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The conflict in Iran continues to impact the Gulf states through physical infrastructure damage, disruptions to exports, and reputational risk. Abu Dhabi has frozen rent increases indefinitely, both for commercial and residential units. Saudi Arabia has quietly scaled back megaprojects (something that began even before the most recent conflict), incurring penalties measured in the tens of billions of dollars. There is growing concern that reconstruction costs and lingering uncertainty of physical risks may compel Gulf states to reassess their spending priorities, not merely in regards to domestic hero projects, but in overseas investments as well.
One high profile initiative is Gulf investment into U.S. artificial intelligence, including the high-profile Project Stargate, a public-private partnership backed by President Donald Trump and designed to develop the massive infrastructure necessary to keep the United States at the forefront of the global AI race. The Stargate joint venture, announced from the Roosevelt Room of the White House in January 2025, runs to $500 billion over four years. SoftBank and OpenAI reportedly committed $19 billion apiece toward the initial $100 billion deployment; Oracle and Abu Dhabi's MGX Fund Management reportedly committed $7 billion each. MGX, established in March 2024 by Mubadala, G42, and International Holding Company (IHC) with a $100 billion AUM target, has since added equity positions in OpenAI, Anthropic, and xAI alongside its Stargate exposure. These commitments are eye-popping - some are sovereign strategic PE, and others are traditional VC.
These headline numbers garnered a lot of attention. The cash actually moving, however, does not match the headlines. This is the part of venture capital - and sometimes private equity - that most outside the industry never see.
When a sovereign wealth fund commits $7 billion to a classical four-year VC vehicle, that money does not move on day one. It sits on the LP's (the investor’s) balance sheet as a binding contractual obligation, called by the GP (the venture fund) in tranches as deals close. A typical fund draws 70 to 90 percent of commitments over five to seven years, with reserves and follow-ons taking total drawdown closer to 90 percent over the full fund life. The LP keeps the uncalled portion on its own balance sheet, earning whatever it yields there, and retains the use of the cash for other investments. The arrangement is a sort of option: the GP holds the option to call, the LP carries the obligation to wire. Failure to wire (what the fund documents call ‘default’) incurs severe economic penalties - and serious reputational harm if it becomes public.
The standard limited partnership agreement often forfeits a substantial portion of the defaulting LP's fund interest. It also permits the GP to cancel remaining commitments, strip voting rights, and force the LP's position out the door at a deep discount to asset value. The mechanism exists to make default a last resort. Historically, it has worked. Defaults are so rare that VC’s can generally borrow against uncalled commitments through subscription credit facilities priced at a small spread over the Secured Overnight Financing Rate (SOFR) in order to invest ahead of LP wires.
Saudi Arabia's Sanabil Investments, the PIF subsidiary that handles its venture allocation, discloses on its own website positions in more than fifty venture and growth funds, including Andreessen Horowitz, Founders Fund, Tiger Global, Coatue, ICONIQ, General Atlantic, and KKR. Abu Dhabi-based Mubadala holds a minority equity stake in Silver Lake alongside a $2 billion long-term investment strategy with a 25-year deployment lifecycle. The "Oil Five" - Mubadala, ADIA, ADQ, PIF, and QIA - collectively deployed about $82 billion in 2024 across direct investments and fund commitments, roughly 60 percent of global sovereign-wealth-fund deal value that year. This pattern accelerated through 2025, making them among the most significant investors in the US VC ecosystem.
Default penalties are drafted to give the fund manager punitive power over an LP who wields limited market power: These penalty clauses, while legally enforceable, don’t make sense for a VC to enforce against an LP who they’re going to need as an investor in their next fund. These sovereign funds wield enormous leverage. When the LP is too large or too central to the next fundraise, the GP has very strong incentives to negotiate a soft landing. That regime of quiet renegotiation lives almost entirely off the record and out of public view.
For example: During the financial crisis, a top 5 USA university endowment had a liquidity crisis and quietly told their VCs to not call capital. The VC’s didn’t invoke their punitive provisions to reclaim the university endowment’s investments. They quietly just didn’t call capital to do new deals. They didn’t want to alienate a key stakeholder.
