Transcription
Let me tell you about a deal that was supposed to be iron-clad. Gulf states, Saudi Arabia, the UAE, Qatar, Kuwait, Bahrain, collectively pledged trillions of dollars of investment into the American economy. They bought American weapons. They hosted American military bases. They flew American presidents in on their luxury jets. They signed trade agreements, intelligence sharing protocols, and defense cooperation frameworks. They showed up at the White House with smiles and term sheets and visions of partnership that stretched across decades.
Saudi Arabia was running a $119 billion sovereign wealth fund that was pouring money into US AI companies, Open AI, XAI, Stargate. The UAE had MGX as a strategic partner in some of the most critical artificial intelligence infrastructure projects in the world. These weren't just investments, they were bets, multi-trillion-dollar bets that Washington was a reliable partner, that American power in the Gulf meant something, that proximity to Donald Trump would buy them a measure protection, consultation, and predictability.
And then, on February 28th, 2026, Operation Epic Fury began. Nearly 900 US and Israeli strikes on Iran in the first 12 hours. Supreme Leader Khamenei dead. Iranian missiles and drones launched in retaliation across the entire Gulf region. The UAE received more Iranian missile and drone strikes during the war than any other country, more than Israel itself. Smoke rising from the Fujairah oil zone, Jebel Ali Port, the most important commercial port in the Middle East, handling billions in trade annually, struck. Dubai, one of the most carefully constructed images of safe, prosperous modernity in the world, suddenly looking vulnerable in ways that threaten its entire economic identity. And Washington had not told them it was coming.
The implicit quid pro quo, as one economist put it, for showering the United States with investment pledges was do not set the Middle East on fire. Washington set it on fire, and that is why the Gulf has become Washington's biggest challenge. I want to take you inside what actually happened in the Gulf on February 28th, 2026, because I think the enormity of the shock that hit these countries that day is still underappreciated by most of the world.
The Gulf Cooperation Council states, Saudi Arabia, UAE, Qatar, Kuwait, Bahrain, and Oman had spent years and billions of dollars cultivating a very specific image. They were the stable, modern, business-friendly anchors of the Middle East. Saudi Arabia's Vision 2030 promised to transform the kingdom from an oil-dependent monarchy into a diversified technology and tourism economy. The UAE had already built Dubai and Abu Dhabi into global financial hubs that rivaled Singapore and London. Qatar was hosting World Cup stadiums and funding Al Jazeera and positioning itself as a global mediator. Bahrain and Kuwait were deepening their financial sectors. These were countries in the middle of an extraordinary economic transformation, and that transformation depended critically, existentially, on being perceived as safe, stable, and attractive to foreign investment.
The Iranian response to Operation Epic Fury targeted Gulf Cooperation Council countries with about 83% of its total missile and drone strikes during the war. 83%? The Gulf states received far more Iranian ordnance than Israel, the country that co-launched the war. Iran closed the Strait of Hormuz, through which the vast majority of Gulf energy exports flow. And the Gulf states found themselves on the front line of a war they had not been consulted about, had not been warned of, and had not chosen to enter. As a long-time investor in the region told the Atlantic Council, the perception of the Gulf Arab states as safe havens in a tough region is shattered and will be challenging to reverse for some time. They likely will have a higher risk premium in the eyes of most investors and companies. I cannot see an outcome of the war that completely eliminates this reality. They have been exposed. They have been exposed. Three words.
But those three words contain the entire crisis of Washington's Gulf strategy in 2026. Because the security architecture that America built in the Gulf, the military bases, the defense treaties, the arms sales, the intelligence partnerships, was supposed to prevent exactly this kind of exposure. And it didn't. Now, I want to explain what makes this moment structurally different from previous Gulf crises. Because there have been crises before, the Gulf War of 1990, the Iraq War of 2003, the Houthi attacks on Saudi oil facilities in 2019. And the Gulf states absorbed all of those. They recalibrated, adapted, and continued. What makes 2026 different is not the scale of the immediate damage, as severe as that is. What makes it different is the accumulation, the structural erosion of trust that has been building for years and has now reached a breaking point.
Go back to 2019. Iran-backed forces conducted what is believed to have been a drone and cruise missile attack on Saudi oil processing facilities at Abqaiq and Khurais, knocking out about 5% of global oil supply overnight. The Trump administration's response was limited, rhetorical, and ultimately unpunishing. No military retaliation, no decisive signal. Gulf states looked at that and drew a conclusion. American security guarantees have asterisks.
