One Big Deal: Iran announced it would levy a $1 tariff on each barrel of oil transiting the Strait of Hormuz, to be denominated in crypto and yuan.

Why we care: This move simultaneously demonstrates Tehran’s appreciation for the economic leverage it has created for itself and seeks to insulate this revenue from the dollar-based financial system and long arm of the U.S. Treasury Department. The volumes of oil at stake are significant. According to Kpler data cited by the Financial Times, around 175 million barrels of crude and refined products are currently loaded on 187 tankers waiting in the Gulf. Even a fraction of this transit volume could provide a sorely needed source of liquidity, with the rial close to worthless and Iran’s economy in utter disarray. As the Wall Street Journal wrote, because oil is a globally priced commodity, Gulf producers can’t pass the toll cost on to buyers — they compete with oil from regions unaffected by the toll (like the U.S.), so they’d have to absorb it themselves, potentially up to 80-95% of the total toll burden.

Beyond the current crisis, the “Tehran tollbooth” in effect represents institutionalized piracy and sets a precedent for other actors to impose fees on trade in global chokepoints. In a rebuke to this ploy, however, as the U.S. navy began its blockade of the Strait of Hormuz on Monday, President Trump noted that he had sent instructions “to seek and interdict every vessel in International Waters that has paid a toll to Iran. No one who pays an illegal toll will have safe passage on the high seas.”

One Policy Shift: Israeli and Lebanese ambassadors to the US met to discuss peace negotiations.

Why we care: The talks, held under the auspices of the United States, are taking place against the backdrop of ongoing U.S.-Iran negotiations, where Tehran is pushing to fold Lebanon into the ceasefire by forcing Israel to halt military operations there, a condition both Israel and the U.S. have rejected. Meanwhile, on the ground, Israel has intensified strikes, and exchanges of fire with Hezbollah persist. Over the past 2.5 years of this latest round of conflict with Israel, Hezbollah’s capabilities have been degraded and its checkbook weakened as its primary backer in Tehran fights for its life, but the group still has meaningful capacity and continues to threaten Israel’s north.

The Israel-Hezbollah conflict dates back to the group’s formation during the Lebanese Civil War and has shifted between full-scale wars, skirmishes, and short-lived ceasefires. For Israel, anything short of pushing Hezbollah away from the border — or fundamentally changing the security equation — is increasingly unacceptable. The subtext in PM Benjamin Netanyahu’s remarks over the weekend was clear: this isn’t about another ceasefire – there have been plenty of those. Saying any deal must “last for generations” signals a shift away from managing the threat toward trying to end it altogether.

The U.S. role is also key here. Washington brokered the 2022 Israel–Lebanon maritime deal, proof that progress can be made. But this is far more complicated. The U.S. isn’t a neutral mediator — it is waging war on Iran, while Iran is actively trying to link Lebanon to negotiations to gain leverage. At the same time, the current government in Beirut is showing signs of a harder line against both Iran and Hezbollah and asserting more independence than it has in years, publicly criticizing Hezbollah for dragging the country into conflict and moving to expel Iran’s ambassador in late March.

One Source of Friction: Vice President JD Vance left Pakistan on Saturday evening without a deal, saying the Iranians “...have chosen not to accept our terms.”

Why we care: Iran didn’t show up to Pakistan just to extend a ceasefire, but rather to renegotiate broader terms of engagement. Reports of a large delegation suggest Tehran came with a full agenda: sanctions relief, access to frozen assets, constraints on U.S. and Israeli military activity, and even questions around control of the Strait of Hormuz. In other words, this wasn’t a de-escalation talk – it was an attempt by the Iranians to convert their economic leverage through the Strait of Hormuz into a wider strategic reset.

At the same time, the U.S. continues to ratchet up the pressure on Iran. A second carrier strike group is headed for the region, beefing up U.S. military forces to more than 50,000, a force posture not seen since the 2003 Iraq War, and a naval blockade on any ships heading to or from Iranian ports. Over the weekend, the cost of oil once again broke the $100/barrel threshold, up from $90s/barrel just after the cease fire agreement was announced, showing market uncertainty about the tenuous situation and growing risk of continued military operations even before the pause expires on April 21. Since the weekend’s talks, Pakistan, Türkiye, and Egypt have been working to keep the talks intact and prevent a breakdown between Tehran and Washington, and Trump has signaled that negotiations could resume within the next two days in Islamabad.

One Under the Radar: Ukraine signed defense deals with Saudi Arabia, Qatar, and the UAE

Why we care: Ukraine is trading the battle-hardened counter-drone expertise it has developed over the past three years of war with Russia for the Gulf’s vastly more expensive air defense systems and the fuel Ukraine desperately needs. These 10-year defense deals between Ukraine and several Gulf states underscore the changing needs from the battlefield in real time and how quickly innovation is moving from one theater to another.

Ukraine’s interceptor drones cost roughly $1,000–$3,000 per unit. The Gulf has been knocking down Iranian Shaheds with Patriot systems at nearly $4 million each. That price gap is the entire pitch — and it’s working. But the strategic subtext runs deeper: Ukraine is carving out a foothold in the Middle East as a security partner, giving the Gulf states a counterweight to Russia’s deepening ties with Iran, and positioning Kyiv as an indispensable player for scalable drone interception tech in a wealthy region facing pressing security concerns it had little presence in before this war. For Ukraine, these deals are as much about revenue and strategic relevance as they are about solidarity. Integrating Ukrainian technology could also make the Gulf bigger players in the region’s drone ecosystem, which is currently dominated by Israel and Türkiye.

One Fun Thing: A shelved Saudi drama about Iranian hostages is back, and the timing is everything.

Why we care: Filmed four years ago, then quietly buried after the 2023 Saudi-Iran détente, Embassy 87 is suddenly very relevant again.The revival of Embassy 87 isn’t just good television timing, it’s also a political signal. In the Gulf, big media doesn’t get rolled out by accident: MBC is largely government-owned, and green-lighting a drama about Iranian hostage-taking and the IRGC’s brutality sends a message that Riyadh is done managing perceptions of Tehran. The show can be viewed as a proxy for the broader Saudi mood shift — from the carefully choreographed détente of 2023 to a posture that now openly relitigates decades of Iranian aggression and destabilization. In the Middle East, as elsewhere, the stories that are broadcast can be as deliberate and have as much an impact as anything said at a podium.

One Big Deal: The U.S. temporarily authorizes Iranian oil sales

On March 20, the Trump administration issued Iran General License U (GL U), a one-month authorization for the purchase and sale of approximately 140 million barrels of sanctioned Iranian crude currently at sea. As a result, tens of millions of barrels of Iranian crude that had been sitting in floating storage appear to be re-entering global markets. Tankers that had effectively been parked are now moving, with buyers (primarily in Asia) stepping back in under a cloud of plausible deniability. This is not a policy overhaul, but rather a narrowly scoped attempt to manage a major market disruption.

Why we care: This is a significant deviation from the Maximum Pressure approach that has defined both Trump administrations’ Iran policy, and one that sits uncomfortably alongside a highly aggressive sanctions regime that otherwise remains fully intact. U.S. Treasury Secretary Scott Bessent framed the move as geopolitical “jiu-jitsu,” arguing that using Iranian oil to suppress global prices costs Tehran more than it earns. However, given GL U contains few provisions that would meaningfully limit Tehran from accessing revenues, Iran is likely to benefit from these sales by gaining revenue it can use to fund the war effort and its proxies across the region. This is a market-based intervention driven by domestic U.S. energy price concerns, not a negotiated concession from Tehran — with real risk the regime reads it as confirmation that its strategy of economic blackmail is working.

One Major Policy Shift: The Gulf is taking a harder line on how the war must end

Saudi Arabia, the UAE, and others, are quietly pressing Washington to ensure that any resolution includes durable constraints on Iran’s missile, drone, and proxy capabilities, not just a ceasefire. There is a growing insistence that the outcome must fundamentally reshape—not restore—the regional balance of power.

