AGSI explains what Israel’s sudden and massive attack on Iran is likely to mean for Gulf Arab states, Iran, the United States, and global and regional economies.
Iran has coupled maximum intransigence at the nuclear bargaining table with maximum unpreparedness for anticipated Israeli military action. The June 13 precision strikes – targeted assassinations of senior Islamic Revolutionary Guard Corps commanders and nuclear scientists as well as attacks on nuclear facilities, airbases, radar installations, and ballistic missile launchers – were a strategic shock to Tehran’s deterrent posture. This breach, harkening back to Israel’s destruction of Lebanese Hezbollah, leaves the regime exposed, compelling Supreme Leader Ayatollah Ali Khamenei to choose between two perilous strategic trajectories: nuclear capitulation akin to Libya’s disarmament or nuclear breakout modeled after North Korea.
Capitulation, like in the case of Libya, would involve the voluntary dismantlement of Iran’s nuclear infrastructure in exchange for security guarantees from the United States. As with Libyan dictator Muammar Qaddafi’s 2003 denuclearization agreement, such a pathway risks regime vulnerability to foreign intervention. Libya’s fate – Western military intervention during the 2011 uprisings and regime collapse – serves as a cautionary tale. Should Khamenei emulate Qaddafi, he may face regime termination and his and his immediate family’s violent death, particularly given widespread public discontent. In the event of internal uprisings – especially among historically restive ethnic peripheries, including Kurds, Baluchis, and Arabs – the regime could confront a multifront existential crisis. In such a scenario, Tehran would have no guarantee against external actors, notably Israel and the United States, providing overt or covert support to opposition movements, possibly including air support and the imposition of no-fly zones, as part of a broader regime-change strategy.
Alternatively, the regime may opt for a strategy of nuclear latency or breakout, akin to the North Korean model. Despite global isolation and sanctions, Pyongyang developed a rudimentary nuclear deterrent, forestalling external intervention. For Iran, this would entail withstanding sustained kinetic operations by Israel – and possibly the United States – for six to 12 months, during which it would aim to construct and potentially test a nuclear device. A dual-capacity (test and deterrence) arsenal could enable Tehran to shift the strategic calculus in its favor, although it remains unclear whether the North Korea breakout model, attempted in a moment of likely supreme crisis and heavy military challenge, could deliver similar results for a beleaguered Iran.
In such a scenario, Iran may recalibrate its retaliatory doctrine away from Israel’s highly effective missile defense architecture and instead exploit the vulnerability of soft targets in the Gulf. Saudi Arabia’s energy infrastructure and broader hydrocarbon facilities across the Arabian Peninsula could become prime targets for coercive signaling and deterrence. Tehran may gamble on raising regional costs – even at the expense of its own energy infrastructure – to signal its willingness to escalate in a bid for regime survival.
Ultimately, Iran’s strategic behavior in the coming weeks will be shaped by the cold calculus of regime security in a deteriorating operational environment. The risk of regional escalation – particularly against Gulf Arab states – should not be discounted. It would likely be preceded by dark threats from Tehran aimed at galvanizing Arab diplomatic overtures urging the United States to rein in Israel before such action occurs.
Gulf Arab Countries Depend on Washington To Limit Their Exposure
Gulf Arab countries will be reacting to Israel’s attack on Iran with concern bordering on alarm. It’s been the policy of all of the Gulf Cooperation Council countries in recent years to urge Washington and Tehran to craft a new nuclear deal that would eliminate any prospect for the kind of massive and chaotic conflict Israel appears to have launched on June 13. The Gulf Arab countries, in particular Iran’s former antagonists Saudi Arabia and the United Arab Emirates, have made the strategic decision in recent years to focus on their own domestic economic development and pursue a set of policies that require regional security and stability. Israel’s attack on Iran pushes strongly in the opposite direction, including potentially exposing Gulf countries to Iranian retaliation, particularly if Washington gets drawn into the conflagration.
