RIYADH, Oct 24 (Reuters) – Wall Street’s top financiers struck a pessimistic tone about the economy at a flagship gathering in Saudi Arabia aimed at deal brokering, as a violent conflict between Israel and Hamas that has killed thousands of people unfolds.

The annual event is typically used by attendees as an opportunity to build relationships with some of Saudi Arabia’s biggest companies and its $778-billion sovereign wealth fund, drawn by the promise of deals as the kingdom embarks on an ambitious reform plan to wean its economy off oil.

But an escalation between Islamist group Hamas and Israel into a broader conflict overshadowed the event dubbed “Davos in the Desert”, a nod to the annual gathering of world leaders and corporate bosses in the Swiss Alps.

Although the globe’s top financiers dwelt little on the conflict, speaking about topics such as artificial intelligence, the economic fallout of war combined with record debts as rates rise created a bleak backdrop.

“There’s no question if these things are not resolved, it probably means more global terrorism, which means more insecurity, which means society is going to be fearful … and … we see contractions in our economies,” BlackRock Chairman and CEO Laurence Fink said.

Fink was flanked on a panel at the Future Investment Initiative (FII) conference by bank CEOs including Goldman Sachs’ (GS.N) David Solomon, JPMorgan’s (JPM.N) Jamie Dimon and Citi’s (C.N) Jane Fraser. They spoke about topics including women in the workplace but also the implications of rising interest rates.

Ray Dalio, founder of hedge fund Bridgewater Associates, said he was pessimistic.

“If you take the time horizon, the monetary policies that we’re going to see and so on, will have greater effects on the world,” Dalio said. “And you look at the world gaps, so it’s difficult to be optimistic on that.”

HSBC Group CEO Noel Quinn also warned of the perils of heavy government debts. “I’m concerned about a tipping point on fiscal deficits,” he said. “When it comes, it will come fast and I think there are a number of economies in the world where there could be a tipping point and it will hit hard.”

The remarks come as Israel’s military said it was preparing for “unrelenting attacks” to dismantle Hamas. Former U.S. President Barack Obama warned that “any Israeli military strategy that ignores the human costs could ultimately backfire.”

The conflict could upset the stability of the Middle East just as regional powerhouse Saudi Arabia pours hundreds of billions of dollars into a vast economic transformation plan.

Saudi Arabia is putting U.S.-backed plans to normalise ties with Israel on ice, two sources familiar with Riyadh’s thinking said, signalling a rapid rethinking of its foreign policy priorities as war rages between Israel and Hamas.

But the finance chiefs were mostly focused on business.

The last year has seen Saudi Arabia spend billions on companies, from sports to gaming to aviation. This year, Saudi Telecom Corp (7010.SE) took a near 10% stake in Spain’s Telefonica (TEF.MC).

“While today’s world seems uncertain, we continue with our mandate to inspire … the future of business and future-proof our societies to create a more stable and resilient world order,” Yasser al-Rumayyan, governor of Saudi Arabia’s sovereign Public Investment Fund, told the conference.

Goldman Sachs’ Salomon addressed the potential for more dealmaking after this week’s announcement by U.S. energy giant Chevron (CVX.N) that it had agreed to buy Hess (HES.N) for $53 billion.

“Over time, scale matters enormously in the competitive nature of global businesses and so M&A activity can ebb and flow and as people become more certain of the environment,” he said.

Stephen Schwarzman, co-founder, chairman & CEO of the Blackstone Group, flagged the threat to investors in office buildings, now often empty in the wake of the pandemic.

“Say you have 30% unused space in office buildings, that means those office buildings are not survivable as economic entities. So that’s going to have a very bad ending,” Schwarzman said.

More than 5,000 people registered to attend this year’s Future Investment Initiative and only a handful withdrew due to current events.

Saudi Crown Prince Mohammed bin Salman has sought to lift the kingdom’s profile to secure investment and trade alliances, seeking dialogue with former regional foes, and pivoting to Eastern partners amid strains with U.S. President Joe Biden’s administration.

This year’s forum is meant to demonstrate that eastward shift. There will be 70 speakers from Asia, of whom 40 will be Chinese, FII Institute CEO Richard Attias told Reuters.

Saudi Arabia is halfway through an ambitious economic transformation plan – Vision 2030 – to wean the economy off oil by creating new industries, generate jobs for citizens, and to lure foreign capital and talent.

FII is partially aimed at attracting investment to fund this, a daunting task as total foreign investment flows in this year’s second quarter were down.

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