A Path to a Stronger United States in the Gulf

In May, President Donald J. Trump traveled to Saudi Arabia, the United Arab Emirates, and Qatar. This pivotal trip demonstrated the favorable opportunity that Trump’s second term in office presents for the United States to create deeper and more profitable relations with the countries of the Gulf. While the United States remains the dominant political, security, economic, and cultural power, Gulf countries are networking their economic, trade, and – in some cases – security ties more widely in the region and Asia. Acting now to solidify a new basis for U.S.-Gulf relations focused on expanding two-way investment in technology and forging greater Gulf responsibility for security will extend U.S. security and economic influence in the Gulf for another generation.

The Middle East is a much different place than it was eight years ago, at the start of Trump’s first term, and the president’s trip to the Gulf in May makes clear there is a changed geopolitical and economic environment that opens up significant opportunities. Gulf states have risen as key regional players and are poised to take advantage of a coming power rebalance in the region. While Iran and Iran-supported militias still threaten U.S. and Gulf interests, Iran’s ability to project strategic power in the region has been significantly reduced in the past year, and the fall of President Bashar al-Assad in Syria has cut Iran’s supply line to proxy forces in the Levant. These developments present the real possibility that U.S. negotiations with Iran could facilitate a new nuclear and security deal. Gulf states have engaged in detente-like diplomacy with Tehran to ensure stability for their own domestic development projects, yet they also seek stronger security partnerships with the United States. With confidence in these arrangements, Gulf states can play a central role in stabilizing the region’s other conflict zones – Lebanon, Syria, and Gaza – through humanitarian aid and support to new governments, even as they absorb popular concern at home over violence in Gaza. The president’s decision to lift sanctions on Syria opens a new chapter of possibilities for Gulf countries, and they will undoubtedly seek to understand U.S. priorities with Damascus as they proceed to test out reconstruction and investment opportunities.

The Gulf can be, in essence, an alignment of friends of the United States that could complement its Asian counterparts – Japan, South Korea, Australia, and, potentially, India. Saudi Arabia and the UAE have emerged as the most influential power brokers and economic movers in the Middle East. Bahrain, Kuwait, and Qatar play significant roles in protecting regional security, and Oman is successfully transforming its economy on a budget.

While China is competing for trade and investment in the Gulf, other Asian countries, including U.S. allies and India, also seek economic opportunities. Creating U.S.-Gulf business partnerships in technology and artificial intelligence as well as logistics networks between the Gulf and Washington’s Asian and European allies will give the Gulf more options than China to choose from.

Finally, the societies of the Gulf are undergoing fast and fundamental evolutions, and U.S. culture and education as well as the English language dominate Gulf elites. While ongoing social changes are largely top-down, they enjoy significant support from Gulf populations who now have new opportunities for employment, sports, and entertainment that their parents did not have.

The Arab Gulf States Institute suggests that the Trump administration consider implementing the policies outlined below to maximize U.S. political and economic influence with the crucial emerging regional powers in the Gulf.

Senior Resident Scholars Hussein Ibish, Kristin Smith Diwan, and Robert Mogielnicki; Senior Fellow Ali Alfoneh; Non-Resident Fellow Gregory D. Johnsen; Executive Vice President Ambassador William Roebuck; and members of AGSI’s board of directors all contributed to this policy framework.

Ambassador Douglas A. Silliman
President and CEO
Arab Gulf States Institute

Expanding Benefits of Gulf Economic Ties to the United States

The Gulf states have strong shared interests in the success of a growing U.S. economy and strong U.S.-Gulf economic ties rather than turning to China. Washington is a larger source of foreign investment to the Gulf, U.S. assets occupy a greater portion of Gulf sovereign wealth fund portfolios and provide greater potential for growth, most Gulf oil is traded in U.S. dollars, and all Gulf currencies are at least partially pegged to the dollar.

Innovation-Led U.S. Cooperation With the Gulf

Gulf governments possess lofty technology ambitions and are actively positioning their countries to be regional and global leaders in AI and other emerging technologies by funding, developing, and deploying new tech. The UAE occupies the fifth spot in a ranking of global AI leaders by Stanford Institute for Human-Centered AI. Nascent industries around electric vehicles, data centers, advanced manufacturing, and even space are taking shape from within the region. Gulf projects to enhance critical mineral supply chain resilience are crucial for both U.S. and regional tech economies.

While Gulf countries enjoy an international network of tech partners, as Trump’s May trip showed, the United States remains the Gulf’s partner of choice for now. Regional tech firms and sovereign wealth funds have formed strategic investment partnerships with premier U.S. tech firms, such as Microsoft and Google, to advance tech-focused development strategies. Moreover, Gulf states – especially the UAE – are increasingly defining their relationship with the United States in tech-focused and geoeconomic terms. More energy efficient AI models, such as China’s DeepSeek-R1, and other emerging technologies could quickly alter these fundamental dynamics. In this fast-moving space, it is critical that the United States set the parameters for U.S.-Gulf cooperation, including ensuring the protection of U.S.-developed AI technology from exploitation as part of a new AI policy approach.

