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If Iran thought to turn Gulf states against the US and Israel, it has failed. Lobbing more than 3,000 drones and missiles at your neighbours – who have remained pointedly neutral – is not the way to win friends. In fact, it is creating intractable enemies.
For the first time since the US and Israel’s war with Iran began on February 28, senior Gulf figures have been getting serious about retaliation. Meeting in Riyadh on Wednesday, as Iran launched a ballistic missile attack overhead, 12 foreign ministers from the Gulf and beyond unequivocally condemned Tehran’s aggression against its neighbours, with Saudi Foreign Minister Prince Faisal bin Farhan declaring trust in Iran “shattered”. But perhaps most importantly, they asserted their UN-guaranteed right to defend themselves.
This is not a knee-jerk reaction – it took them weeks to get to this point. With its barrage of attacks, Tehran has targeted the region’s aspirational interests as much as its commercial ones. It is a blatant attempt at blackmail, Prince Faisal said. It is also punishment. Because the Gulf consistently looks to the future and refuses to be bogged down by past. However, with Tehran’s targeting of vital energy infrastructure, Gulf governments now have little choice but to respond.
To date, deadly attacks on civilian infrastructure throughout the Gulf, but most heavily in Dubai, have upended years of investment in non-oil growth. Tourism has plummeted and the UAE’s central bank has launched a resilience package to stabilise the banking sector, including enhanced access to reserve balances and liquidity facilities. Now there is real regional concern of a multi-billion dollar wealth exodus directly impacting real estate and investment.
This is against the backdrop of a global economy left reeling from the impact of the war. Trade, energy prices, financial markets and central bank policy all hang in the balance as Washington and Tehran double down. The conflict has disrupted nearly 20 per cent of global oil supply, causing prices to surge above $100 a barrel and triggering concerns about inflation, recession and stagflation. Global inflation is projected to rise, with the International Monetary Fund estimating a 0.4 percentage point increase for every 10 per cent rise in oil prices.
The economic impact is expected to be uneven around the world, with some countries facing severe recession and long-term economic damage. The Strait of Hormuz, a critical chokepoint for the global energy trade, has been effectively closed, stranding millions of barrels of oil and gas exports from Gulf countries. This has led to widespread issues for aviation, tourism and supply chains, with the International Energy Agency describing it as the worst disruption to global energy supplies in history.
Emerging economies are struggling with energy price spikes. Japan, South Korea and Taiwan, that rely heavily on Middle Eastern oil and gas imports, are facing acute challenges. Europe is facing the prospect of a prolonged energy shock in both price and supply. The war's economic consequences are compounded by disrupted trade routes, investment freeze risks and currency pressures. Central banks are grappling with rate decisions amid inflation concerns and the US Federal Reserve has signalled that although it will continue to hold policy steady for now, rate hikes this year cannot be ruled out, especially if oil prices stay high.
Although Operation Epic Fury may eventually end in an epic fail, Gulf countries should not be left holding the bag for it. They did not start this war, and it cannot be allowed to fundamentally alter their future. As far back as 2019, the last time US President Donald Trump decided to play chicken with Tehran, Gulf governments recognised that they could end up in the firing line.
These governments pursued peace with Iran even while condemning its malign activities in the region. They continued to open up their societies, building international commercial, transport and financial hubs that are the envy of the world. And so, while most in the West are still dithering over whether to come to the Gulf’s defence, even at the daily expense to the global economy, the GCC cannot be expected to pay the price.