Then came Trump's second term. Gulf states, reading the transactional logic of the new administration, adapted brilliantly. They pledged trillions in investment. They gifted Trump a luxury airplane. They hosted him on his first major overseas trip. With Saudi Arabia drawing parallels to a legendary 1945 meeting between Franklin Roosevelt and King Abdulaziz on the USS Quincy, the original foundation of the American Gulf relationship. They were, in short, doing everything a country does when it wants to be protected and consulted and taken seriously by the world's most powerful nation. And they got nothing for it. No veto over Operation Epic Fury. No advance notice. No consultation. Nothing.
When Secretary of State Marco Rubio arrived in the region in the wake of the strikes, his task was, in one analysis, unenviable. Convincing Gulf states that Washington's security commitments remain intact. But as the same analysis noted, for many in the Gulf, the question was no longer whether Washington remains committed to their security, but whether the emerging agreement with Iran would leave them better or worse off. That is the shift. The Gulf states are no longer asking, "Will America protect us?" They're asking, "Does America's presence in this region make us safer, or does it make us a target?" That is a question that has never before been asked so explicitly, so publicly, and so urgently by America's closest Arab partners.
Let me now take you to what I consider the most analytically underappreciated dimension of this entire crisis. Gulf states invested $119 billion into American financial and technology assets in 2025 alone. Saudi Arabia and the UAE had become top 10 global destinations for foreign direct investment. The Abu Dhabi based technology company MGX was a strategic partner in Stargate, the $500 billion AI infrastructure joint venture with Open AI, Oracle, and SoftBank. Gulf sovereign wealth funds were direct investors in Open AI and Elon Musk's xAI. These capital flows were not charity. They were structural dependencies, financial relationships that Washington was counting on to fund the next generation of American artificial intelligence infrastructure. And now those flows are threatened.
The Council on Foreign Relations called it the Iran war risk Wall Street isn't watching. The argument is simple. If Gulf sovereign wealth funds, spooked by the war and skeptical of American reliability, slow their capital deployment into the United States, American technology companies that depend on Gulf capital will have to finance their AI ambitions through debt instead of sovereign investment. That is more expensive. That introduces risk into balance sheets that the market has been treating as virtually invincible. And it cascades through venture capital, through financial intermediaries, through the entire ecosystem of companies that benefit from the recycling of Gulf petrodollars into American assets. This is the hidden cost of the Iran war that no one is talking about. The market is watching oil prices and shipping disruptions and the Strait of Hormuz. But the deeper risk, the slow structural withdrawal of Gulf capital from American financial markets, could prove more consequential over the medium term than any single energy shock.
And here is the strategic double bind Washington has walked into. It needed Gulf bases and Gulf airspace and Gulf diplomatic cover to conduct the Iran war. Gulf states, however reluctantly, provided logistical support. Saudi Arabia acknowledged giving the US logistical cooperation. Qatar's Al Udeid airbase was used for operations. Bahrain hosted navy assets. The Gulf states gave Washington what it needed militarily. But uh by doing so, by being visibly associated with Operation Epic Fury without having been consulted about it or compensated for the risks, they exposed themselves to Iranian retaliation while simultaneously making themselves politically vulnerable at home. Because Gulf publics, while not uniformly pro-Iran, are overwhelmingly pro-Palestinian. And Operation Epic Fury, fought alongside Israel in the context of ongoing Israeli military operations in Gaza and Lebanon, made the optics for Gulf leaders extremely difficult.
Rarely has there been a monolithic Arab Gulf position on any issue, but the war on Iran managed to do just that. Forged a collective Gulf anger directed toward Iran and the United States, at least at the popular level, against Israel as well. That sentence contains more political complexity than almost any single sentence I've read about this crisis. Gulf states collectively angry at Iran for attacking them. Collectively angry at the United States for starting a war that made them targets. And collectively distanced from Israel despite the Abraham Accords existing specifically to bring some of them closer together.
Which brings me to the Abraham Accords, because this is where Washington's challenge in the Gulf reaches what I think is its most acute expression. The Abraham Accords, the normalization agreements signed between Israel and the UAE, Bahrain, Sudan, and Morocco in 2020 were the signature foreign policy achievement of Trump's first term. The logic was compelling at the time, bring Gulf states into formal relationship with Israel, leverage shared concerns about Iran, and build a new regional architecture that served American interests without requiring constant American military engagement. In Trump's second term, the ambition is to expand the accords to include Saudi Arabia. The jewel in the crown, the country whose normalization with Israel would represent a generational transformation of Middle Eastern geopolitics. Saudi Arabia is the custodian of the two holiest sites in Islam. Its normalization with Israel would carry a symbolic weight no other countries could match.
