The Gulf’s strategic pivot after the Israel-Iran war

The recent escalation between Israel and Iran rapidly undermined perceptions of regional stability and highlighted the risk of conflict spill-over into neighbouring Gulf states, as was made evident by the temporary airspace closures and Iranian missile strikes targeting Al Udeid air base in Qatar.

With the continued threat of renewed regional tensions in the mid- to long-term, as well as additional risks of geopolitical uncertainty in countries including Syria and Yemen, there is greater urgency for Gulf Arab states to secure their global standing and foster economic resilience.  

The presence of U.S. air bases scattered across the Gulf region and the potential for attacks on energy infrastructure heighten the fear of being directly targeted in any future conflict, particularly if the Iranian regime considers there to be an existential threat.

Indirectly, the onset of another conflict risks causing supply chain disruptions, unstable oil prices, and trade route interruptions including in the Strait of Hormuz, which carries almost a fifth of global oil through it.

While its closure is unlikely in the current situation, the threat of disruption increases the likelihood of intra-GCC competition, particularly related to the region’s role in global trade and logistics.

Protection against economic shocks 

In anticipation of fluctuating oil prices, there is growing urgency to secure the foreign investment needed to execute economic diversification plans and lessen dependence on oil and gas revenues.

Saudi Arabia has signalled this by allowing Gulf residents to invest in the Tawadul stock market and permitting foreigners to purchase real estate in the Kingdom. Such moves are likely to be complemented by gradual labour law reforms that facilitate responsible investment in the run up to Vision 2030 and global events including the FIFA Men’s World Cup in 2034.

Navigating Gulf markets through the eyes of a veteran investor

In this interview, investor and advisor Munder Shuhumi breaks down the opportunities and risks facing foreign investors in the GCC. From Saudi Arabia’s Vision 2030 to navigating local partnerships and due diligence, Shuhumi shares essential insights on doing business in the Gulf.

The Geopolitical DeskThe Geopolitical Desk

A similar effort to reduce the impact of economic shocks is Oman’s introduction of a personal income tax. This is likely to be the first of a wave of Gulf countries’ announcements related to loosening restrictions, with the exception of the UAE whose mature investor climate and largely diversified economy is more resilient to short-term dips in inward capital.

Recalibrating geopolitical alignments

Post-war, the common response from the Gulf region has been to double down on their hedging strategy and position the region as a pillar of stability with the capacity to mediate with different sides. This is particularly pertinent in the Qatari context given their vested interest in repairing reputational damage. 

Although Iran’s attack on a U.S. air base in Qatar may have been largely viewed as being a symbolic attack designed to save face with the Iranian public, it still caused significant damage to Qatar’s image as a neutral mediator that is immune to violence within its borders.

While Iran’s relationship with Gulf Arab states has largely improved over the last decade, so too has Israel’s. When it comes down to it, the sentiment is that Iran’s currently weakened state and reduced influence across the region facilitates the continuation of a delicate balancing act in GCC capitals. 

Despite overt statements deeming Israel’s attack on Iran as being unlawful, behind closed doors the more likely situation is that Gulf Arab states are quietly realising the need to cooperate with Israel to both stabilise regional tensions and to maintain close ties with the current U.S. administration. 

Trump’s May 2025 trip to the Gulf resulted in billion dollar deals being signed between the U.S. and Gulf states on areas including aviation, weapons and AI technology, all key features of building up Gulf defence capabilities. 

Should access to these deals become contingent on diplomatic relations with Israel and some alignment with the Trump administration’s stance, Gulf states may be more inclined to follow through. The only caveat will be presenting it to Arab publics as a means through which they can effectively engage on the question of Palestinian statehood. 

Intra-GCC dynamics

So far, the Gulf’s response to the Israel-Iran conflict has been a moment of heightened cooperation and relative consensus across the bloc in response to what is perceived to be a common threat. 

Putting on a united front, the Gulf Cooperation Council’s (GCC) Secretary General Jasem Al Budaiwi made a speech condemning Israel’s strikes on Iran and subsequent retaliations saying that they ‘open the door to uncertain and troubling scenarios.’ 

Further indications of increased integration across the GCC bloc include the reaffirmation of commitment to the decades-long plan for a Gulf Railway Project that aims to develop transport links connecting all six GCC countries by 2030. 

In July 2025, Jasem Al Budaiwi emphasised the need for its timely delivery, presenting it as a cornerstone of economic and logistical connectivity within the region. 

While this provides a unique opportunity for business to capitalise off of regional projects in construction and logistics, progress on regional integration projects will hinge on Gulf states’ ability to maintain this sense of a shared future. 

Should divergences or competition on foreign direct investment, logistics development, or defence spending reignite underlying rivalries, this moment will pass.  This is particularly pertinent in the case of the UAE and Saudi Arabia who both have competing aspirations for regional leadership.

While this rivalry is unlikely to come to a head in the short-term, there have been several indications of growing diversion in the two countries’ leadership – including in competition for business.

In 2024, Saudi Arabia implemented a Regional Headquarters program, whereby multinational companies would have to have their head offices in Saudi Arabia in order to be eligible for government contracts. Analysts point to this as an example of Saudi Arabia pressuring companies to move their headquarters out of Dubai.

Looking ahead

Given the Gulf’s strategic positioning at the crossroads of global trade routes, safeguarding its strong sense of stability in the midst of regional strife is in the interest of both the GCC region and key international allies. 

On the back of the Israel-Iran war there is a common desire by Gulf states to build economic resilience and work together to avoid the potential ripple effects, such as disruptions to trade and oil prices, which risk the process of successfully executing economic diversification strategies. 

For foreign governments this means that there is room for regional-level progression on energy and trade plans, including the European Union’s intent to negotiate a free trade agreement with the GCC. 

Within the Gulf itself, common threat perceptions provide a unique opportunity for diversified partnerships and the development of a number of projects including those designed to propel forward logistics and defence architecture at the regional level.