Since the US–Israeli attacks on Iran began, Gulf states have absorbed much of the conflict’s fallout despite not being primary belligerents. Iranian missiles and drones have struck energy and civilian infrastructure across the Gulf: Kuwait’s Mina Al Ahmadi refinery suffered repeated hits; Qatar’s Ras Laffan LNG facilities were damaged, wiping out about 17% of QatarEnergy’s export capacity for up to five years and imposing roughly $20 billion in annual revenue losses until full repairs are completed. Amazon data centers in the UAE and Bahrain were also targeted, and power and desalination plants have been hit, undermining essential services and public confidence.
The immediate security response has been costly and disruptive. GCC airspace closures, mass evacuations or marooned expatriates, and a near-stop to normal commercial activity have rippled through economies that have spent decades marketing themselves as stable hubs for investment, tourism and global transit. The interruption to aviation and logistics, combined with damage to energy facilities, threatens the economic models many Gulf states have built to diversify away from hydrocarbons.
Economic exposure and dependence
The Gulf economies are deeply integrated with Western markets and foreign capital. EU–GCC trade and investment links, long-term policies to attract wealthy residents and international firms, and major infrastructure investments have made tourism, aviation and real-estate flows central to growth strategies. Dubai and the UAE have liberalised visas and residency rules to lure entrepreneurs and high-net-worth individuals; Bahrain and Oman have introduced long-term “golden” residencies; Qatar’s airline and tourism sectors had been recording strong profits and visitor growth before the strikes.
Aviation and travel are particularly vulnerable. In the UAE, aviation contributed roughly 18% of GDP, generating about $92 billion and nearly a million jobs. Qatar Airways has shown rapid profit growth in recent years, and Qatar’s tourism receipts surged. Saudi Arabia’s Vision 2030 likewise depends on expanding non-hydrocarbon sectors—tourism, construction, tech and services—to reduce oil dependence. All of these plans assume regional stability; the war directly undercuts that premise.
When infrastructure is damaged and security risks rise, multinational companies and global investors act quickly to protect personnel and assets. Withdrawals can happen within weeks; re-entry, however, is slow and cautious. Companies that pull out after strikes may take months or years to return, eroding the Gulf’s hard-won attraction for foreign capital. Ironically, Iran is less exposed to such market-driven flight: long-standing sanctions and an unfavourable investment environment have left it with little foreign direct investment to lose.
Reputational damage
For decades the Gulf marketed itself as a safe destination for expatriates and tourists. That reputation now erodes. Strikes on airports, residential buildings and industrial complexes have made headlines and provoked alarm among the large expatriate communities—Dubai alone hosts hundreds of thousands of Britons and many more Western and Asian residents. Perceptions matter: potential residents, investors and tourists assess even small probabilities of renewed attacks when choosing where to live, invest or travel. The lingering memory of assaults and the prospect of future rounds of conflict will weigh heavily on decisions by individuals and firms weighing relocation or expansion.
Alliance costs and military economics
Gulf states have long relied on security partnerships—chiefly with the United States—to deter regional threats. Those ties date back to the mid-20th century and have included extensive arms purchases. Between 1950 and 2024, Saudi Arabia, Qatar, Kuwait and the UAE spent tens of billions on U.S. weaponry. Yet defending against inexpensive Iranian drones and missiles has exposed the fiscal and operational limits of current defence arrangements. A Shahed-136 drone may cost under $50,000 to produce, while interceptors such as Patriots can cost several million dollars per shot. High-cost defences fired in response to low-cost attacks create skewed economics that rapidly drain state resources.
Beyond cost, the perceived reliability of security guarantees matters politically and strategically. If the U.S. posture is seen as wavering—either unwilling to absorb increasing defense costs or reluctant to sustain prolonged entanglement—Gulf states face pressure to recalibrate alliances, diversify suppliers, and hedge politically. Moreover, Iran’s stated rationale for striking locations where U.S. forces are present has meant that Gulf host states bear direct consequences for accommodating foreign militaries.
Post-war scenarios and regional politics
Two broad outcomes are conceivable. One is an unlikely collapse of the Iranian regime, after which Gulf states could argue the principal threat has been removed and promote a return of expatriates and investors. That outcome would validate alliances and the costs borne in defence and disruption.
More likely, however, is that Iran survives—leading to some negotiated cessation of hostilities or a protracted stalemate. In that scenario, the United States, Israel and Iran may all claim successes, but the Gulf states lose in concrete economic and reputational terms. They will have been defending themselves in a conflict they did not start, shouldering infrastructure losses, elevated defence expenditures, and social unease. Domestic audiences in Gulf countries could question the wisdom of alignment with the U.S. and Israel, particularly where public opinion diverges from state policy. Historical episodes—from popular reactions during earlier Gulf conflicts to contemporary social sentiment—show that public perceptions can strain governments’ foreign-policy choices.
Political and social costs
Gulf governments must juggle fragile domestic politics and fragile economies. They will face tougher scrutiny over alliance choices, defence spending, and crisis management. Expats and investors who left may be slow to return; tourism and aviation could suffer a prolonged slump; foreign companies may relocate regional hubs elsewhere. Repairing damaged infrastructure and restoring confidence will be costly and time-consuming.
Conclusion
The primary strategic losers from the US–Israel–Iran war are the Gulf states. Iran loses little in foreign capital terms because sanctions and isolation have long limited its exposure. Israel, the U.S., and Iran can claim varying degrees of success domestically: leaders can frame outcomes as victories to satisfy supportive constituencies. But for Gulf economies and societies—whose post-oil strategies depend on stable trade links, tourism, foreign investment and a safe environment—the conflict inflicts tangible and lasting costs. Restoring infrastructure, reputations, and investor confidence will demand substantial resources and political skill, and any long-term recalibration of alliances or defence approaches will carry further economic and strategic implications.
