* HSBC ( HSBC ) and StanChart shares drop amid Iran conflict

* Middle East exposure significant for HSBC ( HSBC ) and StanChart

* Conflict may boost demand for services like finance,

forex

By Lawrence White and Selena Li

LONDON/HONG KONG, March 12 (Reuters) - Just days before

the U.S. and Israel launched strikes on Iran, HSBC's ( HSBC )

CEO Georges Elhedery said the Asia-Middle East corridor was

becoming "a defining axis of global growth".

This week, HSBC ( HSBC ) closed its Qatar branches while Standard

Chartered ( SCBFF ) evacuated its Dubai office and told staff

there to work from home, in a sign of how the conflict has

rattled their day-to-day activities and their ambitions.

The duo, which have both bet on the region's increasing

trade with Asia and other markets to fuel their growth, are two

of the global banks most exposed to the war with Iran, according

to Reuters analysis of company data and sector analysts.

While the share of their assets in the region is around

2%-3% of their global lending, that belies the strategic

importance of the growing financial hubs of Dubai, Riyadh and

Abu Dhabi to the trade-focused British banks.

HSBC ( HSBC ) shares dropped more than 6% on Thursday, bringing the

falls since the U.S. and Israel struck Iran on February 28 to

14%. StanChart shares are down about 11.4% against a 9.5% drop

in the wider STOXX Europe banks index over that period.

"Our network has proven to be adaptable and resilient,

allowing us to stay close to our clients, respond quickly to

their needs and continue enabling trade, capital, wealth and

investment flows across our markets," a spokesperson for

StanChart said of its Middle East exposure.

HSBC ( HSBC ) referred to a statement from Elhedery this week, which

said it remained confident in the region and its prospects.

Other international banks including JPMorgan ( JPM ) and

Citigroup ( C ) have been expanding in the Gulf too.

JPMorgan's ( JPM ) financial exposure in the UAE doubled to $5.7

billion between 2024 and 2025, regulatory filings show, although

that ranks the UAE as eighteenth in a list of the top 20 country

exposures for the bank outside of the United States.

Citigroup's ( C ) UAE exposure is bigger, at $17.3 billion at the end

of 2025, but has been growing more slowly. Citigroup ( C ) said on

Thursday it would temporarily close most of its UAE branches and

financial centres as a precautionary measure.

CHINA-MIDDLE EASTERN TRADE

StanChart, whose Middle East operations are based in Dubai, has

seen its UAE business grow from 3.7% to 5.7% of overall group

income in the last 5 years, an analysis of its statements shows,

and its share of assets hold steady at around 2.4%.

JPMorgan ( JPM ) analysts on Thursday forecast Middle Eastern exposure

for StanChart's revenue and profit before tax to be about 8% and

12%, respectively, and for HSBC ( HSBC ) at about 4%. They said both

banks were the most exposed among European lenders.

Business volumes between China and the Middle East rose 18%

in the last year, Manus Costello, StanChart's global head of

investor relations, told Reuters last month.

That means any risks to inter-regional trade as the conflict

shuts down airspace, hurts business confidence and stokes

geopolitical tensions, could have an outsized impact.

"We think the increased economic uncertainty could imply

some additional risks related to the Groups' trade finance and

credit costs," Kathy Chan, equity analyst at Morningstar said.

StanChart should be somewhat insulated from severe credit

losses in the region because 73% of its UAE exposure is to

government-related entities and banks, JPMorgan ( JPM ) analysts added.

Neither bank discloses its direct exposure to the Middle

East, but StanChart's UAE business and HSBC's ( HSBC ) Saudi Arabia-based

regional entity HSBC Bank Middle East can be used as proxies,

the analysts said.

The banks could also benefit from the disruption as it

drives demand for services including foreign exchange and cash

management, said Hargreaves Lansdown analyst Matt Britzman.