Why we care: After the 12-day U.S.-Israel war with Iran in June 2025, the Gulf states criticized Israel’s attacks and called for de-escalation. But now, after more than three weeks of Iranian retaliatory attacks on Saudi Arabia, Qatar, UAE, and other states, these nations have markedly shifted their approach from attempting to prevent conflict with Iran to insisting the conflict continue until the regime has been severely degraded, even though this was not a war of their choosing. Fairly recently, Riyadh and Abu Dhabi were pursuing a fundamentally different strategy. Saudi Arabia reestablished diplomatic relations with Iran in March 2023 in a Chinese-brokered deal, while the UAE had been quietly rebuilding economic ties with Tehran since 2019, both countries betting that direct engagement was a more effective hedge against Iranian destabilization than confrontation.

That calculus has now been overtaken by events. In the weeks since the war began, the shift in Gulf capitals has been visible and striking: Saudi Crown Prince Muhammad bin Salman reportedly said in a series of calls that the campaign presents a “historic opportunity” to remake the region and that Iran poses a long-term threat that can only be eliminated by removing the current government, according to the New York Times. The UAE’s Ambassador to the U.S. Yousef al-Otaiba made this sentiment explicit in a Wall Street Journal op-ed: “A simple ceasefire isn’t enough. We need a conclusive outcome that addresses Iran’s full range of threats: nuclear capabilities, missiles, drones, terror proxies and blockades of international sea lanes.” The endgame both Riyadh and Abu Dhabi are now signaling is an Iran so badly degraded it cannot meaningfully threaten its neighbors, hold global energy supply hostage, or reconstitute the regional leverage it has spent decades building.

One Under the Radar Development: Pakistan steps in as U.S.-Iran intermediary of last resort

With traditional diplomatic channels between the U.S. and Iran unavailable (Oman has also been under attack), Pakistan has emerged as a key intermediary between Washington and Tehran. Islamabad is playing an important role in relaying proposals and maintaining contact at a moment when other actors are either overexposed or sidelined. Pakistan’s role has now formalized beyond bilateral messaging: on March 29, the foreign ministers of Pakistan, Saudi Arabia, Turkey, and Egypt convened in Islamabad in what Al Jazeera described as the first meeting in that four-country format, with the Pakistani Government announcing it would host direct U.S.-Iran talks “in coming days.” That diplomatic momentum culminated yesterday in Beijing, where Pakistani Foreign Minister Dar and Chinese Foreign Minister Wang Yi jointly issued a Five-Point Initiative calling for a ceasefire, protection of energy infrastructure, and restoration of Hormuz navigation — a framework that signals Islamabad is now coordinating explicitly with Beijing, not just serving as a U.S.-facing interlocutor.

Why we care: The gathering is not improvised. It is the product of weeks of quiet Pakistani diplomacy that has benefited from a markedly warmer bilateral relationship with Washington, with Trump hosting army chief Field Marshal Asim Munir twice and publicly saying Pakistan “knows Iran very well, better than most.” We also read this diplomatic opening in the context of Pakistan’s broader competition with India for strategic relevance in the Middle East: as New Delhi deepens its footprint in the region through IMEC and a series of free trade agreements, Islamabad’s emergence as the indispensable interlocutor in the region’s most consequential crisis since the U.S. invaded Iraq offers a countervailing source of influence that Islamabad will be keen to convert into durable relationships across the Gulf.

Pakistan isn’t brokering a grand bargain, but it is keeping the system from seizing up. Although some observers doubt Pakistan’s ability to deliver results or that Iran is even participating in this channel, it is still noteworthy. In a fragmented diplomatic landscape, outer-tier players can become indispensable simply by being available, connected, and credible to both sides. Islamabad is trying to quietly remind Washington that it has geopolitical utility beyond South Asia.

One Source of Friction: South Pars drags shared energy infrastructure into the conflict

The March 18 strikes on South Pars—the world’s largest natural gas field, shared by Iran and Qatar—have expanded the conflict’s scope. The targeting of such a critical site raises the risk of spillover into other shared gas assets, as well as broader Gulf energy infrastructure.

Why we care: This is escalation by entanglement. South Pars isn’t just Iranian; it’s part of a shared reservoir system, meaning any sustained disruption has cross-border consequences. That creates a new kind of friction: one where third parties are pulled in not by choice, but by geology. The more interconnected the infrastructure, the harder it becomes to contain the conflict.

The retaliatory Iranian strike on Qatar’s Ras Laffan has taken offline approximately 17% of Qatar’s LNG export capacity — roughly 12.8 million tonnes per year — with cascading consequences for Europe and Asia that were already heavily exposed to Qatari supply following Russia’s exit from European gas markets. As Rystad Energy has documented, the repair timeline is the more alarming variable: the large-frame gas turbines needed to restore damaged LNG trains are supplied by only three manufacturers globally, all of which entered 2026 carrying production backlogs of two to four years, meaning Ras Laffan could remain meaningfully impaired long after any ceasefire is signed.

One Fun Thing: Rebuilding Palmyra—on canvas

At the Venice Biennale, one of the most prestigious art fairs in the world, Syrian artist Sara Shamma has rebuilt the ancient city of Palmyra through a series of large-scale works, reimagining the ancient city. During the war, ISIS desecrated the ancient city, causing severe damage to ancient Roman-era structures and used the theater for public executions. The project blends memory, loss, and restoration.

Why we care: In a region where physical infrastructure is once again under threat, cultural reconstruction offers a different timeline measured in decades, not news cycles. It’s a reminder that while geopolitics can focus on what’s being destroyed, there’s a parallel effort to define what is remembered and rebuilt. Almost 2,000 years ago, Palmyra was a critical node in the ancient Silk Road linking East and West, and evolved into an economic powerhouse and cultural hub. In today’s Syria, emerging from years of war and destruction, Palmyra also offers a vision of what the country could be again.

1 Big Deal: Saudi Arabia Maxes Out Its Desert Pipeline

Saudi Aramco has ramped Saudi Arabia’s East-West Crude Oil Pipeline (the Petroline) to its full emergency capacity, redirecting crude from Gulf coast terminals to the Red Sea port of Yanbu. Simultaneously, the UAE is pushing its own bypass route: the Abu Dhabi Crude Oil Pipeline (ADCOP) connects onshore fields to the Fujairah export terminal (outside the Strait of Hormuz) and adds additional throughput capacity. In practice, however, the two pipelines together can deliver only an estimated 3.5–5.5 million barrels per day to non-Hormuz export points.

Why we care: Saudi’s Petroline was built in 1981 for precisely this scenario — a Gulf war that closes the Strait of Hormuz — and it is now doing that job for the first time at scale. But even using these alternative routes, there still remains a significant deficit (and risk: oil facilities in Fujairah, for example, were attacked by drones earlier this week) in the supply of oil coming from the region. The combined Saudi Petroline and UAE ADCOP bypass capacity reaches only 3.5–5.5 million barrels per day, according to the International Energy Agency — covering barely a quarter to a third of the roughly 20 million barrels per day that typically transit the Strait, leaving the remainder with no alternative route to market. The gap between available bypass capacity and total Hormuz flows reflects a structural reality that no single country could have been expected to fully hedge against: the sheer volume transiting the Strait has always exceeded what any overland infrastructure could realistically replace. For the past 2+ years, the Bab al-Mandeb Strait, between Yemen and the Horn of Africa, has been the region’s most consequential maritime chokepoint, with the Houthis attacking freight ships indiscriminately. Since the start of the Iran war three weeks ago, however, it has been relatively quiet. As the conflict broadens and continues to escalate across the region, this will be another key place to watch.

