in the face of change. Armed with innovation, committed regulators, and an unyielding belief that integrity is non-negotiable, the U.S.–MENA partnership can “shape” the future of finance rather than merely react to it. By doing so, he affirmed, this partnership will continue to thrive not out of necessity but as “a beacon of how regions, working hand in hand, can create trust, resilience, and prosperity for generations to come”.
Dr. Wissam Fattouh, Secretary General, Union of Arab Banks and World Union of Arab Bankers:
In his address, Dr. Fattouh reinforced many of the same themes while focusing on concrete developments and challenges in the MENA financial sector. He addressed the PSD as a “important platform” reflecting a shared U.S.–Arab commitment to communication and cooperation in service of financial stability and sustainable growth. Offering thanks to the conference partners (FRBNY, IMF, U.S. Treasury – the last of which was absent due to a U.S. government shutdown – and BNY as host), Fattouh noted that the broad participation of stakeholders underscored a collective responsibility to shape the future of the financial sector. He then turned to the state of the region, observing that the past year brought significant positive change and new opportunities. Notably, the threat of terrorism that once destabilized the region is receding: “terrorism is being steadily defeated,” evidenced by the drying up of terror financing sources in countries like Syria, Lebanon, and Iraq. However, he cautioned that this mission is not yet complete. To consolidate the gains in combating illicit finance, remaining gaps in financial transparency must be addressed. Most importantly is the persistent challenge of the cash-based economy in many Arab countries, as well as alternative money-laundering methods. Dr. Fattouh cited the misuse of high-value assets – such as art, antiques, precious stones and other valuables – to disguise and transfer illicit funds as a growing concern. “As long as cash dominates and these alternative channels remain unmonitored,” he warned, illicit flows will find a way, and public confidence in financial systems will be undermined.
This reality points to a simple truth: ensuring the lasting drying up of terrorist financing and other illicit flows requires comprehensive banking sector reforms, not just better compliance. “Reform is not only about compliance; it is about building the structures, systems, and governance that enable banks to drive integration, modernization, and growth across our economies,” Fattouh said. In other words, the fight against financial crime is intertwined with broader economic and institutional development. On this front, the UAB has been at the forefront of modernization efforts, working closely with regulators, central banks, and financial institutions to upgrade banking practices, enhance compliance cultures, and promote greater financial inclusion across MENA. Dr. Fattouh provided an objective assessment of several country situations to illustrate the region’s diverse challenges and the UAB’s role in addressing them.
In Iraq, UAB has consistently offered support to strengthen the banking sector, yet progress has been limited by the absence of a unified, effective counterpart on the ground (beyond the central bank) to implement reforms. There remains a big gap between a few well-established Iraqi banks that are relatively compliant and profitable, and a long list of weaker institutions – many evolved from money exchange houses – that still face serious compliance and regulatory deficiencies. This imbalance is unsustainable: as Dr. Fattouh noted, Iraq cannot achieve a durable economic recovery without decisive banking reform. The foundations for such reform exist, but the commitment to carry them out must become “stronger, firmer, and more determined”.
In Syria, following the recent lifting of certain international sanctions, a major opportunity for financial sector progress has opened – but the road is steep. Years of conflict and isolation left Syria’s banking system with weak regulations and a loss of public trust. To address these, UAB has proposed a phased roadmap for Syrian banking rehabilitation: start with restructuring troubled banks and building basic compliance infrastructure, then institute robust governance and transparency measures, undertake extensive training and capacity-building (especially for staff who operated during the sanctions era), and finally pursue sustainable growth through innovation and new international partnerships. This systematic approach aims to gradually reintegrate Syria’s banks into the global fold.
Regarding Lebanon, Dr. Fattouh deferred detail to the conference’s Lebanese speaker (Dr. Mazen Soueid, Chairman, Banking Control Commission, Lebanon) but highlighted one positive trend: even as Lebanon copes with severe economic strain, there has been a gradual shift away from cash reliance, with increasing use of electronic payments (debit and credit cards) by the public – an encouraging sign of progress in modernizing the financial culture.
In Yemen (specifically Aden), he mentioned the resilience of banks that, despite extreme conditions, have improved their compliance and AML/CFT practices. UAB has been proud to support these efforts, including helping establish a new Yemeni Banks Association (whose president was present at the conference) – a development Dr. Fattouh described as a model of resilience for the region.
