Middle East
Gulf states signal investment review as Iran conflict strains budgets
The economic fallout from the US-Israeli campaign against Iran is placing severe strain on the budgets of Gulf nations.
The region’s leading economies have initiated a review of their overseas investment commitments and contractual obligations to mitigate the escalating financial burden.
As stated to the Financial Times, a Gulf official indicated that the scope of this review is broad, encompassing everything from capital commitments to foreign states and corporations to sports sponsorships, service contracts, and asset divestitures.
The official noted that Saudi Arabia, the United Arab Emirates, Kuwait, and Qatar are collectively assessing the pressure on their national budgets and economies, though they declined to name specific participants in the talks.
“A number of Gulf nations have launched internal assessments to determine whether force majeure clauses can be invoked in existing contracts. Simultaneously, both current and future investment commitments are under review. The objective is to alleviate some of the economic pressures anticipated from the ongoing war,” the official said, adding that these measures will gain further significance if the war—and its associated expenditures—continues at the current intensity.
Energy revenues slump as defense spending surges
According to the official, these preemptive measures are a direct response to mounting budgetary strain.
Fiscal balances in the Gulf are being tested by a combination of declining energy revenues—driven by slowing production and logistical disruptions—as well as downturns in the tourism and aviation sectors, compounded by a sharp rise in defense spending.
A separate official, serving as an advisor to a Gulf government, indicated that the prospect of these wealthy nations reviewing their investments has drawn the attention of the White House.
Saudi Arabia, the United Arab Emirates, and Qatar manage among the largest and most active sovereign wealth funds globally. Following a visit to the region by US President Donald Trump last year, these nations had pledged hundreds of billions of dollars in investment into the US.
Gulf states are also major financiers of global sporting events. Domestically, these nations have been executing large-scale investments to diversify their economies and accelerate development.
Investment shifts may increase pressure on Washington
Moves that could impact investments in the US or other Western nations are viewed as a potential lever to increase pressure on President Trump to seek a diplomatic resolution to end the war.
The oil-rich Gulf nations are indirectly involved in the war initiated by the US and Israel against Iran. In response, the Tehran administration has struck back hard against Washington’s regional allies.
Following the outbreak of hostilities, maritime traffic through the Strait of Hormuz—the conduit for approximately 20% of global oil and natural gas shipments—has largely ceased. At least 10 oil tankers have been reported attacked in the Gulf.
Qatar, the world’s second-largest producer of liquefied natural gas (LNG), was forced to declare force majeure this week after suspending production following a drone strike on its primary LNG facility. One of Saudi Arabia’s largest oil refineries was also targeted.
Infrastructure and diplomatic sites struck in the Gulf
Iran has also targeted US military bases and embassies in the region, in addition to airports, hotels, and residential buildings, causing significant disruption to air traffic and tourism.
Before the war began, Gulf nations had urged the Trump administration to avoid striking Iran and to seek a diplomatic solution. However, these nations have borne the brunt of Iran’s retaliation.
Khalaf Al Habtoor, a prominent business leader in the United Arab Emirates, expressed the growing frustration in the region via social media in a direct address to President Trump:
“A direct question: Who gave you the authority to drag our region into a war with Iran? On what basis did you make this dangerous decision? Before pulling the trigger, did you calculate the consequences?”
Al Habtoor recalled that Gulf nations have been cited as primary financiers for President Trump’s plan for the reconstruction of Gaza and were expected to support broader initiatives dubbed the “Peace Committee.”
Noting that Gulf nations have contributed billions of dollars to support stability and development, Al Habtoor added, “Today, these nations have the right to ask: Where did this money go? Are we financing peace initiatives, or a war that puts us in danger?”
These developments may have significant consequences not only for the economy but also for the regional security architecture. Reports are mounting that the bond of trust between Washington and the Gulf states has been weakened by the war.
An analysis published in Foreign Policy suggests that Iran’s attacks could fundamentally fracture the security relationship between the US and the Gulf.
FP: “The US could lose the Gulf”
In an analysis titled “The US Could Lose the Gulf,” authored by George Washington University professor Marc Lynch, it is argued that Iran’s attacks on Gulf nations could radically alter regional security dynamics.
According to the analysis, Iran’s targeting of the United Arab Emirates, Bahrain, and other Gulf states has effectively ended the diplomatic rapprochement between Saudi Arabia and Iran established in recent years.
The analysis states that Iran’s strategy is not limited to military retaliation; it is also designed to create regional and global economic pressure by exposing the vulnerability of Gulf states.