China’s Regional Role Amid Broader Gulf-Asia Relations

Relations between Gulf and Asian countries are multifaceted and growing. Robust Asian energy imports represent the core of these relations, but Gulf-Asia cooperation extends to technology, finance, infrastructure, and tourism.

China is a key partner in many of these spheres. Beijing views the Gulf as a critical source of energy and a promising market to generate more overseas revenue. Beijing has also sought to increase its global profile through engagement in the Gulf, including helping to broker a rapprochement between Saudi Arabia and Iran.

Despite U.S.-China economic competition, both countries share a number of goals in the region: stability, prevention of new conflicts, secure shipping corridors, and economic development across the Middle East. These shared strategic goals can provide a basis for some cooperation.

U.S. or Chinese efforts perceived as forcing Gulf governments to make a binary choice will face resistance. Yet Washington enjoys substantial leverage in its corporate and economic partnerships with Gulf countries: China rarely offers viable alternatives to the United States in areas of strategic significance to Gulf governments.

Gulf governments also enjoy strong relations with other Asian countries. India, Japan, South Korea, and Singapore are major economic partners. Some Gulf governments are deepening their involvement with BRICS and the Shanghai Cooperation Organization – multilateral groupings that include both strategic competitors and close partners of the United States as member states.

Recommendations for Tech and Investment Policy

Promote Collaboration, Especially in Tech:

Clarify Chip Export and AI Policy:

Think Beyond Tech and AI:

Exploit Overlapping U.S. and Chinese Interests:

Trade and Logistics Corridors Diversify U.S.-Gulf Links to the Global Economy

New economic corridors are emerging within and across the Gulf region. Among these is the India-Middle East-Europe Economic Corridor, which aims to develop a land-sea logistics corridor from India, across the Indian Ocean and Arabian Peninsula to the Mediterranean Sea, then on to Europe. The Arab-Israeli segment of this transregional initiative will be a political challenge and almost certainly require further movement on relations between Saudi Arabia and Israel. The separate Development Road project seeks to create a trade corridor through the Gulf, Iraq, and Turkey to the Mediterranean. Qatar and the UAE are supporting parts of this project. Similar ideas are being discussed in minilateral groupings, such as I2U2, comprised of India, Israel, the UAE, and the United States.

The UAE, in particular, has sought to enhance its trade and investment connectivity with key global markets over recent years. The UAE has signed a series of Comprehensive Economic Partnership Agreements (similar to but more limited than free trade agreements) with individual countries in Africa and Asia. The UAE finalized such an agreement with Australia in November 2024. The Gulf Cooperation Council’s focus on GCC free trade agreements has paved the way for Gulf countries to deepen trade and investment with Latin American, European, African, and Asian countries.

Recommendations for Gulf Trade Policy

Deepen U.S. Involvement in Interregional Trade Corridors:

Strengthening Regional Stability at a Lower Cost

Gulf states are in an unusually complex and indeterminate security environment. In the wake of the U.S. withdrawal from the Iran nuclear deal in May 2018, Gulf Arab countries became frontline states in the confrontation with Iran. Some Gulf states, particularly Saudi Arabia, the UAE, and Bahrain, have sought stronger security ties with the United States but have simultaneously also developed a reticence to relying solely on U.S. security protection and U.S.-led containment regimes.

Most Gulf Arab states, including Saudi Arabia and the UAE, have reestablished diplomatic relations and developed their own independent bilateral dialogues with Iran, as they sought to manage the risks of their frontline status. They are balancing these renewed relations with continued participation in a U.S.-led, sanctions-based containment regime in a quest for security and stability. Most Gulf Arab states are investing heavily in domestic economic transformations, and those transitions require long-term regional stability and the avoidance of conflict. Nonetheless, they continue to oppose malign aspects of Iran’s behavior, especially Iran’s missile and drone capability as well as its support for weakened nonstate militias in Arab countries, even as they also seek to mitigate the threat from Sunni jihadist organizations. The Gulf states view themselves as crucial partners with Washington in maintaining security in the waterways surrounding the Arabian Peninsula and the three key chokepoints of the Strait of Hormuz, Bab el-Mandeb Strait, and Suez Canal.

Gulf states support U.S. negotiations with Iran to reach a new nuclear deal – as well as constraints on Iranian support for its damaged proxy network in the Middle East – and the Trump administration appears to be coordinating its steps with Iran with Gulf partners. Gulf states also welcome the opportunity to trade and invest – with caution – in Iran.