On a less positive front, Dr. Fattouh acknowledged that in Sudan, although sanctions were lifted in recent years, the outbreak of war in 2023 tragically reversed much of the hard-won progress in its banking sector.
Zooming out, Dr. Fattouh drew attention to important regulatory developments across MENA. In the Gulf Cooperation Council (GCC) countries, he noted, the large scale of the banking sector and its extensive international ties force banks to maintain strong correspondent relationships and uphold the highest standards of AML/CFT compliance, technology infrastructure, and transparency. Several jurisdictions have made significant reforms: for example, the United Arab Emirates and Jordan both implemented major legal and regulatory enhancements, enabling them to exit the FATF “grey list” of jurisdictions under increased monitoring. These successes have further bolstered the strength and credibility of their financial systems, and UAB has closely monitored such advancements (indeed, these topics were slated for discussion in the conference’s Session II).
Among the most pressing themes in Dr. Fattouh’s speech was the ongoing challenge of correspondent banking access and de-risking. He recalled that in 2015, the first joint IMF–UAB survey on de-risking revealed severe impacts on MENA banks: nearly 40% of banks in 17 countries had seen correspondent accounts closed or restrictions tightened, resulting in costlier and less accessible remittances and trade finance for the region. A full decade later, in 2025, de-risking remains a major concern. Global regulatory pressure has not abated, and banks across MENA still struggle at times to maintain their correspondent relationships. The difference today, Dr. Fattouh observed, is the emergence of alternative channels for cross-border payments and transfers. “In 2015 there were limited alternatives,” but now technologies like blockchain-based solutions, fintech and money service businesses, and digital payment platforms offer new avenues. However, these alternatives are not yet fully regulated and could introduce serious risks if left unchecked. It is therefore essential, he argued, that such emerging channels be brought under clear and consistent regulatory frameworks – ensuring that innovation strengthens rather than undermines the stability of the financial system. (Recognizing the strategic importance of this issue, the PSD organizers dedicated a special session of the conference to digital finance and fintech oversight.) Despite the challenges enumerated, Dr. Fattouh’s message was ultimately one of determination and guarded optimism. He noted that the conditions for reform, growth, and reintegration in the region are now aligning as never before, and that the UAB is assuming a lead role – working hand in hand with local and international regulators, supervisory authorities, and banks – to develop a strong, integrated Arab banking sector that can operate confidently and competitively on the global stage. He closed by thanking the partners and participants, and reinforcing that through deepened cooperation and unwavering commitment to high standards, the U.S.–MENA partnership will continue to drive positive transformation in the years ahead.
Additional Distinguished Opening and Keynote Addresses
Also delivering opening and keynote remarks were Mr. Sean O’Malley, Managing Director and Head of the Financial Intelligence & Investigations Unit at the Federal Reserve Bank of New York, and Dr. Muhammad Baasiri, President of the U.S.–MENA PSD initiative, and Mrs. Bana Akkad Azhari, Managing Director at BNY, who emphasized the Dialogue’s enduring value as a platform for strengthening mutual understanding and reinforcing trust between regulators and the banking community across both regions. Their interventions were complemented by keynote addresses from Mr. Rory Corcoran, Directorate Coordinator at INTERPOL’s Financial Crime and Anti-Corruption Centre, and Ms. Sandra Ro, CEO of the Global Blockchain Business Council and Member of the U.S. CFTC GMAC Digital Asset Markets Subcommittee, who highlighted the importance of international coordination and technological innovation in combating financial crime and shaping secure, transparent digital finance ecosystems.
Awards and Recognitions
The Union of Arab Banks also presented honorary awards to key partner institutions for their sustained support of the U.S.–MENA PSD. The Federal Reserve Bank of New York — represented by Mr. Sean O’Malley, Managing Director and Head of the Financial Intelligence & Investigations Unit — the U.S.–MENA PSD initiative — represented by Dr. Muhammad Baasiri, President of the U.S.–MENA PSD — and BNY Mellon — represented by Mrs. Bana Akkad Azhari, Managing Director at BNY — were each recognized for their strategic cooperation and support. In addition, Mr. Chip Poncy, Global Head of Financial Integrity and Board Member at K2 Integrity, was awarded for his distinguished contributions to strengthening global financial integrity and advancing the objectives of this long-standing dialogue.