The Gulf Arab countries also lack adequate missile defenses (which are not really available given current antimissile technologies) to ensure that any Iranian retaliatory strike aimed at them would fail. Moreover, some, in particular the UAE, lack strategic depth and are especially vulnerable to a potential Iranian missile barrage. In recent years, understanding these factors, the UAE, Saudi Arabia, and even Bahrain have sought rapprochements with Iran and the development of their own respective bilateral dialogues with Tehran. This diplomacy is intended to help Gulf Arab countries avoid being dragged into a conflict that does not serve their interests. Israel’s attack on Iran, therefore, realizes one of their nightmare scenarios.
At this point, the Gulf countries are hoping that the United States avoids being dragged into Israel’s new war, which should successfully help them avoid being targeted for retaliation in a conflict they did not seek and, indeed, tried to help avoid by urging both Washington and Tehran to formulate a viable new nuclear deal. Israel was plainly alarmed that such an agreement appeared to be developing or at least becoming more viable.
Israeli alarm centered particularly on Washington’s reported proposal that Iran could continue to enrich uranium at low levels of around 3% (useful for energy production but not for weapons) pending the establishment of a regional consortium that may never develop. This proposal threatened to successfully square the circle over the conundrum regarding Iran’s “right to enrich.” It would have allowed Iran to continue enrichment into the foreseeable future, permitting the Iranians to claim that the “right to enrich” was successfully defended in a new deal. The administration of President Donald J. Trump similarly would be able to tell Israel’s supporters and other Republican hawks in Washington that the agreement secures an eventual end to unilateral Iranian enrichment under the rubric of the proposed Gulf nuclear energy consortium.
Evidence suggests that Israel did not receive a green light from Washington for its attack but also was not given a clear cut red light either. It would appear that the Trump administration is interested to see what Israel can accomplish on its own while doing nothing either practically or rhetorically to encourage Israel in the immediate moment. Washington can therefore insist to Iran that it is not party to the attack, even though the Israelis will increasingly demand Washington’s support and protection in various ways in the coming days and weeks, depending on how Iran decides to retaliate and how successful that appears to be.
For Gulf Arab countries, Washington’s effort to stay out of this conflict is crucial. If the United States gets dragged into this conflict, even indirectly, there is a realistic prospect that Iran might seek to retaliate against U.S.-related Gulf Arab interests, particularly with missile attacks. There is, at present, little that Gulf countries themselves can do to prevent that, beyond pursuing their bilateral dialogues with the Iranians and urging Washington to do everything possible to restrain Israel and avoid anything that smacks of participation in the military attacks on Iran.
However, the Israeli war against Iran realizes one of the nightmare scenarios for all six of the GCC states. The present circumstance is a moment of profound crisis for the Gulf countries, given their limited ability to attenuate their exposure to negative consequences, particularly if Iran decides to lash out regionally. Gulf Arab eyes will be firmly fixed on Washington, hoping that the United States will find a way to avoid being dragged into the conflict, preferably by limiting its scope and convincing Israel to end its attack quickly.
Each additional day of regional chaos only deepens the deep security conundrum facing the Gulf Arab countries and the extent to which they are now potentially exposed to the highly negative consequences of actions they sought to avoid and certainly do not welcome. The most challenging aspect of the crisis is that they will be unable to do much to direct the trajectory that will shape their fates in the coming weeks and months.
Gulf States Condemn Israeli Attack, With Subtle Differences
The Gulf Arab states have been unified in their condemnation of Israel’s devastating attack on Iran. This is not surprising. Gulf countries are frontline states in this conflict, and Iran has been direct in its threat to retaliate by attacking oil production facilities across the region and U.S. military installations within their borders. Iran has previously demonstrated both its willingness and its capability to strike key oil and infrastructure facilities – notably Saudi oil facilities in Abqaiq and Khurais in 2019, and, via the Houthis, facilities within the perimeter of the Abu Dhabi international airport in 2022 – to tangible effect. Both Saudi Arabia and the UAE subsequently chose to resume ties with Iran and intensify their consultations with its leadership.
For that reason, it may be tempting to dismiss these condemnatory statements as political cover for states under threat of Iranian retribution. But this would be an incomplete reading of their objectives. Certainly, the detente with Iran has been part of a broader strategy of de-escalation and conflict resolution adopted by Gulf Arab states, as they seek to insulate themselves from the heightening tensions and conflict surrounding them, much of it originating in Israel-Iran competition. But their proactive policies amount to more than theater and work toward the same objective: to accelerate their ambitious projects of economic diversification and global integration while accentuating their own regional influence.