1 Major Policy Shift: Gulf SWFs Signal an Investment Rethink

Three of the four major Gulf economies (Saudi Arabia, the UAE, Kuwait, and Qatar) have quietly begun reviewing whether they can invoke force majeure clauses in existing contracts and scale back future investment commitments abroad. Force majeure refers to unforeseeable events beyond a party’s control, such as a war, that excuse them from fulfilling a contract. The Financial Times first reported the development on March 5, citing a Gulf official who confirmed the reviews were underway to offset war-driven budget strain without specifying which three economies were carrying out the review. Unsure how long this war will last and what the damage assessment will ultimately be, Gulf countries are contending with pressure on their budgets from declining energy revenues, disrupted shipping through the Strait of Hormuz, a spike in defense spending, and damage to tourism and aviation across the region. QatarEnergy had already declared force majeure on LNG shipments after Iranian drone strikes on Ras Laffan, the country’s main natural gas processing hub, a direct hit to roughly 20% of global LNG supply.

Why we care: The signal matters as much as the action. Saudi Arabia, the UAE, and Qatar collectively pledged hundreds of billions in U.S. investments following President Trump’s Gulf tour last May, commitments the White House treated as validation of its regional posture. An adviser to a Gulf government told the FT that the prospect of an investment pullback had already drawn attention inside the White House. Gulf leverage has often been assumed to run one way, but this week, the Gulf reminded Washington it runs both.

1 Source of Friction: Iran Sets Its Price for a Ceasefire

Last week, Iranian President Masoud Pezeshkian laid out Tehran’s terms for ending the war: recognition of Iran’s legitimate rights, payment of reparations from the U.S. and Israel, and firm international guarantees against future aggression. Iran has also told regional intermediaries it is particularly concerned that Israel will attack again after any current war ends, and is demanding a guarantee that neither the U.S. nor Israel will strike in the future. Iran’s foreign minister Abbas Araghchi rejected an unconditional ceasefire outright, saying, “We are ready to defend ourselves as long as it takes. And this is what we have done so far, and we continue to do that until President Trump comes to the point that this is an illegal war with no victory.”

Why we care: The gap between what Iran is asking for and what Washington is prepared to offer remains vast, while the economic clock continues to tick for everyone in the region and beyond. Tehran’s ceasefire demands, whatever their diplomatic merit, are structured (and possibly intended) to be impossible for any sitting U.S. president to accept publicly. Iran is keeping the door nominally open while maximizing economic pressure on the Gulf states hosting U.S. forces. The question is who blinks first, and whether Pezeshkian has any real leverage over the IRGC and the Supreme Council of National Security, in the wake of Israel’s strike on Ali Larijani. Both had pushed back against Pezeshkian’s apology to Gulf countries Iran has targeted, instead saying that Iran will not stop attacks until the US stops using these territories to attack Iran.

1 Under the Radar Development: The Gulf Is Building a “Petroline for Data”

Both maritime data chokepoints the Gulf depends on — the Red Sea and the Strait of Hormuz — are now effectively closed to commercial traffic. Seventeen submarine cables pass through the Red Sea, carrying the majority of data traffic between Africa, Asia, and Europe; additional cables run through Hormuz serving Iraq, Kuwait, Bahrain, and Qatar. If any are severed, the specialized repair ships cannot safely reach either passage. In response, Saudi Arabia, Qatar, and the UAE are financing six competing fiber-optic corridors through Syria, Iraq, and East Africa to give the region overland alternatives to the submarine cable routes now at risk. The most advanced is SilkLink, an $800 million project led by Saudi Arabia’s STC Group, laying roughly 4,500 kilometers of fiber through Syria to a Mediterranean landing station at Tartus.

Why we care: What the East-West Petroline is to oil, these corridors are intended to be for data: strategic redundancy built to survive a Gulf war. The Iran war has collapsed the timeline from “nice to have” to “build now.” The scramble has accelerated since Iranian strikes hit AWS data centers in the Gulf, threatening both choke points through which virtually all the region’s data traffic flows. This is also a geopolitical connectivity power play: Saudi Arabia is positioning Damascus as the spine of the region’s digital architecture, routing cables through Syria rather than Israel. The roads, cables, and trains are being designed to go through Syria. That’s a strategic bet on who could anchor the post-war regional order.

1 Fun Thing: Muscat Is Having A Moment

Oman has become a staging point for evacuation and repositioning flights, sitting just outside the most restricted Gulf airspace while still providing access to the southern bypass route via Saudi Arabia and Egypt. As airports in Dubai and Doha continue to be under fire and run very limited service, Muscat International Airport is quietly handling repatriation traffic that would normally flow through the region’s mega-hubs. Oman’s studied neutrality in the conflict — it mediated the February nuclear talks and has notably abstained from the fighting — has made it one of the Gulf’s safe havens, even as it absorbs hits from Iran to its ports and energy infrastructure

Why we care: Oman has long operated as the Gulf’s discreet back channel, the address you go to when no one else will take the meeting. That quiet positioning is now paying commercial dividends: Muscat is absorbing the overflow of airlines, executives, and evacuees that the UAE and Qatar can no longer easily accommodate. This is soft power expressed through geography. Oman didn’t ask to be the region’s emergency exit, but as one of the region’s longstanding neutral mediators, it built one anyway, and right now, everyone is using it.

Open conflict involving Iran is already generating real economic costs: damage to physical infrastructure across the region (e.g. airports, hotels, AI data centers, energy infrastructure), insurance premiums are skyrocketing, a near total blockage of the Strait of Hormuz, and a spike in oil prices. But it is too early to know whether this is a temporary shock or something longer-term. With its fair share of conflicts big and small, the Middle East never fails to surprise. Although many permutations are possible, we see several scenarios emerging, each with historical precedents and similarities:

1. Scenario 1: Sharp shock, rapid recovery: A relatively short conflict (measured in weeks) stabilizes through quiet diplomacy and tacit de-escalation by the major powers. Energy flows resume, shipping lanes reopen, and the initial spike in insurance premiums and commodity prices gradually recedes as markets regain confidence that escalation is contained. The conflict ultimately looks like a severe, but temporary shock layered onto the region’s longstanding geopolitical risk premium. The Gulf’s economic transformation narrative, and push to become a global hub for capital, trade, and tourism, remains intact. As with the 12-day war in June 2025, investors shrug their shoulders and treat the conflict as yet another sporadic outbreak of regional volatility rather than a reason to exit the market altogether.

2. Scenario 2: Protracted conflict, structural economic impacts: A longer war (months or longer) between the remnants of the regime and a coalition of U.S., Israeli, and possibly some regional forces generates sustained disruptions to energy infrastructure, shipping lanes, and regional commerce. The Strait of Hormuz remains under intermittent threat, including from the Houthis, forcing global energy markets to adapt to new supply routes while shipping and insurance costs remain elevated. Iran leans heavily on asymmetric retaliation, turning the conflict into a drawn-out war of attrition on multiple fronts, including beyond the Middle East. Over time, markets start pricing a higher risk premium for the broader region, making capital more expensive and slowing the Gulf’s ambitions to position itself as a safe, stable hub for investment.

3. Scenario 3: Internal fragmentation and regional proxy competition: The conflict weakens Iran internally, opening the door to competing factions, insurgent movements, and regional actors backing different groups inside the country. As in Iraq post-2003 or Syria post-2011, external actors begin backing rival political and military actors, turning Iran into a fragmented conflict zone rather than a unified actor. The resulting instability prolongs violence, complicates energy and export activity, and creates new security risks along Iran’s land borders (which exceed 3,600 miles in length and are shared with Iraq, Türkiye, Azerbaijan, Turkmenistan, Afghanistan, and Pakistan). In this scenario, economic impacts come less from a decisive shock and more from chronic instability that could hamper trade flows, global energy markets, and regional alliances.