Forum Sessions Overview
After the opening remarks, the conference proceeded through three focused panel sessions, each examining a critical aspect of financial compliance and collaboration. Senior U.S. officials, Arab regulators, international experts, and private sector leaders featured prominently across these discussions, providing a rich exchange of perspectives. Below is an overview of each session and its key takeaways:
Session I: Strengthening and Modernizing Financial Institutions’ AML/CFT Programs
The first session, Moderated by UAB’s senior adviser Dr. Chahdan Jebeyl, centered on how banks can bolster their anti-money laundering and counter-terrorist financing (AML/CFT) frameworks in light of new regulations and emerging risks. Mr. Sean O’Malley, Managing Director and Head of the Financial Intelligence & Investigations Unit at the Federal Reserve Bank of New York, set the scene with an engaging and forward-looking overview of how evolving U.S. regulatory priorities and global financial intelligence trends are reshaping the compliance landscape. The panel included panelists from U.S. and MENA institutions – among them, compliance veterans like Chip Poncy (K2 Integrity), Jacqueline Shire (Federal Reserve Bank of New York), Dr. Mazen Soueid (head of Lebanon’s Banking Control Commission), -Mr. Sameer Pandit, MD/Chief Compliance Officer – Treasury Services, Global Client Management & Credit Services, BNY, Mr. Jamal El-Hindi, Counsel, Clifford Chance US LLP, Former Acting Direction FinCen, US Treasury, USA, and Mr. Mitch Berger, Senior Partner, Squire Patton Boggs. A major focus was “what’s new” in U.S. AML/CFT programs and how these developments impact banks abroad. For example, the panel examined the recent introduction of U.S. National AML/CFT Priorities (as outlined by FinCEN in 2024) and strategies for banks to integrate these priorities into their own institutional risk assessment frameworks. This includes aligning internal risk models with the areas highlighted by regulators (such as combating cybercrime, terrorist financing, fraud, corruption, etc.) and ensuring that board-level governance is attuned to these national priorities.
Building on that, participants discussed advancing risk-based compliance approaches to make AML/CFT efforts more effective. This entails moving beyond a tick-box mentality and using data-driven methods to allocate compliance resources where risks are highest. The panel emphasized the importance of embedding strong governance and oversight at the board and senior management level so that compliance considerations are woven into strategic decision-making. By strengthening the “tone at the top,” financial institutions can better cultivate a culture of compliance that is proactive rather than reactive.
Another key topic in Session I was the compliance challenges facing Arab banks, especially those operating in or with high-risk jurisdictions. The discussion touched on the current state of regulatory compliance in countries like Iraq and Syria – recognizing both progress and ongoing difficulties – and provided an update on global sanctions regimes affecting the region. Panelists noted that banks in conflict-affected or post-conflict markets often confront unique obstacles: infrastructural gaps, weaker oversight environments, and the legacy of past sanctions or isolation. Sharing insights from both U.S. and regional perspectives, the speakers underscored the need for tailored capacity-building in such contexts. They highlighted that modernizing AML/CFT programs is not a one-size-fits-all endeavor; it requires sensitivity to local conditions even as banks strive to meet international standards. Concluding the session, there was a general consensus that continuous improvement and modernization of compliance programs – through innovation, staff training, and regulatory engagement – is indispensable for banks to remain resilient and confidently integrated into the global financial system.
The second session tackled the delicate balance between stringent compliance demands and the need to maintain healthy correspondent banking relationships. Moderated by Mr. Chahdan Jebeyli, Senior International Adviser for Legal and Compliance at the Union of Arab Banks and the Association of Banks in Lebanon, the panel brought together leading experts who deal first-hand with correspondent banking and financial crime risks. The distinguished speakers included Mr. Rashid Naseem, Director of Risk Management and Head of Specialized Risk Management, Markets Group, Federal Reserve Bank of New York; Mrs. Myriam Khairallah, Expert at the 1267/1988 Monitoring Team, United Nations Security Council; Mrs. Sarah K. Runge, Executive Managing Director, K2 Integrity and former U.S. Treasury FATF Lead; Mr. David Wildner, Global Head of AML and Deputy Global Head of FCC, BNY Mellon; Mr. Arz El Murr, Senior Financial Sector Expert, International Monetary Fund (IMF), USA; and Mr. Michael Matossian, Global Head of Group Regulatory Compliance, Arab Bank Group.