Gulf reactions to Israel’s attack have not been identical, and in their distinctions in timing and tone, there are important differences. These differences, in turn, reflect contrasts in their regional security strategies, which may impact their decisions moving forward. Oman was the first Gulf state to issue a statement. As the host of the U.S. talks with Iran, scheduled to resume June 15, their condemnation was sharp and offended, pointedly noting how Israel’s actions “threaten to marginalize diplomatic solutions and undermine regional security and stability.” Oman has sought to translate its historically close ties to Iran into an asset with the Trump administration and to steer the nuclear standoff toward a peaceful resolution. As such, it stands to lose both in its foreign policy and regional objectives from this turn toward military force.
Saudi Arabia’s sharply worded statement denouncing the “blatant Israeli aggression” followed shortly afterward. The kingdom has been burnishing its leadership role in Arab and Islamic communities, and its fast and forceful statement was celebrated online. Its goal has been to demonstrate its leadership, both in the region and within the international community through collaborative diplomacy aimed at regional de-escalation. A notable victory was its success in shifting the U.S. posture toward the Syrian sanctions, providing a platform for key Gulf states, Turkey, and European countries to stabilize the territory. The now imperiled United Nations conference co-organized with France to revive the two-state solution between Israel and Palestine demonstrates their broader ambitions and skill in bringing Western powers together to advance regional aims of de-escalation. Both of these projects, as well as their own regional leadership, could be threatened by unchecked Israeli expansionism.
Qatar’s condemnation followed Saudi Arabia’s within an hour, with an initial paragraph notably echoing its language closely, suggesting possible coordination. Qatar’s statement went further in explicitly identifying “a recurring pattern of aggressive policies that threaten regional peace and stability and hinder efforts aimed at de-escalation and diplomatic resolution.” Qatar’s aligning interests with Saudi Arabia are noteworthy and a real change from their standoff during the 2017-21 Gulf crisis.
All three of these statements, as well as Kuwait’s that followed later, explicitly called on the international community to immediately halt Israel’s violations.
The two Abraham Accord countries, the UAE and Bahrain, joined their fellow Gulf states in condemning Israel’s action, the UAE “in the strongest terms.” The difference was more in tone and in culpability. Both emphasized the importance of exercising “restraint” and “judgement,” presumably directed at all parties. Bahrain echoed the Trump administration’s call for a resumption of U.S.-Iranian negotiations regarding the Iranian nuclear file.
The UAE’s diplomatic ties with Israel, maintained throughout the Israel-Gaza war, have given it a role distinct from its Gulf counterparts. This has been evident in both Syria and in discussions over governance in Gaza, where the UAE has sought to use its ties to Israel as an asset.
All six of the GCC states are in favor of dialogue and diplomacy over regional competition and geopolitical confrontation and are acutely aware that any conflict between Iran and Israel, and/or the United States, would leave them caught squarely in the middle. Leaders remain mindful of the fact that the presence in GCC states of U.S. forces could make them targets for retaliatory attacks by Iran in the event of military strikes, and several Gulf Arab states are wholly reliant on passage through the Strait of Hormuz for all imports and exports by sea, including cargoes of oil and gas. While GCC states are still concerned by Tehran’s network of proxy groups across the region and its missile and drone capabilities, they view the risk of being in a conflict over Iran’s nuclear program as the more immediate challenge, since it would jeopardize major economic, energy, and infrastructure projects.
As such, the Gulf states have been actively engaged in regional de-escalation initiatives in recent years as part of a broader strategy of “de-risking” by addressing issues before they become inflamed. Flush from the success of Trump’s four-day, three-country visit to the Gulf in mid-May, many in the region assessed that their trillion-dollar pledge of investments into the United States gave Trump a stake in keeping the region stable and free of conflict. Trump’s visit left Gulf leaders optimistic that his White House was open to creative, outside-the-box policymaking choices approaches as evidenced by the announcement of talks with Iran as well as the separate U.S. deal, facilitated by Oman, with the Houthis in Yemen, and the replacement of officials with hawkish views from senior positions in the National Security Council.
