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The war is acting as a catalyst for increasing digitisation and data sovereignty, with efficiency becoming less of a priority than resilience in the context of state-sponsored cyber targeting of critical infrastructure.
The escalating war involving Israel, the US and Iran is challenging the resilience of the global financial system. Cross-border payments, long reliant on fragile correspondent networks, are facing unprecedented friction, cyber threats and supply chain shocks.
The impact of the war extends far beyond Iran and the battlefields, sending shockwaves through global markets and industries.
The European Central Bank’s vice-president, Luis de Guindos, warned in a speech in Tallinn on March 26 that although direct banking impacts are currently limited, the Iran war could trigger systemic financial stress due to heightened uncertainty across global markets and interconnected financial systems.
“Amid already elevated global uncertainty, this conflict could trigger the unravelling of interconnected vulnerabilities and cause systemic stress,” de Guindos said.
Research by S&P Global Ratings suggests that Gulf banks could face $307bn risk of deposit outflows if the Middle East conflict deepens. This signals stress not just for local banking but also for broader financial confidence and liquidity amid geopolitical uncertainty.
Mostafa Ahmed, a senior researcher at the Al Habtoor Research Centre, an independent think-tank based in Cairo, Egypt, told Vixio that the recent escalations in the Middle East are a profound stress test for the global payments architecture.
“Rather than viewing the impact as merely disruptive, we are analysing it as a severe accelerant for structural trends that were already in motion,” Ahmed added.
In the short term, the most immediate impact of the conflict is the introduction of severe friction into the legacy correspondent banking system.
“As geopolitical volatility spikes, global financial institutions reflexively adopt "de-risking" postures. We are seeing a marked tightening in AML, KYC, and sanctions-screening protocols,” Ahmed said.
In fact, every cross-border transaction traversing the region now carries a “compliance premium,” he continued. “This heightened scrutiny inevitably slows down settlement speeds and increases the cost of capital transfer”.
This friction in traditional dollar-clearing routes only strengthens the commercial and strategic rationale for developing alternative, faster and more direct payment rails such as BRICS central bank digital currency (CBDC) initiatives that bypass these congested compliance bottlenecks, Ahmed added.
Global ripple effects
The conflict between the US, Israel and Iran is accelerating the fragmentation of the international financial system, Miguel Enrique Stédile, a researcher with the Institute for Social Research in Porto Alegre, Brazil, told Vixio.
“Immediate consequences include higher transaction fees due to geopolitical risk, with global banks increasing real-time scrutiny using AI to avoid US secondary sanctions and severing relationships with smaller banks, resulting in more intermediaries and more expensive remittances,” Stédile said.
However, the financial system will likely experience a significant long-term impact.
“Traditionally, the payments market is concerned with fraud. In a state-level conflict, the concern shifts to systemic integrity. Efficiency is losing ground to resilience,” he added.
In addition, Stédile said that the use of the financial system as a weapon accelerates the search for alternatives to SWIFT, such as China’s Cross-Border Interbank Payment System (CIPS) or Russia’s System for Transfer of Financial Messages (SPFS).
The conflict significantly raises financial risks, though so far this is primarily limited to the Middle East, said Igor Dodonov, an analyst with Moscow-based financial advisory firm Finam.
“Financial institutions will likely strengthen compliance when conducting financial transactions, which may mean more thorough scrutiny of incoming and outgoing money transfers from the region and certain types of intra-regional transfers,” Dodonov told Vixio.
The rising threat of cyberattacks is the key concern for payment firms. A significant increase in the risk of attack would put an increased strain on security systems and require stricter oversight of critical financial infrastructure, Dodonov said.
“Under these conditions, a significant increase in transaction costs for domestic and cross-border settlements in the region and its surrounding areas can be expected.”
The nature of the current conflict, particularly the documented rise in state-sponsored cyber targeting of critical infrastructure, has fundamentally altered how regulators view payment networks.
“Financial plumbing is no longer just an economic utility; it is frontline national security infrastructure,” Ahmed said. “The long-term consequence of this shift is a rapid acceleration towards ‘data sovereignty’ and local settlement resilience. Regulators are demanding that payment firms and banks move away from singular global cloud dependencies towards highly redundant, localised architectures.”
For regional hubs such as the UAE, this trend has validated years of proactive investment in hardened digital infrastructure, positioning the jurisdiction as a secure “data and settlement fortress” capable of ensuring continuous operations even under severe regional cyber duress.
Digital transformation
A further challenge is that long delays to shipping routes due to security risks mean working capital remains tied up in transit for longer periods. This has a cascading effect on the financial mechanics of trade.
Ahmed told Vixio that “the risk premiums on traditional trade finance instruments such as letters of credit are rising, alongside tighter regulatory scrutiny over the underlying goods and counterparties”.
This physical bottleneck is forcing the payments industry to adapt technologically.
“We are seeing an accelerated push to integrate real-time logistics tracking with digitised trade finance and smart contracts. The goal is to create payment triggers that can dynamically adjust to rerouted shipments and extended timelines, mitigating the capital strain on exporters and importers,” Ahmed added.
Ultimately, although the immediate byproduct of the conflict is increased cost, delay and regulatory scrutiny for cross-border payments, the long-term structural effect is a drive towards systemic resilience.
Ahmed noted that the conflict is “accelerating the transition away from legacy, paper-heavy, and easily disrupted correspondent models towards digitised, localised and highly secure financial architectures.”
The ongoing conflict in the Middle East is exposing the vulnerabilities of a global financial system built on legacy networks and serving as a catalyst for changes that have long been on the agenda.
In the coming years, efficiency may take a back seat to security and sovereignty, and the payments networks that survive this crisis will be those designed not just to move money, but to withstand turbulence on every front.
