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.