The scale, and apparent success, of the Israeli strikes on Iran mean that leaders in the Gulf states now face the very scenario they worked so hard to avoid or at least minimize. Statements from all six GCC states have sharply criticized the Israeli strikes, using language that makes their displeasure with Israel very clear, and have called for a peaceful resolution to the crisis. The tone of the statements, including from the Gulf signatories to the Abraham Accords (Bahrain and the UAE), and from Saudi Arabia, is another sign that events in the region since October 2023 have moved far away from U.S. plans to expand the normalization process between Israel and regional Arab states.
What remains to be seen is how the Gulf states choose to exercise the leverage that they have and whether they do that bilaterally with the Trump administration, or with Israel in the case of the states that have established diplomatic ties, or through outreach to Iranian officials to lessen the risk of a further escalation. Also, will the Saudis take the lead from Oman in engaging with Iran (and the United States) at a moment of such extreme danger for the Gulf? It may well be that the Gulf states opt for a combination of approaches and become key players in regional diplomacy in the days ahead.
Israeli Prime Minister Benjamin Netanyahu described the objective of the attack Israel launched against Iran as an effort to “roll back” the threat from Iran. The preemptive attack was condemned by GCC countries, including the UAE and Saudi Arabia. The attack in some respects has been played down as ineffective, since the strike on the Natanz nuclear facility didn’t seem to cause major damage. However, it constitutes a major setback to diplomatic efforts in the region, U.S. negotiations with Iran, and, from a geostrategic perspective, to the concept of a rules-based international order.
The attack took place in what seemed the final phases of U.S. negotiations with Iran; fallout from the attack could wipe out much of the political capital Trump invested in the past few months to engage with Iran on preventing an Iranian nuclear weapon.
The most notable event was the assassination of major military commanders, including Major General Hossein Salami, commander-in-chief of the IRGC; Major General Gholam Ali Rashid, commander of the Khatam al-Anbia Central Headquarters; Major General Mohammad Bagheri, chief of staff of Iran’s armed forces; Amir Ali Hajizadeh, the commander of Iran’s air force; Admiral Ali Shamkhani, senior advisor to Iran’s supreme leader; and at least six Iranian nuclear scientists. This was more of a decapitation exercise of senior military leaders than a major attack on nuclear facilities. Targeting Iran’s top brass, particularly the IRGC commanders on Iranian soil, has been a mark of Netanyahu’s approach since the October 7, 2023 Hamas attack. Israel possibly thinks that it can repeat what is sees as its success against Hezbollah in Lebanon and start a soft regime change, but that would require a deeper decapitation operation – Khamanei’s quick appointment of replacements for the deceased commanders is a clear message that Iran can’t be decapitated in the same fashion as Hezbollah.
Though many analysts may expect that such an attack would empower the factions that are calling for a nuclear deterrence in Iran, it is a possibility that Israel fears an Iran that is a friend to the region and a partner to the world more than a nuclear capable Iran that can’t use its nuclear weapon.
Regardless of what the Israeli calculus toward Iran is, the impact of Israel’s actions on the international order may be the most severe. Israel’s excessive use of what it describes as preemptive strikes, in tandem with the reality that it has been permitted to attack a number of countries in the region unchecked, is going to undercut any talk about a rules-based order.
Internally, Israel risks seeing itself as Thor, the mythical deity whose real status as a god is related to his hammer. This is dangerous for Israel’s future in the region and the world. In a world defined by global connectivity, it is not overreliance on Thor’s hammer that will make Israel a strong trading partner, let alone a security partner, in the region or the world.
The Gulf countries are deeply concerned that if Iran feels existentially threatened by Israeli attacks – particularly if the United States joins in – Iran will retaliate against them. This may be the only realistic avenue through which Iran can disrupt the global economy and inflict harm on the United States. Iranian officials have explicitly warned the Saudi leadership that such retaliation would begin with attacks on U.S. forces in the Gulf and could culminate in strikes on vital infrastructure, including oil facilities, desalination plants, and power stations.