The Middle East has always found a way to absorb volatility, but the magnitude and stakes of this conflict are greater. The difference will come down to the war’s duration and spread, whether trade routes remain open, and whether investors begin to question the region’s core economics. The situation is dynamic, and moving faster than either of us can refresh our feeds. Having said that, here are a handful of the key themes we are closely monitoring:

Energy Markets Under Strain

The energy market is the most immediate domain in which the Iran conflict is affecting the global economy, although the scale of the shock will depend heavily on duration. The central issue is the Strait of Hormuz, which normally carries roughly a quarter of global seaborne oil trade and about a fifth of LNG shipments. Tanker traffic through the chokepoint has slowed to a near standstill amid missile and drone threats, rattling traders who only weeks ago expected a global crude surplus.

The conflict is touching physical energy infrastructure across the Gulf: QatarEnergy temporarily halted operations at Ras Laffan, the world’s largest LNG export facility, Saudi Arabia suspended operations near the Ras Tanura refinery and terminal after drone strikes (although it announced it would restart the refinery just this week), and Israel has shut some offshore gas fields, forcing Egypt to seek alternative LNG imports.

Interestingly, East Asian governments are already moving defensively. China has reportedly told refiners to suspend diesel and gasoline exports, and Japanese refiners are urging the government to tap strategic reserves, highlighting how quickly the shock is cascading outside the region. In a further sign of how governments are scrambling to stabilize supply, the U.S. Treasury Department’s Office of Foreign Assets Control recently issued a temporary 30-day sanctions waiver allowing Indian refiners to purchase Russian crude already at sea, a stopgap measure intended to keep oil flowing into global markets amid the disruption. And the International Energy Agency, a coordinating body for 32 countries that collectively maintain strategic petroleum reserves, has said it would release 400 million barrels of oil in the market, 172 million of which are to be released by the US. This would be the largest coordinated release since the organization’s founding in response to the 1973 Arab embargo.

Brent Crude Oil Prices (1970–2026, adjusted for inflation)

Source: U.S. Energy Information Administration

Early stabilization signals would include a resumption of tanker insurance coverage and traffic through the Strait of Hormuz, Qatar restarting LNG exports at scale, and Gulf producers shifting barrels through pipeline bypass routes in Saudi Arabia and the UAE.

If those indicators materialize relatively quickly, the market could treat the episode as yet another geopolitical premium layered onto oil prices rather than the beginning of a sustained supply shock. Oil prices returned to the mid-$80s after nearly hitting $120 earlier this week, reviving fears about the type of energy-driven inflation shock last seen after Russia’s full-scale invasion of Ukraine. The situation remains volatile; as of this writing, oil prices surged back toward $100 a barrel after two tankers were attacked in Iraqi waters. These attacks offer a stark reminder that energy infrastructure across the entire region is at risk, not just in the Strait of Hormuz, and that even the IEA’s historic reserve release may be insufficient to offset ongoing disruptions.

Chokepoints and Commerce: Trade, Shipping, and Logistics

The conflict is also spilling into the Gulf’s trade, travel, and logistics corridors, demonstrating how indispensable the region is to global commerce. Tanker traffic is reportedly down 90% from a week and a half ago. Iran has reportedly deployed dozens of mines in the Strait of Hormuz — retaining the capacity to deploy hundreds more — prompting the U.S. military to destroy 16 Iranian minelaying vessels, although even partially mined waters could extend shipping disruptions well beyond any ceasefire, as clearance operations typically take weeks or months.

Ports in the UAE, Oman, Bahrain, and Saudi Arabia are central nodes in transcontinental shipping between Africa, Europe, and Asia. In recent days, several of these ports have been hit by Iranian drone strikes and major global container shipping companies have canceled bookings and diverted all ships away from the region and around the Cape of Good Hope instead. We saw this bypass in late 2023 when the Houthis began a campaign of sustained attacks on commercial vessels traveling through the narrow passage in the Red Sea, which leads to the Suez Canal, a major transcontinental trade artery. Cape of Good Hope routes can add up to two weeks of transit time and higher operating costs. The current conflict has now extended that volatility to the Strait of Hormuz, pinching both of the region’s core maritime routes.

For companies still sailing in the Gulf, maritime insurance premiums are also skyrocketing, adding hundreds of dollars to the cost per container on a typical large container ship, as war-risk coverage for a single voyage can climb into the millions of dollars compared with only tens of thousands in normal shipping lanes. In an attempt to keep these shipping lanes open, President Trump announced that the U.S. Navy might escort commercial ships through the Strait of Hormuz and the U.S. Government announced that it will backstop insurance policies for companies moving goods and energy through the strait.

Airports across the region—and the skies above—have been similarly impacted. Airports in Kuwait and Dubai have both been hit. Dubai International Airport, the world’s busiest airport for international passenger travel and one of the largest air-freight hubs globally, briefly closed, but has begun gradually resuming operations this week. In a concrete sign of how the conflict is upending travel and logistics from major carriers, British Airways announced it would cancel all flights to Amman, Bahrain, Doha, Dubai, and Tel Aviv until later this month, and to Abu Dhabi until later this year. Meanwhile, the cost of sending goods from Asia to Europe has risen by nearly 50% since the war begun, according to some estimates.

Whether the conflict is short or lingers, it is already clear that the disruptions to global commerce are extending well beyond the energy supplies the Middle East has long provided. They underscore how deeply integrated the region has become in global trade and logistics.

Regional [Re] Alignment?

One of the more consequential risks of the Iran conflict is whether it forces a strategic realignment across the Gulf. In the months before the current escalation, most Gulf governments actively sought to avoid this scenario, instead lobbying Washington earlier this year to avoid a direct confrontation with Iran. Several powers, notably Saudi Arabia and the UAE, spent the years prior to the 10/7 Hamas attacks on Israel cautiously rebuilding relations with Iran to reduce regional tensions. This war, however, is pulling them back into a contest they had hoped to sidestep. Commentary from figures such as former Saudi intelligence chief Prince Turki al-Faisal and Kuwaiti academic Bader al-Saif reflect frustration that Gulf states are becoming principal actors in a conflict they did not choose.

A key question for markets and policymakers is whether these states remain defensive or begin aligning more overtly with the US-Israel camp. Early signals are ambiguous. A recent phone call between Saudi Crown Prince Mohammed bin Salman (MbS) and UAE President Mohammed bin Zayed (MbZ)—two leaders whose countries experienced elevated tensions recently over differing approaches to important regional conflicts, notably Yemen and Sudan—suggests a renewed effort to coordinate security policy as regional tensions rise.

Some have hinted that a direct Iranian strike on Gulf infrastructure could trigger a far more forceful response than in past crises. For example, influential Saudi commentator ‘Ali Shihabi suggested that a major Iranian attack comparable to the 2019 strike on Saudi oil facilities could lead Riyadh to target Iran’s Kharg Island export terminal, through which the majority of Iran’s oil exports pass. The UAE, which has generally pursued a cautious posture toward Tehran, is also an important player to watch. MbZ’s recent Tweet emphasizing national readiness and unity, as well as comments stating that the UAE “...has thick skin and bitter flesh; we are not an easy prey,” underscore that Gulf governments are preparing their populations for a period of heightened risk. If these states move from hedging between Iran and Western partners toward deeper security coordination with Washington and each other, the geopolitical map of the Gulf, carefully recalibrated over the past several years, could shift again in ways that outlast the conflict itself.

Capital Under Fire

The Gulf has worked hard to transform itself from a source of capital (courtesy of its abundant energy resources) to a destination for that capital, an idea that has gained traction recently. Traveling through the Middle East just last month, President and Chief Operating Officer of Blackstone Jon Gray said he saw a “tipping point” for deals in the region. There has been a visible bump in activity and focus from global banks, private equity firms, and investors committing large sums of capital in the Gulf’s booming infrastructure, technology, and tourism sectors.

