A tax haven is not necessarily a safe haven (sv) – Geopolitical Research

Today the USA and Israel have begun a massive air campaign against Iran. The regime in Teheran has responded with a massive wave of retaliatory missile strikes against Israel, Bahrain, Dubai, Abu Dhabi, Qatar and other targets across the Persian Gulf.

Although the Iranian missiles are mainly aimed at US military targets in the Persian Gulf, the compact nature of the Emirates and the immediate proximity to Iran are exposing the risks we have warned about long ago.

Financial centres like Dubai are superb tax havens, but not ideal safe havens in general in this geopolitical decade. Dubai is simply in the midst of one of the most volatile conflict regions of the world. It lies between two historical arch enemies: Iran and Saudi Arabia. The airport of Dubai has been shut down indefinitely as all other airports in the vicinity of the combat areas.

The massive military force deployed by Washington and Jerusalem against Iran clearly points to a war with high risks and potentially uncertain outcomes. Last year’s war was limited in scope. This year’s campaign aims de facto potentially at the very removal of the Islamic Regime in Teheran. The Pentagon and Central Command are thus expecting Teheran to fight for its very survival.

While Teheran was not permitted to enrich enough uranium over the past 11 years, it was de facto allowed to develop a massive missile arsenal and there was no guarantee the West could keep the regime from acquiring other assets from black markets or allies. Ironically it may have used the money it received from the former US administration a decade ago to advance its missile program. In any case, the USA is dealing with a very sophisticated and smart foe – one with superb engineering capabilities.

Better safe havens lie in the Southern hemisphere 

While European banks were sending their clients as well as their families to tax havens in the Persian Gulf in recent years, we were highlighting that those great business & tax locations are exposed to serious geopolitical risks.

As we have been saying since 2015 t ax optimisation should not be the number 1 priority in this geopolitical decade. Despite the growing number of armed conflicts, most of the financial industry until yesterday has been prioritising tax holidays, luxury living and street safety for its clients.

All top three safe havens in our Global Geopolitical Safety Ranking are situated in the Southern hemisphere. They are not among the most sought after tax havens. They are tax friendly and that is as good as it gets in order to maximise geopolitical safety – not being exposed to large scale military conflict and its fallout.

While the best tax havens lie in the Northern hemisphere.. during the next 10-15 years the better safe havens (to avoid exposure to major wars) lie in the Southern hemisphere. It is probably not an “either or” choice, but rather a question of how to combine these different jurisdictions with their respective strengths.

Traditional tax havens face headwinds 

While no single jurisdiction ticks all boxes anymore (yes, no nation currently meets all the needs of High Net Worth Individuals and their families), many of the most traditional and popular tax havens are in proximity of potential war zones. Moreover many popular tax havens are in the vicinity of nuclear-armed nations – that for years have considered them an enemy.

In a desperate fight for survival there is no guarantee of how a threatened regime could attack Arab states in the region. Despite the typical smoke screens of shifting negotiations in the region, the regime in Teheran has long considered Israel, Saudi Arabia, key Gulf Emirates and the USA as enemies.

Collateral damage – With the complex task of defending against Iran’s massive arsenal of drones, short-range, mid-range and advanced mid-range missiles .. ever faster weapons aimed at US assets could easily get deviated to business centres & residential sites in the heat of an air battle.

Not having enough sophisticated air defence systems to deter potential missile attacks and not having nuclear retaliatory assets of their own, wealthy Arab states are reaching a point of no return in their defence strategy.  Prosperous jurisdictions like Dubai have long relied on Washington and Ryad for their safety, but today’s action has shown how fragile safety in this volatile region is. They are exposed to their neighbours’ bellicose actions.

This is not a time for Schadenfreude, even tax and safe havens like Zurich, Geneva or Panama face geopolitical risks of their own and have to watch out.

Middle East: destabilisation and more wars?