Gulf States Face Economic & Security Crisis as Iran-US Tensions Escalate

An unsettling quiet has descended upon the industrial port of Ras Al Khaimah, one of the United Arab Emirates’ (UAE) usually bustling maritime hubs. Ships stand docked and idle, even as hundreds of tankers queue along a waterway increasingly fraught with danger. The strait of Hormuz, a mere 20 nautical miles from Ras Al Khaimah, has become the world’s most perilous shipping lane, following attacks on two oil tankers by Iranian missiles earlier this week, one of which caught fire. Further compounding the situation, a drone attack targeted Fujairah, the UAE’s primary oil port on its eastern coast, on Saturday, with thick black smoke billowing from its terminal. These events underscore a growing reality: Gulf states are being pulled deeper into a conflict they neither initiated nor actively sought, and are now bearing the brunt of escalating regional tensions.

For decades, nations like Bahrain, Kuwait, Saudi Arabia, the UAE, Qatar, and Oman have hosted US military bases, infrastructure, and served as significant purchasers of American weaponry and technology. In return, the United States has functioned as the Gulf’s primary military partner and protector. Though, this long-standing relationship is now facing scrutiny, with Gulf states expressing increasing concerns following what analysts describe as former President Donald Trump’s deliberate disruption of diplomatic negotiations in favor of military action. “The perceived Iran threat to the Gulf only became a reality when the US declared the war – Iran did not fire first,” explains Khaled Almezaini, an associate professor of politics and international relations at Zayed University in Abu Dhabi. “There is strong condemnation of the Iranians but at the same time there’s a message to the Americans and the Israelis that, well, we have to find a way to end this. This is not our war.”

Diplomatic Overtures Ignored

In the weeks preceding the recent strikes, Gulf leaders actively engaged in negotiations and repeatedly urged the US president to consider the severe consequences for regional security should military action be taken against Iran. These appeals, however, appear to have been largely disregarded, with the strikes proceeding without apparent consultation or warning to Gulf allies. This perceived lack of consideration has fueled resentment and a sense of vulnerability among regional powers. The scale of Iran’s retaliatory campaign has further amplified these concerns, exceeding expectations and leaving many Gulf states shocked. Despite assurances to Tehran that their territories would not be used to launch attacks, Iran has unleashed thousands of drones and missiles targeting airports, military installations, oil refineries, ports, hotels, and office buildings across the region.

The economic fallout is already substantial. Aviation in the region remains severely restricted, resulting in billions of dollars in losses for airlines. Bahrain is reportedly facing an economic crisis, while the UAE’s reputation as a safe haven for tourism and Western investment has been significantly damaged. While Gulf states have successfully intercepted most Iranian missiles and drones, the cost of doing so is staggering, with the UAE alone spending upwards of $2 billion (£1.5 billion) on interceptors and air defense systems. Aviation in the region remains highly restricted, with airlines losing billions of dollars, as reported by The Guardian.

The Strait of Hormuz Blockade and Economic Strain

Iran’s deliberate disruption of shipping through the strait of Hormuz – a critical chokepoint for global energy supplies, handling approximately 20% of the world’s oil and gas – has led to a dramatic reduction in exports that underpin Gulf economies. Experts estimate daily losses in oil exports range from $700 million to $1.2 billion. “The UAE and GCC [Gulf Cooperation Council] tried to stop the United States declaring this war due to the fact that they knew the implications,” Almezaini stated. He referenced prior warnings from Iran’s foreign minister regarding the potential closure of the strait, a scenario that is now unfolding.

The asymmetry of the security partnership between the Gulf states and the United States has become starkly apparent. Allison Minor, director of the Atlantic Council’s project on Middle East integration, points to the recent Israeli airstrikes on Qatar, another US ally in the Gulf, which elicited no substantial response from Washington. This raises fundamental questions about the nature of the partnership and the level of security support Gulf states can expect from the US when it engages militarily in the region.

Oman’s Mediation and International Law Concerns

Adding to the diplomatic complexity, Oman, which previously served as a mediator in US-Iran nuclear talks, has voiced strong criticism of the ongoing conflict. On Thursday, Omani Foreign Minister Badr bin Hamad al Busaidi asserted that the US and Israeli military attacks against Iran are illegal, and that continued hostilities constitute a breach of international law. He further argued that the US decision to strike Iran while nuclear negotiations were progressing suggested the conflict was primarily aimed at reshaping the Middle East in Israel’s favor.

Analysts emphasize that many Gulf states find themselves in a precarious position, attempting to de-escalate the conflict while simultaneously seeking assurances from the US to prevent a worst-case scenario – a weakened and unstable Iran on their doorstep. “This is the Gulf’s worst nightmare,” says Sanam Vakil, director of the Middle East and North Africa programme at Chatham House. “There’s deep anger and frustration at the United States because this is not their [the Gulf states’] war, and yet they’re bearing the brunt.” Vakil suggests that Gulf states had long sought a security partnership with the US comparable to Israel’s, but now realize “that may never happen.”

Navigating a Future Without Guaranteed Protection

Despite recognizing the need to diversify their security partnerships, Vakil notes that the Gulf currently lacks a viable alternative to the United States as its ultimate protector. “The Gulf is not going to move quickly, nor can they, in finding alternatives to the US. But they’re also not going to just double down with an unreliable partner,” she says. “It will likely move forward in the pursuit of strategic autonomy, which has already been on the horizon, perhaps at a more rapid pace.”

The human cost of the conflict is also becoming increasingly apparent. Sumon, a 27-year-old working at a boat and jet ski rental firm in Ras Al Khaimah, reports a complete halt to business due to coast guard restrictions on maritime activity. “For many days, our boats and jetskis aren’t allowed to go out because of all these problems and fighting with Iran in the sea,” he says. “It’s very bad news, we don’t have customers and my boss can’t give me a salary.” He gestures towards the port, noting the absence of vessel movement and the uncertainty surrounding the situation’s resolution.

What’s Confirmed and What Remains Unclear

We see confirmed that Iranian missile attacks targeted oil tankers near Ras Al Khaimah and a drone attack hit Fujairah’s oil port. The economic impact, including losses in oil exports and aviation revenue, is also demonstrably affecting Gulf economies. The growing frustration among Gulf states regarding the US approach to the conflict is widely reported and supported by expert commentary. However, the long-term strategic implications of this shift in dynamics remain unclear. The extent to which Gulf states will actively pursue alternative security arrangements, and the potential for further escalation in the region, are still uncertain. The specific details of the diplomatic communications between Gulf leaders and the US administration prior to the strikes remain largely undisclosed.

The situation is further complicated by the ongoing debate surrounding the legality of the US and Israeli actions under international law, as highlighted by Oman’s foreign minister. The future of the strait of Hormuz, and the potential for a prolonged blockade, remains a significant concern. The possibility of a negotiated settlement, and the conditions under which Iran might de-escalate its campaign of retaliation, are also currently unknown.

Looking ahead, the immediate priority will likely be to contain the conflict and prevent further escalation. Diplomatic efforts, potentially involving Oman as a mediator, will be crucial in seeking a path towards de-escalation. However, the underlying tensions and mistrust between the US, Iran, and regional actors suggest that a lasting resolution will be challenging to achieve. Gulf states will likely continue to reassess their security partnerships and explore options for enhancing their strategic autonomy, even as they remain reliant on the US for protection in the short term. The coming months will be critical in determining the long-term trajectory of the region and the future of the US-Gulf relationship.