Vision 2030 has focused on transforming Saudi Arabia’s economy and society from within. In order to be so inwardly focused, the Kingdom’s foreign policy has been predicated on preserving order and keeping conflict away from its doorstep. From reaching an informal truce with the Houthis in Yemen (although a formal peace deal has yet to materialize) to co-leading diplomatic efforts alongside the US to manage the conflict in Sudan, the Kingdom has pursued regional calm across the board.

Meanwhile, the UAE’s brand has been that of a prosperous island of stability: a five-star, high-tech, modern, Arab version of Singapore or New York. Abu Dhabi and Dubai consistently top the rankings for the world’s cleanest and safest cities, and the Emirates has become a veritable melting pot of expatriates and a global commercial hub. Drones and missiles have begun disrupting daily life in the UAE, but the government has moved quickly to reassure its population and project confidence. The tourism sector is also absorbing significant damage. The conflict is costing the region’s tourism industry an estimated $600 million per day in lost visitor spending, according to the World Travel & Tourism Council, with over 80,000 short-term rental bookings in Dubai alone cancelled in a single week and roughly 4 million travelers stranded by five days of regional flight cancellations. Even as Iranian drones struck, the UAE announced the completion of a comprehensive economic agreement with Japan, an act of both defiance and forward-looking intent.

According to some calculations, the UAE has spent upwards of $1 billion per day to defend itself against Iranian attacks. The economic consequences of sustained conflict could be severe if investors lose confidence in the Gulf as an island of stability in a dangerous neighborhood. There is already speculation that a prolonged conflict could pressure Gulf economies and force reassessment of overseas investment commitments — a notable risk at a moment when Vision 2030 and similar initiatives depend on attracting, not repelling, global capital.

Iran’s Fragile Domestic Economy

Iran limped into the conflict with a fragile economy already weighed down by sanctions, high inflation, and currency volatility, and the war risks accelerating a shift toward an even more opaque, security-driven economic model dominated by the IRGC. Oil exports remain the regime’s primary economic lifeline, but a growing share of those barrels are now controlled by entities tied to the defense and security apparatus, which increasingly sell crude through sanctions evasion networks rather than formal markets.

Much of that system runs through the Gulf, particularly the UAE, which for years has served as one of Iran’s most important financial conduits for trade, payments, and front-company activity. Emirati officials are now reportedly exploring a far more aggressive step: freezing billions of dollars in Iranian assets and dismantling the shadow companies and currency-exchange networks that help Tehran access foreign currency and global trade. Analysts say such a move could significantly constrict Iran’s access to hard currency, because Dubai has functioned as the central hub for processing payments tied to Iranian oil sales and other sanctioned commerce.

If these channels tighten, Tehran is likely to rely even more heavily on alternative mechanisms that have expanded in recent years, including barter trade, a shadow fleet of aging tankers used to move sanctioned crude, and crypto-based financial networks used to route payments outside the formal banking system.

The result would not necessarily collapse Iran’s economy in the short term. The regime has shown creativity, and proven adept at operating in gray markets. But it would further entrench a wartime economic structure in which state security organs, sanctions evasion networks, and informal finance increasingly substitute for normal trade and investment, deepening the long-term structural weaknesses of Iran’s economy even as the regime preserves its immediate access to cash and perpetuating structural sources of suffering and grievance among many ordinary Iranians.

Spoiler Alert[s]

Even if the core military confrontation remains geographically contained, a wide range of spoilers could expand the conflict in unpredictable ways. Cyber activity is already rising sharply: security researchers and Google’s threat analysis teams have reported a surge in Iran-linked cyber operations targeting governments, infrastructure, and tech firms worldwide, suggesting Tehran may increasingly rely on digital disruption as a low-cost way to impose economic pain on adversaries without escalating kinetically. Beyond cyberspace, the greater risk could be asymmetric retaliation. Iran historically does not respond in strictly linear fashion. Instead, it has relied on deniable networks and proxy actors capable of striking soft targets abroad, particularly Western, Israeli, or Jewish-linked institutions, a pattern seen in past attacks from Buenos Aires to Burgas.

Meanwhile, external powers are beginning to appear at the margins of the conflict. Neither Russia nor China has provided overt military backing, but reports that Moscow may be sharing satellite imagery or targeting data with Tehran and that Chinese firms are allowing shipments of key rocket precursors to reach Iran during wartime point to a quieter form of support that could gradually alter the battlefield. Beijing’s posture is particularly notable: facilitating such shipments represents a more forward-leaning stance than China has historically taken in Middle Eastern armed conflicts and could risk friction with Gulf Arab states that are major suppliers of oil to China and important markets for Chinese exports.

Finally, internal fragmentation within Iran itself could create unintended consequences. Reports that Kurdish armed groups, some allegedly backed by Western actors, are expanding activity along Iran’s borders may weaken the state in the short term, but could also fracture the broader opposition landscape, potentially strengthening the IRGC’s narrative that the country faces foreign-backed destabilization. In other words, the longer the conflict continues, the greater the chance that actors operating at the periphery (e.g. cyber units, proxy networks, opportunistic great powers, and internal insurgent groups) could reshape the conflict in ways none of the principal combatants fully anticipate or control.

What to Watch Next

The Iran conflict’s economic consequences are already spreading well beyond the battlefield, but the ultimate trajectory will likely depend on three interrelated variables: duration, geographic spread, and market confidence. In the near term, the most visible shocks are in energy markets and global trade logistics, where disruptions to the Strait of Hormuz and regional infrastructure are pushing up oil prices, shipping costs, and insurance premiums while forcing companies to reroute supply chains across longer and more expensive routes.

But the deeper question is likely whether the conflict begins to erode the broader economic architecture the Gulf has spent the last decade building, one centered on stability, open trade corridors, and the region’s emergence as a safe destination for global capital. If hostilities stabilize relatively quickly and shipping flows resume, markets may ultimately treat the episode as another geopolitical risk premium layered onto Middle Eastern assets. If the war drags on, however, the consequences could extend much further: Gulf states may move toward tighter security alignment with Western partners, investor confidence in hubs such as Dubai or Riyadh could be tested, Iran’s economy may retreat further into sanctions evasion networks dominated by the IRGC, and spoilers could widen the conflict’s economic footprint.

In short, while the Middle East has historically absorbed volatility, the scale of this confrontation means the stakes are higher: what began as a military crisis is increasingly becoming a test of whether the region’s economic integration with global markets can withstand sustained geopolitical shock against the backdrop of behavior from the US and Israel that is anything but predictable.

1 Source of Friction: Middle East Conflict Hits Oil & Inflation Risks: Escalating U.S. and Israeli airstrikes on Iran, including reported targeting of senior leadership and key military infrastructure, have sharply increased energy market tension, with Brent crude jumping toward ~$80-plus a barrel as of Monday and trading through the Strait of Hormuz — a chokepoint for ~20 % of global oil — effectively curtailed as shipping hubs avoid risk.

Why we care: Even before broader disruption of regional oil flows, markets are pricing in significant risk premiums, with analysts warning prices could top $100 a barrel if the strait remains inaccessible and supply drops (to date: Qatari, Saudi, and Israeli oil and gas fields have been disrupted with some production curtailed) — a dynamic that could add materially to global inflation and complicate the macro outlook for central banks and governments alike. As inflation expectations rise, not only are fuel costs set to climb at the consumer level, but broader cost pressures could erode purchasing power and slow growth, raising the stakes for policymakers in Washington, Riyadh, Beijing and beyond.

1 Policy Shift: From Maximum Pressure to Operation Epic Fury: One of the more significant policy shifts on Iran erupted over the weekend as the U.S. and Israel abandoned years of more limited, surgical action across the military, economic, and cyber domains in favor of direct, large-scale military action against the Iranian regime, killing Supreme Leader Ali Khamenei and dozens of senior military commanders.