According to Lynch, Tehran aims to exhaust Gulf and US air defense systems with low-cost drones and missiles, while simultaneously seeking to create severe volatility in global energy markets by exerting pressure on the Strait of Hormuz.
Another point highlighted in the analysis is the erosion of Gulf confidence in the US. While the regional security architecture has long relied on security guarantees provided by Washington against Iran, the recent attacks have severely shaken this premise.
According to Lynch, Gulf administrations hold the view that the war initiated by the US and Israel against Iran was launched without adequate consultation, despite the fact that it directly impacts their national interests.
The failure of the US to provide effective protection against Iran’s attacks on oil facilities, ports, and energy infrastructure has deepened the loss of trust in the region. The analysis also draws attention to concerns that Gulf nations are rapidly depleting their stocks of interceptor missiles, with the US unable to replenish this capacity in the short term.
This situation has led to the US military presence—long viewed as a security guarantee—being regarded in some Gulf capitals as a source of potential risk rather than a security asset.
According to the analysis, Iran’s attacks have severely eroded the belief among Gulf states that Washington will protect them during regional crises.
Middle East
US waives human rights terms on $320m military aid to Egypt
The US State Department stated that it has waived human rights conditions on more than $300 million in military aid to Egypt.
The statement emphasised that this decision was taken in consideration of Cairo’s “helpful role” since the outbreak of the war against Iran.
Egypt began receiving substantial support from the US after signing a peace treaty with Israel in 1979.
Since the late 1980s, the country has received approximately $1.3 billion annually in US military assistance.
A portion of this aid is subject to conditions related to human rights and democracy, which can be waived on national security grounds.
Withholding funds, including during the administration of former US President Joe Biden, has caused tension between Cairo and Washington in the past.
A letter dated 21 September and addressed to various congressional committees, obtained by Reuters, stated that Secretary of State Marco Rubio “decided to waive the certification requirement under the fiscal year 2025 Foreign Military Financing programme for Egypt of $320 million.”
This waiver was subsequently confirmed by the State Department.
An accompanying memorandum justifying the decision stated that this portion of military aid was “essential for counterterrorism, border security, or non-proliferation programmes, or otherwise important to the national security interests of the United States.”
The memorandum, dated 4 September and bearing Rubio’s signature, stated: “Exercising this waiver authority is critical to the US-Egypt relationship and to US national security priorities, particularly given the helpful role Egypt has played in the aftermath of Operation Epic Fury.”
“Operation Epic Fury” is the designation used by the US military for the campaign launched jointly with Israel against Iran in late February.
The State Department memorandum, whose authenticity was confirmed by two sources in Washington familiar with the letter, did not provide detailed information regarding what was termed Egypt’s “helpful role”.
The State Department’s annual decision on military aid to Egypt typically covers funds allocated for the preceding fiscal year, which ends on 30 September.
A State Department spokesperson stated that Rubio waived the certification in the interest of US national security and that the US continues to cooperate with the Egyptian government across a range of issues.
In an emailed statement, the spokesperson said: “This waiver recognizes the importance of maintaining security cooperation with Egypt at a time of significant security challenges in the region.”
The Egyptian Ministry of Foreign Affairs did not immediately comment on the matter.
The spillover effects of the Iran war have imposed a heavy toll on US security partners, including Egypt.
Owing to rising fuel prices and other disruptions, the Egyptian economy is passing through a difficult period.
Under the Biden administration, the US withheld portions of the annual military allocation on multiple occasions over Egypt’s human rights record.
In 2024, following the Hamas-led 7 October attack on Israel and the subsequent war in Gaza, the Biden administration set aside human rights conditions, disbursing the entire $1.3 billion allocation to Egypt for the first time in its tenure.
Human rights organisations have long accused Egypt, under the administration of President Abdel Fattah al-Sisi, of widespread human rights abuses, including torture and enforced disappearances.
This week, Egyptian police detained six journalists from a fact-checking and investigative media outlet, accusing them of spreading false information on behalf of the banned Muslim Brotherhood.
Egyptian authorities state that they have taken steps to address human rights issues. Sisi said stability is paramount and that the government supports human rights by working to provide for basic needs.
Middle East
Britain expands curbs on arms exports to Israel over Gaza risks
Britain has significantly broadened its military export restrictions targeting Israel, suspending or rejecting more than 80 licences for items the IDF could use in Gaza.
This figure is nearly triple the number affected when the policy was first introduced in September 2024.
United Kingdom Minister of State for the Middle East Stephen Doughty said that as part of what he described as a “tighter system” for assessing exports to Israel, more than 50 further export applications have been refused since approximately 30 licences were initially suspended.