Given the short distances across the Gulf and Iran’s capacity to deploy swarms of missiles and drones, Saudi Arabia and other GCC countries are vulnerable targets. They have limited ability to defend against such an assault, as demonstrated by the September 14, 2019 attack on the Abqaiq and Khurais oil facilities, which caused significant damage.
In response, the Saudis have been unequivocal in signaling their neutrality. They have made clear that they will not permit Israeli or U.S. forces to use their airspace, territory, or waters in any attack on Iran. They have also condemned both past and recent Israeli strikes, while urging both the Trump administration and Iranian leadership to reach an agreement on the nuclear file and other contentious issues.
Now that Israel has initiated strikes, the Saudis are intensifying their efforts at mediation and peacemaking. Their goal is to prevent a war that would make them the primary targets of Iranian retaliation. While the Saudis are not naive about the nature of the Iranian regime, they hope its revolutionary fervor might be tempered – particularly in the post-Khamenei era under a new supreme leader.
At its core, the Saudi position is a pragmatic one, rooted in self-interest: The Saudis seek regional peace, calm, and stability to focus on building infrastructure and advancing their economic diversification plans away from oil dependence.
The Saudi leadership wants regional stability, and the events that happened overnight are the opposite of that. There is some commentary that suggests that the Saudi leadership is somehow celebrating the Israeli attack on Iran, but such commentary overlooks the great anxiety with which Riyadh is viewing the situation and the calculus behind it.
The Saudis find these developments concerning mainly because they haven’t alleviated Saudi worries regarding the Iranian deterrence doctrine and its main pillars – the nuclear program, ballistic missile program, and use of pro-Iranian militias. The nuclear program may have suffered a massive blow by the Israeli strikes, but that does not mean that the nuclear program is gone. Even though nuclear sites were targeted, Iran will still use the two other pillars of defense – the ballistic missile program and allied militias.
While Iran is certainly weakened, perhaps to the greatest extent since the inception of the Islamic Republic, the Saudi leadership does not believe that Iran is completely incapacitated or “toothless.” Rather, the combination of Iranian vulnerability and humiliation, coupled with (hindered) retaliatory capacity, through its missile program and allied militias, is something the Saudis find very dangerous. The Saudi leadership also knows that the Iranian regime does not discern the between notions of offense and defense. Given that these strikes come as Iran is at its weakest point in decades, the Iranian regime is treating this as an existential attack, and the Saudis want to avoid being caught in the midst of an Iranian reaction that is likely to be desperate and reckless. The Saudi leadership is engaging Iran with a long-term strategic approach that considers the strategic ramifications of developments rather than short-term gains they may bring.
While the Saudi leadership is, yet again, stuck between a rock and a hard place, Saudi diplomatic efforts have been preparing for such situations. The rapprochement with Iran that quietly began in early 2020, and culminated in the restoration of relations in 2023, has proved extremely useful. Saudi-Iranian diplomatic relations offer a direct, quick channel of communication, granting the Saudis control over how they communicate their message. This can be seen in the Saudi statements that were issued just hours after the Israeli attack. The first statement, in Arabic, condemned the “Israeli aggression” against the “brotherly Islamic Republic of Iran.” There was a subsequent statement regarding a phone call between the Saudi and Iranian foreign ministers, reflecting the open and direct line of communication between the two countries. If the public statements enable Saudi Arabia to distance itself from Israel by strongly condemning it, the phone calls enable Saudi officials to discreetly distance themselves from the United States.
The Saudi-Iranian normalization of ties functions as a diplomatic framework to demonstrate to Iran that the Saudis are not against them, nor are they platforms for the United States to strike Iran. While these are anxious times for Saudi Arabia, the Saudis will use diplomacy to both prevent themselves from being a target and to de-escalate the situation and avoid a wider conflict.
The Saudi leadership will likely also use multilateral diplomatic tools to both protect itself and de-escalate. With pivotal influence, the Saudis can shape stances adopted by the GCC, Arab League, and Organization of Islamic Cooperation responding to the Israeli operation. While much of this language will condemn Israel, the sourcing, from influential regional or Islamic organs, will also raise the cost of Iranian retaliation against Saudi Arabia, the region’s leading Muslim country.
