Gulf Economies Fractured by US-Israel War on Iran

The ongoing conflict between the United States and Israel against Iran is inflicting significant economic damage on Gulf states, disrupting trade, escalating defense costs, and threatening decades of economic diversification efforts. Caught between escalating tensions and retaliatory actions, Gulf nations are grappling with the fallout of a war they actively sought to prevent.

Geopolitical Squeeze and Economic Fallout

For decades, the Gulf Cooperation Council (GCC) states have invested heavily in transforming their oil-dependent economies into diversified global hubs. However, these plans are now severely threatened by the geopolitical pressures of the conflict. Qatar’s Prime Minister Sheikh Mohammed bin Abdulrahman bin Jassim Al Thani described Iranian strikes as a “betrayal,” highlighting that attacks on Gulf states began shortly after the war’s commencement, despite ongoing diplomatic efforts to de-escalate the situation. Al Jazeera reports that Gulf capitals are now managing the economic consequences of a war they neither initiated nor endorsed.

Strait of Hormuz Closure and Oil Trade Disruption

The most immediate impact is the virtual closure of the Strait of Hormuz, a critical global artery handling approximately 20 million barrels per day (bpd) of oil, representing roughly 20 percent of the world’s seaborne oil trade. Export volumes have plummeted to less than 10 percent of pre-conflict levels, creating severe bottlenecks. Al Jazeera notes that Iraq is particularly vulnerable, possessing only a six-day storage capacity for crude oil.

Escalating Costs and Military Interventions

Iran’s continued attacks are overshadowing efforts by the U.S. And its allies to stabilize energy prices. CBS News reports that oil prices have surpassed $100 a barrel, and stock prices are declining despite attempts to release oil reserves. Ship traffic through the Strait of Hormuz remains largely halted, though the U.S. Navy has offered to escort oil tankers. As of March 13, 2026, U.S. Central Command reported having struck 6,000 targets inside Iran since the war began on February 28.

Military Losses and Iranian Resolve

A U.S. Aerial refueling tanker involved in the military operation in Iran crashed in western Iraq on March 13, 2026, resulting in four fatalities. CBS News as well reports that Ayatollah Mojtaba Khamenei, Iran’s new Supreme Leader, has vowed to continue attacks on Gulf Arab nations and maintain control over the Strait of Hormuz.

Regional Implications and Future Outlook

The conflict is reproducing patterns observed in previous Israeli conflicts, such as those with Hamas. Iranian security forces are reportedly adopting tactics similar to those seen in the Gaza Strip, and the firing of ballistic missiles mirrors Hamas’s rocket attacks. The situation highlights the limits of neutrality for Gulf states, as they navigate security threats while attempting to balance diplomacy and economic stability. The Middle East Council emphasizes the challenges these nations face in maintaining regional security and economic stability amidst the ongoing conflict.