Under the initial decision taken in September 2024, 30 of roughly 350 licences were suspended after the British government concluded there was a “clear risk” that certain military exports could be used to commit or facilitate serious violations of international humanitarian law in Gaza.
The affected equipment included components for military aircraft, drones, naval systems, and targeting gear.
Doughty said additional measures adopted this month established what he termed a “double safeguard” mechanism within the approvals process.
Export applications must now be assessed both against existing international humanitarian law criteria and in light of Britain’s position on the legality of Israel’s presence in the Palestinian territories.
“We have so far suspended or refused more than 80 licences,” Doughty said, adding that he had personally examined each licence.
Despite the wider restrictions, British-origin parts entering the international F-35 fighter jet supply chain continue to be largely exempt.
The UK government argues that preventing British-made components from entering the global F-35 pool could undermine the programme as a whole and have serious consequences for the security of the UK and its allies.
Direct exports of F-35 parts intended specifically for Israel remain suspended.
Doughty defended maintaining the supply of components via the international programme, arguing that halting it could have severe ramifications for the broader European and allied security architecture.
Foreign Affairs Committee Chair Emily Thornberry challenged this position, arguing that the issue was political rather than purely legal.
Thornberry suggested adopting an approach similar to the Dutch model, under which components entering the international supply chain could be flagged as “not intended for aircraft bound for Israel”.
The initial suspension was implemented in September 2024 by then Foreign Secretary David Lammy.
Lammy stressed at the time that the measure did not constitute an arms embargo and applied solely to items assessed as usable in military operations in Gaza.
Since then, the policy has been tightened further under Prime Minister Andy Burnham.
The expanded export restrictions follow the Burnham government’s adoption of a more confrontational policy toward the Israeli government.
Foreign Secretary Ed Miliband drew sustained applause at the Labour Party’s annual conference in Liverpool after delivering a sharp critique of the Netanyahu government’s policies and defending the decision to ban trade with Israeli settlements in the West Bank.
Accusing Israel of committing war crimes in Gaza, Miliband stated that the British government heard public outrage over the conflict, telling delegates: “We hear you. You were right.”
Middle East
Netanyahu holds secret UAE talks with Saudi Arabia and Arab officials
Israeli Prime Minister Benjamin Netanyahu met with representatives of Gulf and Arab nations that lack diplomatic ties with Israel, including Saudi Arabia, during his weekend visit to the United Arab Emirates.
Sources close to the gathering told the Israeli newspaper Yedioth Ahronoth on Monday that representatives from Morocco, Libya, Jordan, and Qatar also took part in the meeting.
Netanyahu made a unannounced visit to Abu Dhabi on Sunday, where he met with the country’s leader, Mohammed bin Zayed Al Nahyan.
According to Israeli media, this marked the first time the United Arab Emirates officially confirmed a visit by Netanyahu.
The meeting was arranged by Mossad Director Roman Goffman “at the request of Saudi Arabia, which asked for Israel’s assistance against Houthi attacks in the Red Sea region,” according to Yedioth Ahronoth.
The discussions addressed Iran and the Houthi militia. The newspaper added that the Arab states heard from Israel that “Israel is prepared to assist countries in the region with air defence systems, just as it aided the UAE during the conflict with Iran.”
Conflict in Yemen intensified in September when Ansarullah militiamen launched a rapid offensive that seized Yemen’s entire Red Sea coastline, including the vital maritime corridor of the Bab el-Mandeb Strait.
The Yemeni resistance also imposed a blockade on Saudi Arabia’s energy exports and staged multiple attacks against the kingdom.
Saudi Arabia reportedly sought military assistance from the US to counter Ansarullah.
Washington declined to attack the Houthis directly, but announced that it would provide intelligence and targeting support.
Reporting on the same visit, The Jerusalem Post said Netanyahu spent six hours in the UAE and that the principal subject of his discussions with MBZ was Iran.
Citing sources familiar with the matter, the newspaper added that the trip came “after Netanyahu exerted heavy pressure on the United Arab Emirates to arrange a meeting ahead of the Israeli elections on 27 October.”
Separately, the Associated Press, citing a person with direct knowledge of the meeting, reported that Netanyahu’s visit to the UAE was arranged in part to ask MBZ to deny reports that he had warned the Israeli prime minister of an impending Hamas threat prior to 7 October 2023.
According to Israeli media, Netanyahu’s office denied the AP report, issuing the following statement:
“Fake news. The visit focused solely on strengthening ties between the two countries and on regional issues.”
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