On May 25th, 2026, Trump posted on Truth Social that it should be mandatory for Saudi Arabia, Qatar, Pakistan, Turkey, and Egypt to join the Abraham Accords as part of any deal to end the Iran war. Two days later, at a cabinet meeting, he said, "They owe us that. They owe us that." Let me sit with that phrase for a moment because it tells you something essential about the strategic miscalculation Washington has made in the Gulf. Saudi Arabia had spent trillions of dollars in American investments. It had hosted Trump on his first foreign trip. It had provided logistical support for a war it never asked for. Its oil facilities and port infrastructure had been struck by Iranian drones. Its Vision 2030 economic transformation program had been disrupted. Its investors were now paying a higher risk premium for projects that had seemed safe six months earlier. And Washington told them they owe something more.
The response was immediate, unified, and by the standards of Gulf diplomatic culture, where confrontation is usually managed with elaborate courtesy, unusually blunt. An unnamed Saudi source told CNN Arabic on the same day that Saudi Arabia would not normalize relations with Israel without an irreversible path to an independent Palestinian state. Qatar rejected the proposal outright. Pakistan, the mediator of the Islamabad memorandum itself, was described as even more emphatic in its resistance. Oman's state press described the Abraham Accords as a despicable idea and part of a great deception. A Kuwaiti daily argued that the US is no longer a reliable ally of the Gulf states. The Saudi state press published articles describing the accords as satanic normalization. Again, this is Saudi Arabia, a country that has spent decades managing its relationship with Washington with exquisite diplomatic care. That kind of language in official adjacent Saudi media is not an accident. It is a signal. And the signal is this. If Washington continues to treat the Gulf states as subordinates who owe compliance rather than partners who deserve consultation, it is going to lose the Gulf. Not permanently, not completely, not next week, but structurally, incrementally, in the ways that matter for a generation.
Because the alternative to Washington is no longer a vacuum. The alternative is China. In 2024, Gulf-China bilateral trade overtook Gulf-West bilateral trade, making Beijing the primary economic partner for most GCC states. The Belt and Road Initiative has channeled substantial investments into Gulf infrastructure. China brokered the Saudi-Iran rapprochement in 2023. Beijing's first major diplomatic breakthrough in a region long considered an exclusive American domain. China has comprehensive strategic partnerships with every GCC member state. China's model affords Gulf states something Washington's model increasingly does not, strategic margin. The ability to diversify partnerships, to not be locked into a single patron, to conduct economic relationships without being pulled into military commitments that expose you to retaliation from your neighbors. And Gulf states are now explicitly looking to diversify.
Some Gulf states are already looking to diversify their military procurement, particularly by turning to Turkey as an alternative supplier of arms. Saudi Arabia is reportedly floating a regional non-aggression pact that would include Iran, something closer to Europe's Helsinki Accords than to the American-led conversational architecture of the Abraham Accords. Qatar and Doha have been serving as the mediating venue for US Iran talks, signaling that the Gulf's value to Washington is as a diplomatic bridge, not merely a military platform. And this is the fundamental tension at the heart of Washington's Gulf challenge.
America needs the Gulf for military basing, for energy market stability, for sovereign capital flows into American AI infrastructure, and for diplomatic legitimacy in the Middle East. The Gulf needs America for security hardware, for deterrence against Iran, and for access to the global financial system. But the terms of that exchange are being renegotiated in real time under enormous pressure in the aftermath of a war that exposed the limits of what the American security umbrella actually covers. The Gulf states approach to this moment is best understood as strategic hedging. They are not abandoning Washington. They are not pivoting to Beijing. They are doing what smaller, wealthy states have always done when a great power patron becomes unpredictable. They are buying insurance, multiple insurance policies from multiple directions at the same time.
Let me now tell you what I believe are the three core challenges Washington faces in the Gulf that make this the most consequential relationship problem in American foreign policy today. The first is the incoherence problem. Washington does not have a single coherent Gulf strategy. It has competing impulses. Trump's transactional instinct to extract maximum economic concessions, the military establishment's imperative to maintain basing access and deter Iran, the ideological drive to expand the Abraham Accords, and the energy policy pressure to keep Gulf oil flowing at prices that don't destabilize American economy. These impulses frequently contradict each other. You cannot simultaneously demand that Gulf states join a normalization framework that makes them politically vulnerable at home, while also asking them to keep investing in American AI infrastructure, and open their airspace for military operations. The Gulf states see the incoherence, and incoherence in a patron state is deeply unsettling to client states who are depending on it for their survival.