Diplomacy is the main approach for the Saudi leadership. Saudi diplomacy with Iran is aimed at speaking to the deep anxiety Iran has of being isolated and surrounded. The more and the louder the Saudis exercise this, the better the chances the Saudis avoid being caught in the Israeli-Iranian crossfire.
Israel’s attacks caused oil prices to surge by approximately 9% amid concerns about the escalating Israel-Iran conflict and its regional implications. In most instances, Gulf Arab governments would welcome higher oil prices, which have been weighed down by macroeconomic uncertainty and a well-supplied market over recent months. Yet the geopolitical risks for Gulf governments outweigh the short-term oil price gains associated with these worrying regional developments.
Oil prices had been edging upward in recent days, driven largely by news around the U.S.-China trade deal and escalatory rhetoric from U.S. and Iranian officials concerning talks over a nuclear deal. The price of Brent crude oil rose steadily from $65.34 per barrel to $69.36/bbl in the week leading up to the Israeli operation. On the morning after the Israeli strikes, the Brent crude oil price was hovering around $75/bbl.
Any escalatory actions impacting regional oil infrastructure and key energy trade routes could place significantly more upward pressure on oil prices. While there is no indication from initial reports that Iranian energy facilities have been targeted, Iran’s oil facilities remain a potential target of future Israeli strikes in what Netanyahu said could be a multiday battle. Any disruption to Iranian oil infrastructure would directly impact Iran’s domestic fuel supply chain and Chinese customers, which are the primary buyers of Iranian crude oil exports. If the Israeli attacks provoke a steep rise in global oil prices, it will be felt far beyond Tehran and Beijing.
The latest Israeli strikes on Iran should not have come as a complete surprise. In the immediate aftermath of October 7, 2023, Israelis said that their government and its military apparatus would target Hamas, Hezbollah, and then Iran – in that order. Israel subsequently conducted a series of extremely risky operations on regional targets over the past two years, revealing Israel’s striking capabilities and bolstering confidence. Moreover, recently the United States had reportedly obtained intelligence that Israel was preparing for a strike on Iranian nuclear facilities.
Then there is the question of how Iran will retaliate. Analysts and traders are watching for signs that Iran could obstruct energy trade through the Strait of Hormuz – the world’s most important oil transit chokepoint. Iran and Iranian-aligned proxies may also opt to target oil facilities in Gulf Arab states. Such retaliatory options for Iran have precedent with attacks on Saudi and Emirati oil facilities in 2019 and 2022. Such steps would result in significant upward pressure on oil prices.
Renewed tensions between Israel and Iran put Gulf Arab governments – and their economies – in an uncomfortable position. Stock markets in Dubai and Abu Dhabi opened with losses on June 13. When other Gulf stock markets, which are closed on Fridays, open next week they are likely to tumble like those in the UAE, the United States, Europe, and Asia. Indeed, uncertainty stemming from the escalating conflict will dent investor sentiment and may dampen demand for oil over the short term.
These strikes are the latest reminder of persistent Middle East conflict and tension, which pose more difficult – though harder to quantify – challenges for regional policymakers seeking to attract more international investments, tourists, and long-term residents over the medium and longer terms. Over the coming days, they will work to prevent yet another regional conflict spilling over their borders in manners that seriously hamper ambitious economic development agendas.
Since October 2023, there has been a decoupling pattern of oil prices and conflict risk in the region. Most analysts continue to see direct attacks between Israel and Iran as short-term price risks and spikes and not long-term changes to price outlook, with Brent crude still in the $60/bb to $65/bbl range through the end of year. But this all depends on how Iran decides to respond, specifically to transit routes and Gulf energy infrastructure and the duration of this new chapter in the conflict. For comparison, the spike in prices immediately following the June 13 Israeli attacks on Iran, in the range of a 10% increase, is on par with the proportion of price spikes that occurred directly after the 2019 attacks on Saudi oil infrastructure at Abqaiq and Khurais. In this case, no Iranian or Gulf oil infrastructure has been targeted or attacked. Yet, a day after, prices softened slightly in the $74/bbl range. More concerning to global markets are weakening equity prices and flights to safety in investments in gold. For the interests of U.S. domestic politics, an extreme price spike, due to disruptions to the flow of oil through the Strait of Hormuz or to production facilities, would be highly inflationary and counter to the stated goals of the Trump administration.