A core theme was meeting evolving correspondent bank requirements through transparency and dialogue. Correspondent banking – the lifeblood of cross-border payments – has come under intensified scrutiny in recent years, with correspondents (often large U.S. or European banks) expecting higher standards of due diligence, customer transparency, and risk management from their respondent bank partners. The panel stressed that banks in the MENA region must actively engage with their foreign correspondents, clearly demonstrate their compliance upgrades, and share information to build mutual trust. Open lines of communication can help prevent misunderstandings and preempt the kind of risk concerns that lead to “de-risking” decisions. Importantly, regulators have a role to play in facilitating this ongoing dialogue and encouraging proportionate approaches so that entire jurisdictions or sectors are not unfairly cut off from the international system.
To further address de-risking pressures, the discussion explored practical steps banks and authorities are taking. One positive development noted was the wave of regulatory reforms in MENA aimed at strengthening corporate governance and enforcement within local banks. For instance, as mentioned in the opening speeches, countries like the UAE and Jordan have implemented robust improvements to their AML/CFT legal frameworks and supervisory regimes – moves which have been recognized internationally (e.g., by removal from FATF watch-lists). Such progress, panelists argued, can help reassure global partners that MENA banks are committed to upholding international standards. Nonetheless, participants acknowledged that risk perceptions can lag behind reality, and so continuous engagement and evidence of improvement are needed to truly ease correspondent concerns.
The session also explored into informal finance and non-bank financial channels as emerging challenges intertwined with the correspondent banking issue. Banks often face heightened scrutiny in part because of risks in the surrounding financial ecosystem – particularly in predominantly cash economies. The panel pointed to the prevalence of cash-based transactions and informal money transfer networks in several MENA markets as a “compliance risk multiplier”. When large portions of the economy operate outside the banking sector’s view, it raises overall risk and can deter correspondents. Similarly, the rise of money service providers (MSPs) and shadow banking systems presents a double-edged sword. On one hand, these alternatives (including fintech remittance providers, currency exchangers, and other non-bank entities) can help fill payment needs, especially where banks have retrenched. On the other hand, if not properly regulated, they can become conduits for illicit finance or sanctions evasion, further worrying correspondent banks. The experts echoed Dr. Fattouh’s earlier remarks: while such alternative channels are growing, it is crucial to bring them into the regulatory fold. Clear regulatory frameworks and supervision for MSPs, fintechs, and informal value transfer systems will help ensure that innovation does not come at the cost of financial integrity. Indeed, the panel noted that a failure to control risks in these areas could ultimately harm banks by prompting correspondents to pull back even more.
In summary, Session II underscored that safeguarding correspondent access requires a multifaceted effort. Transparency, improved compliance controls, and continuous communication are the immediate tools for banks to maintain and regain correspondent relationships. Concurrently, regulators must reinforce the domestic banking environment – through stronger governance, enforcement, and oversight of all financial intermediaries – so that international partners gain confidence in the overall system. By tackling both the banks’ internal compliance and the external ecosystem risks, the aim is to reduce indiscriminate de-risking and preserve the vital financial links that support trade, remittances, and investment in the MENA region.
Session III: Governing the Digital Financial Ecosystem and Utilizing AI
The third and final session turned to the frontier of financial innovation – digital finance – and its implications for compliance and regulatory governance. As digital transformation accelerates, banks and regulators face the challenge of managing new technologies and services (such as cryptocurrencies, fintech payment platforms, and artificial intelligence tools) that transcend borders. Moderated by Eng. Suleiman Baradah, Managing Partner at Xeevolve, Qatar, the panel featured a distinguished lineup of experts from the technology, legal, and compliance sectors. The speakers included Mr. Bhavin Shah, Managing Director, Secretariat, UAE; Mr. Stuart Jones, Jr., CEO of Sigma360, USA; Mrs. Gretel Echarte Morales, Counsel at Mayer Brown LLP, USA; and Mr. Sterling Daines, Managing Director of Risk & Compliance at BNY Mellon. Their combined expertise provided deep insights into the opportunities presented by digital finance and the critical safeguards required to ensure innovation advances in a secure, transparent, and compliant manner.