Whether the cap-call regime is being tested right now depends on which Gulf state you look at. Abu Dhabi is not under cashflow pressure yet; Riyadh is. Even ahead of the latest Iran crisis, PIF's cash reserves stood at $15 billion as of September 2024, the lowest since 2020. Saudi Aramco cut its expected 2025 dividend by roughly $40 billion (from about $124 billion in 2024 to $85.4 billion in 2025), almost entirely in the performance-linked portion, costing PIF roughly $6 billion in foregone dividend receipts. The fund has issued a $7 billion Islamic loan, launched a commercial paper program, and ordered minimum 20 percent spending cuts across more than a hundred portfolio companies, with some cut up to 60 percent. Saudi authorities acknowledged in May 2024 that $5.33 billion in delayed payments to contractors was being progressively released; one international contractor had reportedly claimed $800 million in unpaid invoices and was scaling back operations. A $5 billion Neom contract scheduled to be awarded in December 2024 was canceled the day before the signing ceremony. In August 2025, PIF disclosed an $8 billion writedown on its giga-project portfolio.
This is what a sovereign wealth fund in liquidity stress looks like. It does not file for bankruptcy. It borrows. It stretches contractors. It cancels deals at the last minute. It writes down what it cannot quietly de-scope. The cap call from the GP in Menlo Park is, for the moment, the obligation Riyadh is most reliably meeting on time - for reasons that have little to do with Saudi cashflow and everything to do with what defaulting would signal to every other Western counterparty about Saudi credit, Saudi reliability, and Saudi access to the next round of Western capital and Western technology. PIF and MGX did not buy into US venture only for returns. They bought a seat at the table of the most important general-purpose technology transition since electrification, and the political influence it may curry in Washington. The political price of a refused cap call is, today, higher than the cost of borrowing to pay it.
What changes the calculation is a second crisis. If the AI capital cycle resets, if the inference-margin compression that Bay Area skeptics have been warning about since 2023 actually arrives, if the Stargate re-scoping already visible in 2026 deepens further, or if the conflict with Iran continues to cause physical and reputational damage, particularly to the oil infrastructure, the political and economic cost of a slow-walked cap call may start to look tolerable. A GP staring at a frosty fundraise will accept a quiet rescheduling from a strategic LP that it would never accept from a small college endowment. The unwind, if it comes, will not be a refusal. It will be a tranche slipped, a side letter rewritten, a co-investment that does not close, a follow-on commitment dialed back from $500 million to $350 million when the next fund opens. The seats vacated will be filled by Korean pension funds, Singaporean SWFs, and large family offices, but the price discovery during the transition will be ugly for deals that aren’t the most attractive.
The risk picture for the underlying companies is asymmetric. Many AI startups are using venture as a war chest: capital deployed to win logos and lock in multi-year enterprise AI contracts at scale, ahead of revenue that is real and contracted. Those companies survive a slowed cap-call cadence because their growth ramp is obvious and easy to raise against. The companies using venture to subsidize negative unit economics, or to outspend competitors in a race that has not yet produced a defensible moat, are more exposed.
The risk to them is not that their own investors default voluntarily. The risk is that the VC’s have to slow or freeze new funding when they lose confidence that the next capital call will be answered on time. LP’s in VC funds don’t have to wire when they make a commitment to the fund, but the VC’s have to wire when they make an investment - a gap typically bridged in the short run by a subscription credit facility drawn against the uncalled LP commitments.
A wave of Gulf state VC defaults hasn’t happened yet. At the beginning of COVID, many VC’s slowed or delayed new deployments, in part because they were concerned that LPs (particularly endowments, foundations, and pensions whose public-equity holdings had cratered) might struggle to wire if capital were called.
We haven’t yet seen an indication of any kind of slowdown coming out of the Gulf. Mubadala had its busiest year on record in 2025. But Riyadh, which has been trimming, sits alongside Abu Dhabi on some of the largest LP positions in the VC fundraises of the next two years.
Watch the secondary market for posted Gulf positions. Watch for a Stargate tranche that slips by a quarter and is reported only in a 10-K footnote. Watch for a Mubadala co-investment that does not close on a deal that everyone in San Francisco assumed was wired. None of those would be a refusal, but all would be indicators.
Losing Gulf State funding would not necessarily be a disaster for the VC industry: There’s more money fighting to get into the top funds than there is space to take it. But a failed series of cap calls from Gulf sovereign wealth funds would be a strong indicator that something is going deeply wrong with the cashflow of these regimes.
So far, the VC industry, if it’s the canary in the coalmine for Gulf state liquidity, is still singing.