For the wider Middle East, the immediate effect of the conflict on energy markets is the vulnerability not just of oil importers but those with shared energy infrastructure with Israel, especially in natural gas. Israel has halted operations of its offshore Leviathan field operated by Chevron due to security concerns. This field supplies gas to Egypt. If the cutoff of Israeli supply is extended longer term, it may force Cairo to accelerate purchases of liquefied natural gas, tightening global markets and creating an untimely fiscal stress on Egypt. Bloomberg reported gas prices in Europe rose as much 6.6% on June 13.
The Trump administration seems to be pursuing a dual track strategy in which it outsources aggression to Israel without guarantees to Israel or the GCC states in how the United States will protect them. And Trump sees the region as abstract and far away, where his dealmaking can still take place amid the chaos. The extent of coordination, disapproval, or approval of the Trump administration to Israel’s actions is unknown. It is feasible that Trump sees Israel as carrying out a necessary action that can still get him a compliant Iran – as a negotiation, or capitulation. His insistence that negotiations can continue in Oman illustrates the president’s view that this is just part of a deal. For Israel and Iran, this attack is existential. Trump’s two track approach, which delegates military action to Israel and diplomacy to the United States, will be immediately stressed. Gulf states will question the U.S. resolve to defend them and to defend Israel. And Israel will be compelled more to extreme measures to defend itself. But it is also not yet known how domestic politics in Iran will unfold and if there is sentiment or movement to destabilize the regime, making any concurrent negotiations mute.
For the GCC states, this will require continued open lines of communication and careful diplomatic signaling. It is possible to see a change in Gulf state orientation very quickly, depending on the Iranian regional response and the extent of the damage to the regime.
Israel’s strikes in the early hours of June 13 against Iranian military targets and senior commanders have raised fears of regional spillover. Oil prices were jolted higher after the first wave of attacks, as the simmering tensions between the two regional powers escalated into open conflict in the oil and gas heartland of the Middle East.
Much will depend on whether the United States is dragged into the fray. Iran’s threats against U.S. allies and U.S. targets in the Middle East have not materialized, and Tehran is not likely to risk incurring Washington’s wrath or risk the recent detente that has kept the peace with its Arab neighbors.
While nothing can be ruled out at this stage, it’s unlikely that Iran will target the energy facilities of U.S. allies in the region as it has done in the past. The GCC states have invested considerable political capital in de-escalating tensions with Iran in recent years, and Iran’s leaders have likewise invested in building relationships with their Arab counterparts.
As yet, there are no reports of damage to major Iranian oil and gas assets or export facilities. Iran has just completed expansion work at the Kharg Island export terminal from which the majority of Iranian crude oil is exported. The important Asaluyeh gas processing hub on the Gulf also appears to have been spared for now.
Oil prices surged on the attack, with Brent rising above $75/bbl for the first time since early April. For now, oil market fundamentals will remain unchanged unless Israel attacks Iranian oil sites, which could result in the loss of Iranian volumes.
Oil markets have shown a remarkable tolerance for geopolitical risk in recent years, and that is partly due to the availability of more than 5.5 million barrels per day of spare production capacity, much of it concentrated in the Middle East and the bulk held by Saudi Arabia. That makes Iranian crude exports of around 1.4 mb/d to 1.6 mb/d relatively simple to replace from elsewhere in the region should they be affected, with Saudi Arabia alone sitting on around 3 mb/d of spare capacity. That assumes that oil and gas flows from other major Gulf exporters are not affected.
The concentration of oil and gas supply in the Middle East has always been a major risk for energy markets. The Middle East produces around 26 mb/d of crude oil and condensates, with around 25% of global seaborne traded oil passing through the Strait of Hormuz chokepoint. Iranian officials have periodically threatened to close the waterway, which if achieved would have a huge impact on oil markets. Closing the Strait of Hormuz would be hugely difficult, but Iran has previously demonstrated its ability to disrupt shipping passing through and moored at regional bunkering facilities, such as Fujairah in the UAE.
