Who Pays for War? Gulf Balancing Amid Economic Costs

How economic vulnerability has become a defining force in Middle Eastern politics.

Beyond the diplomatic rhetoric, economics best explains the shift in the Gulf’s position in the context of the US and Israel’s conflict with Iran. Every phone call, every mediation attempt, and every appeal to the US government has followed the same logic: what is the economic cost of war for the Gulf States?

The numbers tell the story. The Strait of Hormuz provides passage for up to a fifth of the global volume of oil and LNG production. After February 2026, when the US and Israel launched the joint operation against Iran, traffic through the strait was severely affected: by mid-June, only nine loaded Qatari LNG tankers had exited the strait, compared to a pre-war average of 125-140 vessels a day. More than 20,000 seafarers were stranded at sea aboard their ships in the Gulf.

As for the shipping insurance rates, the situation is even more alarming. The Economist’s Intelligence Unit suggests the premium for transiting Hormuz increased from 0.20-0.25 percent of the insured value to 1.0-1.5 percent. In practical terms, this increase saw the cost of insuring a ship surge from $500,000-$750,000 to around $2 million. For Gulf states whose entire economies rest on perceptions of their efficacy and safety as logistical hubs (be it Dubai’s re-export economy, Saudi Arabia’s Vision 2030, or Qatar as the LNG capital) the increase is a hefty cost to bear to attract the investment they require.

In May 2025, the leaders of Saudi Arabia, Qatar, and the UAE explicitly opposed any strike on Iran, not out of sympathy for Tehran but for fear of retaliation. They realised hosting US military bases on their territories made them prime targets. In contrast Washington, being less dependent on Hormuz transit, had comparatively little at stake.

But when hostilities broke out, the equation became somewhat more complex. Countries like Saudi Arabia and the UAE, initially the most concerned with disruption in the Hormuz passage, actively urged Trump to continue the struggle against a weakened Iran, believing a decisive Iranian defeat to be worth the temporary losses.

That gamble proved a miscalculation when, on 8 April, Iranian attacks targeted Saudi pumping stations and production infrastructure at Manifa and Khurais, thereby directly attacking the oil production capacity that the Saudis claimed to be defending. Calls to “finish the job” lost all economic logic as soon as the war became expensive for Saudi Arabia in terms of its own oil production capacity. Riyadh soon reached out to Tehran to discuss de-escalation.

While all Gulf states had fears regarding the economic impact of the war, factors like geography, the potential for Iranian retaliation, and their reliance on US forces led them to adopt diverse strategies. Nevertheless, the ultimate goal of avoiding economic losses was the same for all Gulf states.

Oman and Qatar, which host fewer US military installations and are thus less vulnerable to Iranian retaliation, did not face such a dilemma. They remained consistently dovish from the beginning, advocating for ceasefires while simultaneously seeking ways to resolve the situation.

The UAE is the hardest case and the most interesting one from an economic perspective. Despite suffering the greatest number of Iranian retaliatory strikes, the Emirati leadership did not choose between aggression and negotiation. Instead, the UAE is seeking compensation for economic loss and restoration of navigation through the Strait of Hormuz while pursuing talks on de-escalation conducted by the country’s vice-president with Iran’s parliament speaker. This is not indecision but a hedging mechanism designed to recoup losses while trying to avoid new ones.

Pre-war caution, mid-war hawkishness, post-strike de-escalation, consistent mediation, and double-track hedging: the concern behind all these strategies remains the same. Who will pay, and how much, if the war drags on? Gulf states’ actions during this crisis prove economic vulnerability is an increasingly important element of Middle Eastern politics. Regardless of the years of ideological differences and security-driven strategic partnerships, it has proven true that economic interests and security go hand in hand. In a region dependent on trade, investment, and global markets, economic vulnerability has become one of the most powerful forces shaping Middle Eastern politics.