Why we care: Dubbed Operation Epic Fury, the joint strike represents a shift in U.S. policy toward decapitation of the regime and the destruction of both Iran’s nuclear and military infrastructure. Following the inconclusive end to indirect nuclear talks in Geneva earlier in February, in which Washington demanded the total dismantlement of Iran’s program and argued for zero enrichment, President Trump authorized a massive military operation against the regime, which could create permissive conditions for a new political reality in Iran. The strikes – which are ongoing and which we are tracking closely across domains – are another nail in the coffin of the Axis of Resistance deterrence paradigm. Nonetheless, a successful decapitation strike against Iran could likely prove more difficult than the operation that captured former Venezuelan President Nicolás Maduro due to Iran’s superior military capabilities, larger geographical size, deeper institutionalization of the regime, and stronger ability to retaliate asymmetrically, including in the cyber domain and through terrorist attacks.

1 Big Deal: Hapag-Lloyd to Acquire ZIM Shipping in $4.2 billion deal

Germany’s Hapag-Lloyd agreed to acquire Israel’s ZIM Integrated Shipping Services for about $4.2 billion, offering $35 per share — a 58% premium that elevates Hapag-Lloyd into the world’s fifth-largest container carrier with a fleet of 400+ ships and expanded global routes. Part of ZIM’s business that serves Israeli trade lanes will be carved out and sold to Israeli private equity firm FIMI to satisfy national security concerns. These concerns stemming from Hapag-Lloyd’s shareholder base, which include major Gulf sovereign investors such as Qatar Holding and Saudi Arabia’s PIF, embedding regional state capital within one of Europe’s most strategic shipping groups amid heightened Red Sea and Strait of Hormuz volatility.

Why we care: The deal is a major consolidation in global liner shipping at a time of elevated logistical strain, geopolitical risk, and supply-chain reconfiguration. It also underscores how sovereign and private capital are reshaping control of maritime infrastructure. The deal’s structure, which splits domestic Israeli operations from the global network, reflects how national security considerations are being baked into cross-border acquisitions in strategic sectors.

1 Under the Radar Development: Modi visits Israel

Last week, India’s Prime Minister Narendra Modi visited Israel for the first time since 2017 for a two-day visit focused on deepening and expanding Israeli-Indian strategic relations.

Why we care: The visit, coming just before the joint U.S.-Israeli attacks on Iran, reinforces India’s efforts to cultivate ties across the Middle East and with the West in support of its broader security and economic ambitions. New Delhi and Jerusalem committed to finalizing a free trade agreement and deepening cooperation across a range of sectors, from AI and quantum computing to agriculture and defense. At a moment when Israel finds itself increasingly isolated on the world stage, India’s embrace is significant, and carries broader regional implications, such as the viability of the India-Europe-Middle East Corridor (IMEC).

1 Fun Thing: Jews in Israel and worldwide celebrate Purim

As tensions between Israel and Iran have intensified, Jews in Israel and around the world marked Purim. The festive holiday recalls the ancient story of survival in Persia more than 2,500 years ago, a narrative whose themes of threat and resilience felt especially resonant for many this year.

Why we care: Purim tells the story of Jewish survival under Persian rule, a narrative recited annually for millennia. This year, its themes of existential threat, resilience, and reversal of fortune carried unmistakable contemporary resonance, as Israelis celebrated from bomb shelters amid missile fire from the territory of the modern Iranian state. In the Middle East, history is rarely distant — and ancient storylines often echo in present-day geopolitics. The overlap between collective memory and real-time conflict underscores how identity, strategy, and national psychology in the region are often shaped as much by historical consciousness as by immediate military calculus.

1 Big Deal: Chevron to explore for oil and gas offshore Syria: Chevron and Qatar-based holding company, PIH, signed a memorandum of understanding with the state-owned Syrian Petroleum Company to explore offshore oil and gas opportunities in Syrian waters.

Why we care: This is a tangible test of Syria’s economic reopening. U.S. corporate engagement—particularly in oil and gas—suggests Washington’s policy shift is translating into commercial activity backed by Saudi and Qatari capital. Syria sits within the Eastern Mediterranean basin, which has already delivered major offshore natural gas discoveries for Israel, Cyprus, and Egypt, alongside early-stage offshore development for Lebanon. In recent years, these assets have begun to reshape regional energy dynamics, serving as both commercial resources and catalysts for deeper energy integration. Meanwhile, a consortium of U.S. and Saudi energy companies, including Baker Hughes and Hunt Energy, are exploring onshore in Northeastern Syria. Since many of Syria’s energy assets sit in Kurdish-held territory, the agreement could alter the evolving balance of economic leverage between Damascus and the SDF, while embedding U.S. private-sector interests into Syria’s reconstruction trajectory.

1 Major Policy Shift: Saudi Arabia Expands Defense Industrial Cooperation with Türkiye: Saudi Arabia and Türkiye signed an expanded framework agreement deepening defense industrial cooperation, including joint production and technology transfer tied to drone systems and advanced manufacturing.

Why we care: The move reflects Riyadh’s push to localize defense production under Vision 2030 while diversifying suppliers beyond traditional Western partners. For Ankara, it reinforces Türkiye’s emergence as a major defense exporter across the Gulf. This is less about procurement and more about industrial policy, signaling a shift toward regionalized defense ecosystems. Saudi Arabia is turning to Türkiye in part because Ankara is more willing to transfer technology and co-produce systems than Washington, which remains constrained by congressional oversight and export controls. For Türkiye—a leading regional arms exporter—supplying the Kingdom is both hard power and soft power projection, feeding speculation about alignment between Pakistan, Saudi Arabia, and Türkiye.

1 Source of Friction: Red Sea Security Tensions Resurface: Just as global shipping companies re-start routing vessels through the Red Sea and Suez Canal—including Maersk’s decision in January to resume transits through the Strait of Hormuz and key Red Sea lanes following months of disruption—renewed attacks on commercial vessels prompted additional U.S. and European naval responses and sharper rhetoric from regional actors. The timing underscores how fragile confidence remains: even tentative commercial normalization can be disrupted by a handful of asymmetric strikes.

Why we care: After two years of attacks by the Yemen-based Houthis on international shipping in the Red Sea, one of the world’s most critical trade corridors remains under strain. The route feeding into the Suez Canal is not just another maritime lane. It is a primary gateway (and chokepoint) for global markets, carrying roughly 12% of global trade and serving as a central artery for energy, goods, and supply chains linking Asia, Europe, and beyond. Even limited maritime disruptions raise insurance costs, freight rates, and energy price volatility along one of the world’s most critical trade corridors. The episode underscores how localized militia activity can be disruptive globally, generating systemic economic risk—and how fragile the current deterrence architecture remains, even at a time when two U.S. aircraft carrier strike groups are now in the region.

1 Under the Radar Development: U.S.-Brokered Western Sahara Talks Between Morocco and Algeria: U.S. officials quietly facilitated renewed diplomatic engagement between Morocco and Algeria over Western Sahara, marking the first structured talks over the disputed territory in years between the regional rivals. The last time Western Sahara featured prominently on a Trump administration agenda was in December 2020, when Washington recognized Moroccan sovereignty over the territory as part of Rabat’s normalization agreement with Israel under the Abraham Accords.

Why we care: Western Sahara has long been a frozen conflict with outsized geopolitical implications, shaping Algerian-Moroccan relations, African Union politics, and European energy ties. Even exploratory dialogue reduces escalation risk and signals Washington’s renewed interest in stabilizing North Africa – traditionally more of a priority for the EU than the US – at a moment of shifting alliances and energy recalibration.

1 Fun Thing: Doha Hosts Major International Design & Art Week: Qatar hosted Art Basel Qatar, a large-scale international design and art week that drew global galleries, architects, and cultural institutions to Doha’s expanding museum and creative district.

