After the War: What is the Future of the Arab Gulf?

What is the future of the Arab Gulf states after the onset of the Iran War? Given the damage caused by large-scale Iranian attacks on oil and natural gas production facilities, will the Gulf states be able to return to the status quo ante? Or will the Iran War, begun by the United States and Israel, impose permanent damage on the region?

The Iran War highlights two overriding problems facing Arab Gulf states. First, the Iran War demonstrates that the Gulf region cannot avoid the conflict between the US, Israel and Iran. Now that Iran's Supreme Leader, Ali Khamenei has been killed, and the clerical leadership been sidelined by the more hardcore Islamic Revolutionary Guard Corps (IRGC), the only way the Gulf states will be able to avoid further Iranian attacks is to end their alliances with the United States and remove its military bases from the region. The IRGC has seized power in Iran 

Because Saudi Arabia and the Arab Gulf states depend on the United States for their national defenses, they will not ask the United States to remove its bases from the region. If anything, the Arab Gulf states will seek to strengthen their military relationship with the United States. Indeed, the UAE has gone farther and developed closer military ties with Israel which has installed its Iron Dome system in the Emirates to help protect it from Iranian drones.Scoop: Israel sent "Iron Dome" system and troops to UAE during Iran war

Further, the war has resulted in a blockade of the Straits of Hormuz, both by Iran and now the United States. With passage through the Straits closed for the first time, oil and natural gas cannot be shipped from the Persian Gulf to overseas markets, thus cutting off critical sources of revenue for the Arab Gulf states, as well as Iraq and Saudi Arabia.

Not only are more than 10 million barrels of oil prevented being transported through the Straits of Hormuz, but nitrogen-based fertilizers, including urea and ammonia, and helium, which is critical to the production of high-end computer chips, have been cut off from global markets. The Iran war’s impacts on global fertilizer markets and food production Share

As a result of the Iran War, Qatar, Kuwait, and Bahrain's economies are expected to contract by 6.0%, 4.4%, and 2.9% respectively this tear. The United Arab Emirates (UAE) is expected to see a lower than forecasted 5% growth. Saudi Arabia and Oman are projected to have somewhat better growth rates of 2.6% and 2.2%.  However, all these estimates are lower than previous expectations.

Second, if the current Iranian regime is toppled and a new democratic government takes its place, the Arab Gulf states' authoritarian rule will be placed in a much sharper focus. Having a democratic and tolerant regime in neighboring Iran would increasingly lead to calls for democratization the United Arab Emirates, Qatar, Bahrain, Oman and Kuwait and even Saudi Arabia.  Indeed, a democratic Iran could compete for foreign investment by Western countries to the detriment of the Arab Gulf states.

The end of an era Beyond these larger macro-concerns, the Arab Gulf faces more immediate problems. Perhaps the most consequential is the bursting of the "safe haven bubble." For years, the Arab Gulf states have promoted a highly successful business model designed to attract investment, tourists and permanent residents.  They have argued that their countries provide a safe haven for foreign investment, unique tourist attractions and residential security in an otherwise turbulent Middle East. Luxury Brands Bet on the Middle East. War Has Damaged Their Plans

Based on its regulatory and tax free environment, Dubai became on of the the most sought after venues for foreign investment. Not only did it attract significant FDI, it became the home to a large expatriate community, comprised of many global ultra-rich who felt that their wealth, some of it illicitly gained, was safe in Dubai. Israeli-US war batters UAE economy, wiping $120bn from Abu Dhabi, Dubai markets

During the "calm before the storm," hundreds of thousand's of foreign investors and wealthy expatriates - think of Russian oligarchs - decided to decamp to Dubai. High tech moguls such as Sam Altman and Jeff Bezos looked to the United Arab Emirates as a prime investment target given its large sovereign wealth fund which exceeds $2 trillion. Serving as a crossroads between Europe and Asia led Dubai's airport to become the busiest in the world for international travel.