Saudi Arabia and the UAE have built crude oil pipelines that allow them to export some crude oil while bypassing the Strait of Hormuz, but capacity is limited. Saudi Arabia can send around 5 mb/d through the East-West Pipeline to Yanbu, but, to reach Asian markets, ships would then have to transit the Bab el-Mandeb, where the Iranian-allied Houthis have been conducting a successful campaign against shipping. As for the UAE, its ADCOP pipeline can send around 1.8 mb/d to Fujairah for onward exportation, bypassing the Strait of Hormuz.
The Middle East’s gas assets are more exposed. Qatar’s 77 million metric ton per year facilities, and Abu Dhabi’s 6 million mt/y Das Island terminal have no Hormuz-bypass option. In a worst-case scenario, they would be shut off from international markets.
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.
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Bernard Haykel is a professor of Near Eastern studies at Princeton University and director of the Institute for Transregional Study of the Contemporary Middle East, North Africa, and Central Asia. He received his doctorate in Oriental Studies in 1998 from the University of Oxford. He has described his teaching and research as lying at the...
Saudi Arabia is dismayed by President Obama’s Middle East policy. Its leaders feel that he does not play by the rules that have governed the Saudi-American alliance for decades: The United States provides security guarantees in return for the Persian Gulf states’ reliable stewardship of their oil reserves and support for American regional dominance.
US President Barack Obama’s visit to Saudi Arabia this week, to attend the summit of the Gulf Cooperation Council, comes at a time when relations between the two countries have rarely been worse. And yet, however negatively most Americans view Saudi Arabia, the country remains an important regional ally. Obama would be wise to mend...
On November 16, AGSIW hosted a discussion with Bernard Haykel on the state of U.S.-Saudi relations and the latest social, political, and economic developments underway in Saudi Arabia.
The Gaza war has demonstrated the strategic utility and resilience of the detente between Saudi Arabia and Iran. However, its longer-term sustainability may depend on unpredictable regional dynamics or other outside factors.
Regardless of the temptations to simplify or exaggerate, the GCC states’ relations with Israel require a discourse that is befitting their complexities and nuances.
AGSI offers pragmatic, targeted policy recommendations for the Trump administration to maximize U.S. political and economic influence with the crucial emerging regional powers in the Gulf.
Trump’s tariff agenda may complicate Gulf governments’ capabilities to advance key policy initiatives and strategic economic partnerships, including Gulf investments in the United States.
Hosting the World Cup will be a huge opportunity for Saudi Arabia, supporting Vision 2030 reforms. While preparations for the tournament will be costly, they will boost economic growth and could spur further social change.
As Gulf states expand their influence across supply chains, fuel types, and geopolitical alliances, the choices made today will define the region’s role in the new energy order and the emerging world that surrounds it.
Global demand forecasts by leading agencies have diverged sharply, reflecting a deepening sense of uncertainty about the future path of the global economy.
The concern for Gulf oil producers is that tariffs on major Asian powers could impact their manufacturing sectors and economies and dampen demand for oil.
The conflict in Yemen has exacted a disastrous toll on the country. This paper considers the outside forces in the conflict, seeking to elucidate who they are, what the nature is of their involvement, and what their converging and conflicting interests mean for reconstruction.
This post is part of an AGSIW series on Saudi Vision 2030, a sweeping set of programs and reforms adopted by the Saudi government to be implemented by 2030. Saudi Arabia did one thing right this week. It is seeing some positive news in the return on investment in its outwardly placed capital in new technology....
This post is part of an AGSIW series on Saudi Vision 2030, a sweeping set of programs and reforms adopted by the Saudi government to be implemented by 2030. While an Aramco initial public offering (IPO) has moved to the backburner of Saudi Arabia’s, and more importantly, Crown Prince Mohammed bin Salman’s, priorities, there have been...
Mar 3, 2017
A Rough Patch
Bernard Haykel is a professor of Near Eastern studies at Princeton University and director of the Institute for Transregional Study of the Contemporary Middle East, North Africa, and Central Asia. He received his doctorate in Oriental Studies in 1998 from the University of Oxford. He has described his teaching and research as lying at the...
24 min read