The second is the competition problem. Gulf-China trade now exceeds Gulf-West trade. Every Saudi infrastructure project that uses Chinese construction, every Emirati AI partnership that routes through Chinese technology, every Gulf sovereign wealth fund investment that goes to Beijing rather than New York is a marginal reduction in the structural dependency that once made Gulf alignment with Washington automatic. These are not dramatic breaks. They're incremental shifts, but incremental shifts compounded over a decade produce structural realities that are very difficult to reverse. Washington has not yet found a compelling answer to China's economic value proposition in the Gulf. Tariffs and pressure and demands for Abraham Accords expansion are not that answer.
The third is the legitimacy problem. This is the one I think is most underappreciated and most consequential. Gulf rulers have populations. Those populations have opinions about Palestine, about Iran, about Israel, about America. Saudi Arabia's Crown Prince Mohammed bin Salman knows better than anyone that domestic legitimacy cannot be entirely divorced from foreign policy positions. When Saudi state press calls the Abraham Accords satanic normalization, that is not simply a diplomatic message to Washington. It is a signal to the Saudi public, "We are not puppets. We hear you. We are not going to sacrifice Palestinian rights for American convenience." MBS is navigating between his strategic partnership with Washington and his need to maintain credibility with his own people. That is a genuinely difficult position. And the more Washington pushes, the more it demands, the more it frames concessions as obligations, the harder that position becomes.
Here is my honest assessment of where this goes. The Gulf states will not break with Washington. The security dependency is still too real. The military hardware too American. The financial integration too deep. But they will bend. They will hedge more aggressively. They will deepen their relationship with China, with Turkey, with India, with any partner that offers economic value without the political cost of unconditional alignment with American policy. The real risk for Washington is not a dramatic Gulf defection. It is a slow, structural erosion. An erosion of military access as Gulf states decide that hosting American forces invites Iranian retaliation without delivering reliable protection. An erosion of capital flows as sovereign wealth funds diversify away from American assets that feel politically complicated, an erosion of diplomatic legitimacy as Gulf states pursue regional frameworks like Saudi Arabia's proposed Helsinki-style non-aggression pact that deliberately exclude the United States from centrality.
If Washington treats the Gulf as subordinates who owe it compliance, if it continues demanding Abraham Accords expansion at gunpoint, if it continues launching wars without consultation, if it continues framing Gulf capital as an entitlement rather than a relationship, it will accelerate every one of these erosions simultaneously. The Gulf is not Europe where historical ties, democratic values, and institutional integration create a floor of solidarity that survives even the most serious crises. The Gulf is transactional in a different, more explicit way. The relationship with Washington has always been a deal, security for oil, protection for access, stability for investment. When the deal stops delivering on its terms, it gets renegotiated. The renegotiation is underway. It is happening in every Gulf capital right now, in every conversation between sovereign wealth fund managers and their American counterparts, in every Gulf foreign ministry assessment of what the Islamabad memorandum actually delivers, in every Saudi calculation of what Abraham Accords membership would cost in domestic political capital versus what it would gain in American gratitude. And the outcome of that renegotiation, whether Washington manages it skillfully or blunders through it with demands and ultimatums, may determine who controls the center of gravity of the global economy for the next quarter century.
Because the Gulf sits at the intersection of the world's energy markets, its capital flows, its AI investment corridors, and its most critical maritime choke points. Whoever manages the relationship with the Gulf states most effectively over the next decade will have an extraordinary strategic advantage in the larger contest between America and China. Washington is not managing it effectively right now. And that is why the Gulf has become Washington's biggest challenge. Not Iran, not China, not Russia, the Gulf. The Because the Gulf is where all of those challenges converge, and it is where America's tools, military dominance, economic pressure, diplomatic demands are proving least effective against the most complex and consequential set of relationships it has ever had to manage in the Middle East. I'll be watching how this unfolds. Every concession, every ultimatum, every sovereign wealth fund decision, every Gulf diplomatic initiative, because this is where the real contest is being decided. If this give you a clearer lens on what's actually at stake in the Middle East right now, share this with someone trying to make sense of the headlines. I read every comment, every pushback, every alternative perspective. Bring it. Stay rigorous. Stay curious. And I'll see you next time.