Why we care: Cultural diplomacy remains central to Qatar’s post–World Cup positioning. Large-format art and design platforms reinforce Doha’s role as a convening hub and signal that soft power investments continue well beyond mega-sporting events. Culture, in this context, is infrastructure.

I remember staring at the wall-sized periodic table in 11^th grade chemistry and deciding, pretty definitively, that I was not destined for the sciences. I gravitated toward liberal arts – writing, politics, history – convinced that I’d never hear the words tantalum and gallium again.

Which is why it still makes me laugh that when I joined the U.S. government, my very first overseas trip was to Mining Indaba, the largest mining and minerals conference in the world. Every year, thousands of people from dozens of countries descend on Cape Town, South Africa, from CEOs and investors to heads of state and senior ministers, to discuss the elements that had just seemed like a jumble of symbols back in chemistry class.

That trip, in retrospect, was an early signal of what’s now unmistakable. Critical minerals are not only the stuff of chemists and engineers. They are the raw materials needed to manufacture a wide range of strategic technologies – from semiconductors to AI chips to missile systems and more – that have become essential national security assets. What may have once felt like an obscure corner of industrial policy is now one of the world’s most contested geopolitical domains. Over decades, China has built a near monopoly across the mining, processing, and refining of critical minerals, creating a major vulnerability for countries, including the U.S., who have centered their leadership roles and economic futures around technology.

Since President Trump took office last year, securing access to critical minerals has become a more visible pillar of U.S. foreign policy, which has been hard to miss if you’ve been tuning into Oval Office meetings. In meeting after meeting, critical minerals and supply chains are a centerpiece of the conversation. And last week, Secretary of State Marco Rubio convened leaders from more than 50 countries for a critical minerals ministerial meeting meant to showcase the Administration’s strategy and tools to support minerals projects and aligned supply chains.

The White House’s recent preoccupation with Greenland is also a visible manifestation of the supply chain focus if conceived not as conquest of territory belonging to a NATO ally or an abstract race to counter Russia and China in the Arctic, but rather as a form of “supply chain annexation” focused on the country’s massive deposits of rare earth elements. But most of America’s international supply-chain moves are not hostile. They look like joint ventures, investment partnerships, and quiet coordination between allies who’ve all come to the same conclusion: the race for AI, energy, and defense will be won or lost not only in technological innovation, but in control of the raw materials that make those technologies possible. Taken together, the United States is embracing a much more assertive vision of economic statecraft, one that views control over supply chains as a prerequisite for technological leadership in the 21st century.

There is precedent for this approach. Long before critical minerals became a top geopolitical issue in Washington, Japan and South Korea treated access to key materials as a strategic imperative. As two of the largest export-driven industrial economies with almost no domestic energy or critical minerals supplies, for decades, both countries built institutions to invest in energy and minerals overseas to secure the energy and minerals their industries depended on. What’s new today is not the model itself, but the scale at which it is now being deployed.

That’s where the Middle East comes in.

For decades, the region’s strategic relevance to Washington was defined almost entirely by energy. Today, hydrocarbon powerhouses Saudi Arabia, the UAE, and Qatar are positioning themselves as partners in a different kind of security projectn – financing, processing, and aligning supply chains important to the United States. Some of these moves are highly visible; others take the form of quieter (yet massive) capital deployment. And within the GCC, Riyadh, Abu Dhabi, and Doha are pursuing different strategies as they compete with each other for economic and political leadership. Yet together, they signal a region poised to play an outsized role in the critical minerals race, mirroring the prominence it is already assuming in the race for AI supremacy.

For years, Gulf sovereign wealth funds largely approached the mining sector as investors. They invested in large, publicly-listed mining companies, which was useful for portfolio diversification and reliable returns, but they were minority shareholders and couldn’t shape assets or supply chains. The UAE, Saudis, and Qataris have all done this, and they continue to do so.

What’s different now is that this approach no longer tells the whole story. Alongside minority-stake investments, Gulf capital is moving upstream into operating assets, consortium-backed platforms, and corridor-linked projects that connect mines to processing, logistics, and offtake. The shift in resources reflects a more strategic and longer-term view of the mining opportunity, where projects can take years to get off the ground and even longer to reshape supply chains. Gulf countries are not doing this in the same way. Saudi Arabia is building toward industrial capacity and scale, while the UAE and Qatar are building financial leverage. But the intent is clear: the Gulf is prepared to deploy patient capital and use its financial leverage to have an oversized impact in this sector and the geopolitics surrounding it.

Saudi Arabia: Building an Industrial Minerals Hub

Saudi Arabia is making a big bet that it can become a global mineral industrial hub and anchor entirely new supply chains that will both feed the Kingdom’s domestic growth and geopolitical ambitions. The best place to start with Saudi ambitions in critical minerals is, like many other economic moves, Vision 2030, Mohammed Bin Salman’s strategy for economic transformation in the kingdom. Vision 2030 elevated minerals and mining as a pillar and Saudi’s ubiquitous sovereign wealth fund, the Public Investment Fund (PIF), used state-owned company, Maaden, to develop Saudi’s domestic mineral resources and invest in mines overseas to secure long-term supply of inputs for Saudi Arabia’s economic growth and diversification plans. The Saudis estimate that they have $2.5 trillion in mineral resources, including gold, zinc, copper, phosphate and lithium, as well as rare earth elements – the latter which seems to have the most ambitious agenda, especially vis-à-vis the United States.

When China imposed new export controls on rare earths in late 2025, America’s dependence on China for its own technological future became front-page news. The vulnerability was suddenly impossible to ignore. China dominates the supply of more than a dozen critical minerals essential to high-powered magnets, batteries, semiconductors, lasers, optical systems, and beyond. Most troubling of all, however, is that China controls more than 90 percent of global processing and refining capacity for these materials, giving Beijing leverage not just over supply, but over the entire value chain.

Saudi Arabia has seen a notable uptick in exploration licensing activity, with hundreds of active exploration licenses (including to Chinese firms) and large new issuance rounds in late 2025, supporting its push to unlock mineral wealth. Beyond its large undeveloped reserves of rare earths, the Kingdom is also positioning itself to become a global rare earths processing hub. With cheap scalable energy and a strategic location between Africa, Asia, and Europe, Saudi Arabia is betting it can become a regional processing hub. As an early sign of confidence, MP Materials, the U.S.’s largest rare earth materials producer, announced it is teaming up with Maaden to build a rare earth refinery in the Kingdom, backed by a $400 million investment and offtake agreement from the U.S. Department of War.

The UAE and Qatar: Innovative Financing as Strategy

The UAE and Qatar aren’t charging into the mining sector with the same ambition as their Saudi cousins, but they are moving capital in targeted, strategic ways, often alongside the United States. Their approach isn’t about building mines or owning processing capacity, but using their formidable financial heft in ways to put their own national stamps on global critical minerals supply chains.

Earlier this year, the U.S. government, Orion Resource Partners, and Abu Dhabi Developmental Holding Company (ADQ), one of the Emirates’ sovereign wealth funds that focuses on economic diversification, launched the Critical Minerals Consortium. This $1.8 billion public-private investment platform (to start) is designed to invest in existing mines or those close to production and manage offtake agreements aligned with the Western partners. Similarly, the Qatar Investment Authority (QIA), Qatar’s sovereign wealth fund, invested $180 million in Techmet, a U.S. government-backed investment fund that invests across the critical minerals value chains with a sharp focus on expanding U.S.-aligned processing, refining, and manufacturing capacity.

