Iran’s Military Strategy

The dialogue that the US is conducting with Iran, with Pakistan as a conduit, is meant to achieve the same goals as the dialogue that Oman was mediating in February. Over the past two months, Iran’s hand has been strengthened, and Tehran has emerged as the gatekeeper of the Strait of Hormuz. The adverse impact of the war has been the global energy crisis. 

Fortunately, Russian crude and other energy resources have been available to India and others, maintaining some form of stability. But for the Indian government, choices are difficult between the need to increase prices at the pump or asking the oil companies to take a further cut in profit to keep inflation under check. 

While a peace deal between the US and Iran will end the war, what is immediately necessary is a series of Confidence-Building Measures (CBM) between the Gulf states and Iran. 

It was indeed the Gulf states that bore the brunt of escalating tensions in West Asia after the US launched Operation Epic Fury. Qatar’s LNG production facilities were badly hit, and Kuwait, for the first time, could not export crude in one single month.

Questions have been raised on the utility of US military bases across the Gulf that could not safeguard any of the Gulf Cooperation Council (GCC) states against Iran, whose tactics were superior and firepower impactful. 

Iran also restricted shipping in the Strait for vessels linked to the US and Israel, causing a major maritime escalation. It has been reported that both Moscow and Beijing provided Tehran with critical assistance against its retaliatory strikes without spoiling their respective ties with the Gulf states. 

Tehran has long been preparing for a war. While its proxies across the region did not play a big role in the current conflict, the Islamic Revolutionary Guard Corps (IRGC) came out with flying colours, strengthening the body’s position in the Iranian power structure. 

Iran And Gulf Economies

Barring Oman, five other Gulf states have never faced such an economic crisis in decades. 

Consider this: an Iranian ballistic missile hit Qatar’s Ras Laffan gas complex, impacting 17% of global energy supply. This will cost QatarEnergy a loss of possible US$20 billion annual revenues, and repairs could take five years to complete, hitting supplies to Asia. 

Besides Qatar, damage has also been reported in Bahrain, Kuwait, Saudi Arabia and the UAE. “The conflict in the Middle East could result in repair and restoration costs for energy infrastructure of up to US$58 billion, with the speed of recovery depending on how quickly operators can secure access to constrained supply chains,” according to Rystad Energy (a leading independent energy research and business intelligence). 

The World Bank expects economic growth in the Middle East to slow to 1.8% this year as a result of the Iran war. The figure is far lower than the estimated 4% growth recorded last year, according to the World Bank. "Even if the conflict were truly to stop today... the closures of refineries, the destruction of infrastructure, and the displacement of people will carry long-term costs no matter what has happened," according to Roberta Gatti, World Bank's Chief Economist for the Middle East, North Africa, Afghanistan and Pakistan. The World Bank projected real gross domestic product in the Gulf to grow by 1.3% this year, down from a 4.4% expansion last year.

Qatar and Kuwait – where attacks on energy sites caused a significant disruption globally – could face a contraction this year, with the World Bank forecasting their economies to shrink by 5.7% and 6.4%, respectively, down from the previous growth forecast of 5.3% and 2.6%.

Economies Slow Down

The economy of Saudi Arabia is now projected to grow 3.1% in 2026, down from 4.3%. Growth for the UAE is now down to an estimated 2.4% from 5.1%. Bahrain and Oman are forecast to grow 1.3% and 2.4%, down from 3.1% and 3.6%, respectively.  

But Oman came out stronger from this conflict, with its ports along the Indian Ocean Region sought after to access the remaining Gulf region.

The US is located far away, but the Arab states and Iran are bound by geography. Each is dependent on the other, particularly the UAE and Iran. Both contribute to each other’s economy.

The need to put in place CBMs to boost confidence that will improve economic as well as physical security of the region. 

The entire world has been hit by geopolitical and geo-economic uncertainty, and stability in the Persian Gulf region will boost the global economy.

(The writer is a commentator on geopolitics and geoeconomics. Views expressed are personal.)