The UAE and other Arab Gulf states tried to develop an "insurance policy" against being drawn into a conflict with Iran. Dubai, for example, has long held large amounts of Iranian funds in its banks. It has allowed the Tehran regime access to these funds and, in the process, circumvent international sanctions.  Many regime members have enjoyed vacationing in the Emirates.

Nevertheless, all the Gulf states, even Qatar which has hosted members of Egypt's Muslim Brotherhood and the HAMAS terrorist organization, have cooperated with the United States in providing it with military bases.  Further, the UAE and Bahrain joined the Abraham Accords in 2020 which drew them closer to Iran's arch-enemy, Israel. As the current war makes clear, trying to "have your cake and eat it too" ultimately hasn't worked.

Despite abundant oil and natural gas deposits, it is difficult envisioning foreign investment in the Gulf states, especially from the West, returning anytime soon. With a population of 93 million, Iran dwarfs those of Kuwait, Bahrain, Qatar, the UAE and Oman. Investors know that if Iran refuses to  end its nuclear weapons program, Israel will continue to "mow the lawn," i.e., periodically to bomb Iran's nuclear facilities.  

That the US could very well join Israel in such attacks suggests that the current turmoil roiling the Arab Gulf may produce recurring conflict rather than end. Such a scenario isn't one that will attract foreign investors, thereby allowing the Gulf economies to return to pre-war levels of economic growth. This issue is especially true of large scale projects such as A.I. data centers which are costly and highly susceptible and desirable targets in the event of another war between Iran, Israel and the United States.  It is also difficult to envision a return of the pre-war tourist industry or large numbers of foreigners deciding to make their homes in the Gulf region.

Finally, ties between the Trump family and the Arab Gulf states have been dealt a serious blow. Extensive real estate developments proposed for the Arab Gulf and Saudi Arabia, led by Trump's son-in-law, Jared Kushner, will not come to fruition. The UAE's 49% investment in shares of Trump and Steve Witkoff's World Liberty Financial cryptocurrency firm will also suffer as a result of the attack on Iran which Trump mistakenly thought would result in a quick victory like the seizure of Venezuelan president, Nicholas Maduro. The UAE's focus will be on reconstruction of its oil production infrastructure, not cryptocurrency

Loss of soft power Likewise the Arab Gulf became a mecca for American universities to establish overseas campuses. In Qatar, Education City hosts Georgetown University, Weill Cornell Medical College, Virginia Commonwealth University School of the Arts, Carnegie Mellon University,  Texas A & M University and Northwestern University.  In Abu Dhabi, New York University has establish a large overseas campus. T he American University of Kuwait and the American University of Sharjah complement the United States' academic presence in the Arab Gulf. When War Changes Global Higher Ed

The American university campuses' goal was two-fold. On the one hand, their presence increased the prestige of the host Gulf states whole bringing US academic personnel to their countries.  From the American perspective, Gulf campuses would open new channels for tuition from local Gulf state citizens and offer American students a study opportunity in the Arab world.

Once the war began, these campuses closed.  It is doubtful that they will reopen anytime soon.  This is yet another blow to the Arab Gulf states which will lose the many contacts with the United States academic institutions as a result of the ongoing war.

Iran's nuclear threat  What the Trump administration and the Netanyahu regime have accomplished in attacking Iran and killing much of its top leadership has been to hand control of the regime to hardliners in the IRGC. While it is yet to be seen if the US blockade of the Straits of Hormuz will lead to the Tehran regime's collapse, if it doesn't, there is little doubt that Iran's new leaders will be even more determined than ever to develop a nuclear weapon to thwart future attacks on the regime. 

Having been attacked while negotiations were underway, the hardline leadership in Tehran may feel that the only way to secure the regime is to have nuclear weapons in its arsenal.  Ironically, the Iran War, which was meant to end Iran's ability to build a nuclear weapon may make it more likely than ever that Iran does in fact acquire such a weapon. Under such circumstances, the Arab Gulf states will have a very bleak future indeed.