As the conflict between Iran and Israel escalates, the energy-rich Gulf states find themselves precariously positioned on the frontlines, scrambling urgently to prevent a wider regional war. The renewed hostilities, marked by Israel’s bombardment of Iranian military and nuclear sites and Iran’s retaliatory missile strikes, have brought intense diplomatic activity alongside rising fears of a dangerous spillover. For Gulf powers such as Saudi Arabia, the United Arab Emirates (UAE), and Qatar, the stakes could hardly be higher — with the region’s stability underpinning their ambitious economic diversification plans and international standing.
Among the Gulf states, Saudi Arabia has been particularly proactive, engaging in diplomatic communications with both Iran and the United States since the onset of hostilities, a move signalling a shift from previous hardline stances. Ali Shihabi, an analyst close to the Saudi royal court, notes that Riyadh’s efforts have yet to yield a breakthrough but continue with urgency. Crown Prince Mohammed bin Salman and UAE President Sheikh Mohamed bin Zayed Al Nahyan have both directly communicated with Iran’s President Masoud Pezeshkian in recent days, underscoring attempts at dialogue amid the crisis. Meanwhile, the UAE’s president also held talks with Russia’s President Vladimir Putin, who maintains an alliance with Tehran and has offered to mediate.
These diplomatic overtures come after the outbreak of war shattered earlier Oman-brokered Iran-US talks that Gulf nations had supported, reflecting regional hopes for détente following years of strained relations with Iran. Yet Gulf officials remain acutely aware of their limited leverage over Iran or Israel, both of which seem entrenched in a military confrontation that risks further destabilising a region hosting vital US military bases and key global energy transit routes.
The strategic importance and vulnerability of the Gulf’s energy infrastructure have become painfully apparent. Recent weeks have seen dramatic movements in the oil tanker market, which now signals heightened risks of supply disruption. Rates for Very Large Crude Carriers (VLCCs) transporting oil from the Middle East to China have surged by 40%, reflecting growing premiums for risk amid rising geopolitical tensions. Shipping activity near the Strait of Hormuz—a crucial chokepoint for approximately 20% of global oil shipments—has become particularly fraught. Authorities, including those in Qatar and Greece, have advised vessels to avoid Iranian waters or reroute closer to Oman’s coast to mitigate risks of maritime incidents or navigation interference. Electronic disruptions, such as GPS spoofing near Iran’s South Pars gas facility, compound these risks, raising anxieties over the potential for accidents or intentional sabotage.
While the oil market has reacted strongly to these developments, the broader energy sector remains cautiously stable. Brent crude prices surged initially by around 8% but have since moderated, with key market players expressing scepticism about the likelihood of a complete closure of the Strait of Hormuz. Italian oil giant Eni’s CEO Claudio Descalzi has noted that such a closure would be detrimental to Iran’s own revenues and provoke US military responses, making it an unlikely scenario despite Iran’s repeated threats. This nuanced outlook speaks to the balance global markets seek amid ongoing uncertainty.
The political and economic ripple effects extend beyond energy to financial markets in the Gulf. Most regional stock indices have dipped amid fears of broader instability and the impact of sustained conflict. Saudi Arabia’s benchmark index fell by 1.2%, dragged down by declines in major companies like ACWA Power, the Saudi Arabian Mining Company, and newcomer Flynas. Indicators in Dubai, Abu Dhabi, and Qatar similarly closed lower as investors weighed the risks of an expanding conflict and uncertainty ahead of upcoming US Federal Reserve decisions on interest rates.
On the ground in Iran, the impact of intensive Israeli airstrikes has been stark, prompting emergency evacuations and near-total internet blackouts in Tehran and surrounding areas. In response, Iran has conducted limited missile strikes against Israeli targets, while publicly rejecting US demands for “unconditional surrender.” The United States, led by President Donald Trump, has not ruled out military intervention and has taken steps to reinforce its military presence in the region, including deploying aircraft carriers and preparing evacuation plans for American citizens. This build-up intensifies concerns about further escalation.
Diplomatic tensions have extended to international arenas such as the International Maritime Organization (IMO), where Iran and Israel exchanged sharp accusations over attacks on critical petrochemical and gas infrastructure that threaten maritime security and global energy supplies. Iran warned of potential sea conflict if the situation deteriorates further, while Israel accused Iran of enabling maritime terrorism through its support for Yemeni Houthi rebels. The politicisation of such forums adds a further layer of complexity to efforts aimed at de-escalation.
As the Gulf states persist in their diplomatic efforts, voices from across the region warn of the long-term costs should the conflict spiral out of control. Former Qatari Prime Minister Hamad bin Jassim Al Thani cautioned that the collapse of Iran would imperil the entire Gulf, harming its economies and security. This sentiment resonates with analysts who see regional stability as essential to the Gulf’s economic transformation away from oil dependency toward business, tourism, and innovation.
Despite these urgent attempts to broker peace, the path ahead remains uncertain. The military objectives expressed by Israel appear to have expanded beyond crippling Iran’s nuclear capabilities to potentially overthrowing the regime itself—a prospect fraught with peril for the Gulf neighbours that must live with the fallout. The Gulf states thus find themselves in a delicate balancing act: engaged in feverish diplomacy and economic recalibration, yet largely powerless to influence the war’s trajectory as tensions continue to mount on their doorstep.
Source: Noah Wire Services
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