Despite the October 7, 2023 Hamas attacks in Israel and Israel’s massive kinetic response, the normalization of relations between Israel and Gulf states still offers benefits for both sides, though the Gaza war has raised Israel’s price of entry, particularly with Saudi Arabia. Without movement toward a Palestinian state, in tandem with significant reform in Palestinian governance, Gulf states will remain slow to rebuild Gaza but seem to be more willing to help in Lebanon and Syria.

For well over a year the Houthi militia that controls northern Yemen has attacked commercial shipping in the Red Sea, leading to decreased shipping traffic, higher insurance premiums for vessels, and other increased shipping costs. The United States initially responded with a defense only approach, patrolling in the Red Sea and shooting down Houthi missiles and drones. When that proved ineffective, the United States attempted to deter and degrade the Houthis’ capabilities by striking missile launchers and weapons caches. Neither of these approaches, however, have ended the attacks, although the massive U.S. bombing campaign from March to May convinced the Houthis to cease attacks on U.S. flagged vessels. The Houthi threat remains a challenge to U.S. allies Egypt – because of a significant loss of Suez Canal revenue for the government – and Israel – because the threat of further Houthi attacks persists.

Recommendations for Gulf Security and Geopolitical Policy

Put in Place Security Guarantees With Greater Gulf Self-Reliance:

Strengthen Diplomatic Ties:

Support Regional Integration and Cooperation:

Support Postconflict Stabilization and Normalization:

Limit Weapons to and Increase International Pressure on the Houthis:

Prospects for a U.S.-Iran Deal

Trump’s second term marks a paradigm shift in the U.S. approach to the Islamic Republic of Iran. Strategically, Iran is in a considerably weakened geopolitical position. Iran’s principal deterrent force, Lebanese Hezbollah, a linchpin in its asymmetric defense doctrine and a central pillar of its deterrence-by-proxy strategy, has suffered major setbacks, largely as a result of successful Israeli intelligence operations and the fall of the Assad regime in Syria, eroding Hezbollah’s capacity to project power and weakening Iran’s “axis of resistance.”

Iran’s conventional missile capabilities have proved inadequate in the face of Israel’s robust, multitiered air defense architecture. These systems, in tandem with extensive U.S. military support, have effectively neutralized the threat posed by Iranian ballistic and cruise missiles, highlighting the limitations of Iran’s ability to strike Israel.

Domestically, the regime faces mounting internal legitimacy crises, manifesting in social protests and civil disobedience. Structural deficiencies in the state’s governance capacity have exacerbated center-periphery tensions and ethnic grievances. Most pressing, however, is the catastrophic depreciation of the national currency, the rial, which has sharply reduced purchasing power and deepened socioeconomic stratification.

However, Trump is also confronting a regime that has significantly advanced its nuclear capabilities. These technical advancements position Iran closer than ever to achieving nuclear latency: the capacity to rapidly weaponize its nuclear program without yet having crossed the threshold of open weaponization.

Furthermore, Arab allies, particularly the GCC states, which opposed the JCPOA, have engaged in tactical rapprochements with Tehran to insulate themselves from escalation in the event of a confrontation between the United States and Iran. And they now appear to be mediating between the two adversaries.

In this altered strategic landscape, Trump faces a dual challenge: a regime that is increasingly fragile in conventional terms but potentially emboldened by its latent nuclear capability. Managing this paradox will require a recalibration of U.S. coercive diplomacy, deterrence posture, and alliance management in the Middle East.

Recommendations for Iran Policy

Recognizing and Supporting the Evolution of Gulf Societies

An abiding fact of Gulf life is the cultural dominance of the United States. English remains the lingua franca of the Gulf elites, and American universities remain preeminent in training and educating those elites.

Gulf states have begun to welcome greater diversity and are investing in new areas of the knowledge and creative economy far from their traditional concerns of oil and security. In Saudi Arabia, tourism and entertainment make up well over half of the country’s gigaproject investments. The UAE has ambitions in future-oriented industries from space exploration to cryptocurrency and AI to renewable energy and green technologies. The other Gulf states share in these moves toward greater economic diversification and boast their own initiatives in technology, culture, and tourism.

The expansion into “soft” industries provides the Gulf states with a vehicle for changing their international image and reaching new audiences and partners of wealth and influence. For the United States, it generates the opportunity for a different means of productive collaboration. These cultural openings also reinforce the current trajectory away from religious extremism.

Recommendations for Gulf Cultural and Societal Policy

Expand Cultural Collaboration and Promote Related Investment:

The views represented herein are the author's or speaker's own and do not necessarily reflect the views of AGSI, its staff, or its board of directors.