What Does the Situation in the Middle East Mean for CSDs?

The ongoing US/Israeli conflict with Iran, and the retaliatory strikes across Israel and several Gulf states, have created uncertainty across Middle East markets. In this time of continued military activity, heightened security alerts, and state-sponsored cyberattacks, central securities depositories (CSDs) in the region need to know that they can operate safely. Just as importantly, their clients must believe them to be safe and secure.

In times of geopolitical instability, institutional investors, custodians and asset managers prioritise risk mitigation and asset integrity. In this environment, demand for frameworks that focus on asset safety, continuity planning and counterparty risk insight is rising.

The current geopolitical situation is fuelling risk

Middle East markets are on edge, and Iran’s retaliatory strikes have broadened the conflict to the entire region. Gulf stock markets have seen significant declines, and insurance premiums are spiking for ships operating near the Strait of Hormuz - a critical global shipping route - reflecting elevated risk perceptions. In addition, Iran has said it will target economic and banking ​interests linked to the US ‌and Israel in the region, after an attack on an Iranian bank.

Businesses and investors in the region now face a number of difficulties.

Market volatility and risk sentiment

In situations like this, risk-averse sentiment dominates, with investors favouring safe havens such as gold, US Treasuries and high-quality credit, while equities - especially in emerging and geopolitically sensitive markets - show heightened volatility.

Increasing geopolitical risk can weigh on risk appetite, making investors more cautious in growth capital rounds, especially for strategies tied to macroeconomic stability.

Inflationary pressures and investor confidence

Oil prices have risen sharply, with Brent crude trending higher as investors price in supply disruption risks (despite markets not yet fully pricing in a worst-case scenario). If these oil prices are sustained, they will fuel inflation globally, squeezing corporate margins and reducing discretionary capital available for growth investments.

Heightened geopolitical risk tends to widen credit spreads and make lenders more selective. Uncertainty reduces foreign inflows and the willingness of domestic institutions to list or trade, shrinking the asset base that CSDs service. This results in lower transaction volumes, reduced fee income, and higher per‑trade costs.

Investors and institutions will likely now demand stronger risk controls, clearer stress testing, and stronger governance when allocating growth capital.

Regulatory uncertainty

Increased geopolitical tensions often trigger policy changes, sanctions or war‑related corporate actions (e.g., delistings, asset freezes), and anti‑terrorism financing rules, that alter the legal basis for securities custody and cross‑border flows. This can mean having to reclassify participants, redesign onboarding, or adjust corporate actions workflows.

These sanctions and banking restrictions, together with capital flight also increase the probability that market participants can’t meet liquidity obligations, conceivably leading to settlement gridlock, higher collateral calls, and potential defaults. Investors will now weigh regulatory risk, with premiums likely to be higher.

Business continuity

Conflict‑related disruptions (air‑space closures, telecom outages, physical security risks) can halt or delay trade‑capture, settlement and post‑trade processing. This means potential settlement failures, higher error rates, and a requirement for manual overrides.

The challenge for CSDs in the Middle East

A major challenge for CSDs is that they often have large IT security teams that are subscribed to a range of threat intelligence feeds - which they then use to monitor the organisation’s security posture. A common problem for them is that they have too much data, too little quantification, and too much manual work to do – meaning that many threats can be missed.

Teams can struggle for visibility over their public-facing IT infrastructure, potentially making them unaware of the number of digital assets they are unnecessarily exposing in the public domain. This means they may not know if or what company data has been leaked to the Dark Web or elsewhere – leaving them unable to assess the impact of employee behaviour on the CSD’s security. This is a particular problem in times of war, where espionage and infiltration are commonplace.

This increases the need for a reliable threat intelligence tool

CSDs recognise that they need to subscribe to a reliable, proactive threat intelligence tool, the main requirements of which should be to:

  1. Monitor the CSD’s attack surface for breaches, vulnerabilities and misconfigurations, receiving all relevant threat intelligence feeds in a single platform.
  2. Quantify its security posture in a risk rating, so it can track and benchmark its performance.
  3. Benchmark itself against other CSDs in the region, to understand whether more investment is required to improve its security.
  4. Achieve an affordable solution that reflects the economic market conditions.

Thomas Murray offers assurance in times of geopolitical instability

Global conflict has made CSD resilience a core risk, governance and fiduciary issue.

Thomas Murray provides intraday monitoring and risk assessments of 140+ CSDs across the world. Our focus is on asset safety and ensuring the assets held by leading financial institutions are secure.

We help CSDs to reduce their attack surface, build security and demonstrate resilience.

We’ve been rating CSDs for decades and we’re widely recognised as the global leader in the space. We’re the trusted channel through which many of the world’s leading banks access trusted ratings.

Find out more about our CSD offering.