Tools of regime stability: the political economy of sovereign wealth funds in Gulf rentier states

Abstract

Why have Gulf resource-dependent countries transformed the role of their sovereign wealth funds (SWFs) from passive global investors to ubiquitous drivers of economic development? How does this role-change operate amidst fiscal scarcity, confounding macroeconomic expectations of commodity-based SWFs? Beyond a narrow view of funds as apolitical economic actors, this article puts forward the logic of SWFs as tools of regime stability to explain SWF development in Gulf rentier states. This logic advances that SWFs are adaptive strategies through which rentier states respond to evolving external pressure without compromising the fundamental pillars of regime stability underpinning allocative frameworks. Drawing on the Saudi case, the article finds that SWFs create de-risking pathways to mobilize private finance capital through environmental, social and governance (ESG) practices and market-based instruments like green bonds. Simultaneously, SWFs allow incumbents to revisit rentier governance by enhancing economic steering capacity while upholding, but restructuring, patronage networks. By shedding light on the political role of SWFs, this article contributes to debates surrounding rentier states and financialization literatures. It highlights how the elasticity of rentierism as financialized forms of state-led economic development does not erode state capacity but rather empowers ruling elites with a new range of tools and resources to upgrade rentier governance in times of economic transitions.