A central topic was the array of emerging digital finance tools and the importance of addressing their cross-border dimensions. Unlike traditional banking products, digital financial services (such as crypto-assets or online remittances) often operate on global platforms and can be accessed from almost anywhere. This ubiquity can exacerbate regulatory arbitrage and pose challenges for any single jurisdiction’s controls. The panel discussed efforts to coordinate internationally on standards for cryptocurrencies and virtual asset service providers (VASPs) – building on guidance from bodies like the FATF – to ensure that risks like money laundering, terrorist financing, and fraud are mitigated even as innovation flourishes. One focus was on supervising digital finance: regulators need new technical capacities and legal tools to oversee fintech firms, cryptocurrency exchanges, and other non-bank entities that now facilitate significant financial flows. Panelists highlighted risks such as illicit crypto-asset channels (e.g. misuse of exchanges, mixers, or privacy coins by bad actors) and the vulnerabilities of decentralized finance, all of which require vigilant monitoring and cross-border information-sharing.
From the industry side, speakers stressed the responsibility of institutions engaged in digital finance to implement robust institutional risk controls for digital asset transfers. Banks and fintech companies dealing with crypto or other digital products must strengthen their compliance programs – for example, by conducting thorough customer due diligence on VASP clients, monitoring transactions on blockchains for red flags, and ensuring they can mitigate technical risks like cyber threats or protocol hacks. Strengthening VASP compliance is not just about following regulations but about protecting the integrity of the broader financial system. The audience heard that some leading banks are already developing stringent frameworks for engaging with digital assets, often exceeding current regulatory requirements in anticipation of future rules.
Finally, the session explored how artificial intelligence (AI) and advanced analytics can be harnessed to enhance AML/CFT efforts and overall financial integrity. There was broad agreement that AI-driven tools – from machine learning algorithms that detect suspicious transaction patterns, to natural language processing that can help with customer screening and negative news monitoring – hold great promise in making compliance functions more efficient and effective. For instance, AI can sift through massive datasets far faster than human analysts, potentially identifying complex money laundering typologies or sanctions evasion networks that would otherwise go unnoticed. However, the panel also cautioned that AI is not a silver bullet. Effective governance is required to ensure these technologies are used ethically and reliably. Issues such as algorithmic transparency, data privacy, and avoiding bias in AI models were noted as important considerations for regulators and banks alike. Moreover, integrating AI tools into legacy bank systems and workflows remains a practical challenge. Regulators, for their part, are still adapting their frameworks to accommodate AI – developing guidelines on model risk management and validation for AI in compliance. Despite these caveats, the consensus was that intelligent use of technology is indispensable in a rapidly evolving global landscape where illicit actors are themselves quick to exploit innovation. As one speaker remarked, the financial community must leverage AI and other regtech solutions so that it can “become more effective and efficient” in protecting the system, keeping pace with the speed and complexity of modern finance.
Final Remarks
As the 12th edition of the U.S.–MENA Private Sector Dialogue drew to a close, participants and organizers alike underscored the forum’s vital role as an ongoing policy and regulatory bridge between the two regions. In the words of one speaker, the dialogue is a “living partnership” that ensures Arab banks remain connected to global markets while U.S. institutions stay engaged in the opportunities and challenges of a dynamic MENA region. Going forward, this platform is set to continue evolving in response to the international financial climate – providing a much-needed space for frank discussion, knowledge exchange, and coordinated action on emerging issues. By convening bankers, regulators, and policymakers on a regular basis, the U.S.–MENA PSD helps sustain an open dialogue on core financial integrity and stability issues.
Perhaps most importantly, the dialogue builds the personal and institutional relationships that underpin trust – the critical currency in correspondent banking and international finance. In an era of fast-changing technology and regulatory complexity, the PSD has proven to be a cornerstone for reinforcing mutual understanding and resilience. It enables both sides to align on standards, address frictions, and find common ground in strengthening the global financial system’s defenses against illicit finance. As highlighted throughout the conference, fostering such trust and alignment is the key to ensuring that compliance requirements do not result in unintended financial exclusion, but rather pave the way for a more inclusive and secure financial ecosystem. The U.S.–MENA PSD’s ongoing efforts thus contribute to the broader goal of integrating MENA’s banking sector confidently into the global economy, to the benefit of stability and prosperity on all sides. By continuing to work hand-in-hand through this dialogue, American and Arab banking leaders aim to turn shared challenges into shared successes – making the partnership not just a response to current needs, but “a beacon” for how cross-regional cooperation can create lasting trust, resilience, and growth in international finance.