This model reflects a broader shift in how strategic minerals are being financed. Instead of governments picking individual mines, they are backing platforms that can finance mines, processes, stack public and private capital, manage offtake, and adapt to political constraints. For Gulf partners, the consortium offers global reach without building a national mining champion. For Orion and Techmet, it lowers political risk and accelerates deal flow. And for Washington, it creates a mechanism to steer supply chains without owning assets. The result is a new model of financial statecraft, blending public capital and private capability in a way few actors outside the Gulf can replicate. These deals also sit alongside a U.S.-led coalition called Pax Silica which is trying to coordinate silicon and semiconductor supply chains, AI and digital policies, and investment around critical technology infrastructure. This effort already has a strong Middle East representation, including the UAE, Qatar, and Israel. (I wrote about the logic behind Israel’s inclusion in Pax Silica here)

In parallel, both Gulf states are also investing directly in mines and global mining companies. For example, in March 2024, UAE-controlled International Holding Company acquired a controlling stake in Mopani Copper Mine in Zambia. Mopani sits at the heart of the Lobito Corridor - a rail and logistics route linking Zambia and the Democratic Republic of the Congo (DRC) to the Angolan coast - that has become a major political and financial priority for the United States and the European Union. DRC is the second largest producer of copper in the world with 8% of global copper reserves. The U.S. International Development Finance Corporation recently signed an MOU with IHC so we’ll certainly be watching for more U.S.-UAE deals in critical minerals, including those along priority economic corridors.

It is also worth noting that these moves sit alongside massive Gulf investment commitments to the United States announced around President Trump’s visit to the region last year. Saudi Arabia, the UAE, and Qatar all pledged hundreds of billions of dollars toward U.S. projects. Some of that money is landing in mining, processing, and refining - clear priority areas for Washington. An example of this is the recent partnership between Emirates Global Aluminium and Century Aluminum to build the first new primary aluminum smelter in the United States in nearly 50 years. The project highlights how Gulf capital is not only securing overseas minerals, but also supporting U.S. mining and industrial capacity at home.

In the broader context of strategic competition and the global race for critical minerals, the region’s strategy is still being written. What may look like newly aggressive moves to secure assets across the value chain actually align closely with a much more assertive U.S. posture. Japan and South Korea have been doing this for decades. The difference is scale. Where Japan and South Korea channeled relatively modest pools of capital to support their industries, the Gulf can deploy vastly larger balance sheets in ways that could undoubtedly tilt the race. We are no doubt in the early days of a major recalibration of alliances and capital focused on diversifying and securing supply chains. This is central to U.S. economic and national security policy, and America’s partners across the Middle East are not bit players. They are fundamental to how Washington is trying to shape and win this race.

1 Big Deal: Libya Signs $20bn 25-Year Oil Development Agreement: Libya signed a 25-year oil development agreement worth over $20 billion with France’s TotalEnergies and U.S. firm ConocoPhillips to expand production at the Waha Oil Company, a subsidiary of Libya’s state-run National Oil Company.

Why we care: This deal—announced at the Libya Energy & Economic Summit in Tripoli—marks one of the largest foreign investment commitments to Libya’s upstream sector in years and signals a rebound in international confidence after prolonged instability. By aiming to boost capacity toward ~850,000 bpd and generate substantial state revenues over the lifetime of the pact, Tripoli is positioning itself to play a larger role in global energy markets and attract additional Western capital. The memorandum of understanding with Chevron and cooperation agreement with Egypt’s oil ministry reinforce Libya’s pivot toward integrated regional energy engagement.

1 Major Policy Shift: India Signs Free Trade Agreement with the EU: India and the European Union finalized a long-delayed free trade agreement that leaders on both sides called the “mother of all deals” after nearly two decades of negotiations, covering tariffs, services, standards, and regulatory cooperation across most bilateral trade. The deal is designed to accelerate trade flows while aligning the rules that shape how and where companies invest, produce, and source across Europe and Asia.

Why we care: This agreement adds a node to the trade triangle India has been deliberately building. With Comprehensive Economic Partnership Agreements (CEPAs) already in place with the UAE (2022) and Oman (2025), India is building a trade architecture from the Gulf to Europe that will support its export and growth ambitions across the Middle East. More strategically, the deal advances India’s bid to position itself as the world’s preferred alternative to China—as a rule-aligned manufacturing base, logistics hub, and economic partner for Europe and the Gulf at a moment of accelerating supply-chain diversification. While the politics of the India-Middle East-Europe Corridor (IMEC) remain complicated (given Israel-Saudi and intra-Gulf dynamics), India is playing the long game. By locking in trade rules with Europe and the GCC and upgrading ports and logistics infrastructure in partnership with the UAE, New Delhi is building the economic architecture that will expand trade flows through this corridor despite the political ups and downs in the region.

1 Source of Friction: Tensions Between Damascus and Syria’s Kurds: Clashes have flared between Syrian government forces and the Kurdish-led Syrian Democratic Forces (SDF) as Damascus seeks to reassert control over areas long governed with de facto autonomy. Fighting around Aleppo and in the northeast highlights unresolved disputes over military integration, governance, and resource control. The sides have announced a new ceasefire and tentative integration framework, allowing regime forces into Kurdish-held cities, but implementation remains fragile.

Why we care: The standoff underscores a core fault line in Syria’s post-war order: Kurdish autonomy versus centralized rule. How this plays out will shape security in the northeast, control of energy assets, displacement risks, and the viability of reconstruction efforts. This dynamic also creates risk for U.S.-Syria relations. Washington has long backed the SDF as its primary local partner against ISIS and remains deeply invested politically and militarily in Kurdish-controlled areas. Any heavy-handed move by the al-Sharaa government to roll back Kurdish autonomy and sideline the SDF risks triggering friction with Washington, possibly complicating sanctions relief discussions and broader diplomatic re-engagement, including with Türkiye, which is close to al-Sharaa and has fraught relations with Kurdish groups.

1 Under the Radar Development: The possible return to power of Nouri al-Maliki to Iraq: Former Iraqi prime minister Nouri al-Maliki has been nominated by Iraq’s dominant Shiite Coordination Framework as its candidate for prime minister, raising the prospect of his return to power after more than a decade. The move has drawn sharp international attention, with President Trump warning that Washington could end U.S. support for Iraq if Maliki—long criticized for sectarian governance and close ties to Iran—returns to office.

Why we care: A Maliki comeback would reshape Iraq’s internal power balance and likely strain relations with Washington, while reinforcing perceptions of Baghdad’s tilt toward Tehran, at a time when Iran is in dire need of allies. Markets and policymakers will closely watch for shifts in security cooperation, sanctions risk, and access to U.S.-linked financial channels.

1 Fun Thing: Cairo International Book Fair Draws Record Crowds: Egypt hosted the annual Cairo International Book Fair, one of the Arab world’s largest literary and cultural events, drawing millions of visitors along with regional publishers and international cultural institutions.

Why we care: The fair remains a rare mass-participation cultural event in the Middle East. It was often said that “Cairo writes, Beirut publishes, and Baghdad reads” (القاهرة تكتب وبيروت تطبع وبغداد تقرأ) Although cultural and literary production is now more distributed across the Arab world than in decades past, Egypt remains the Arab world’s most populous country and a heavyweight in culture, tourism, and diplomacy. The festival is a reminder of Egypt’s enduring soft-power and appetite for cultural life despite prolonged fiscal strain.

All statements of fact, opinion, or analysis expressed are those of the authors and do not reflect the official positions or views of the US Government. Nothing in the contents should be construed as asserting or implying US Government authentication of information or endorsement of the authors’ views.

Iran’s latest protests matter not because they guarantee imminent regime collapse — seasoned analysts and casual observers alike should have more humility — but because they expose a central paradox at the heart of the Islamic Republic’s survival strategy. Over the past decade, Tehran has built increasingly sophisticated mechanisms to withstand external economic pressure: sanctions evasion, alternative trade routes, and strategic partnerships with China and Russia. Yet these very efforts have hollowed out the domestic economy, accelerated capital flight, and steadily eroded the regime’s domestic legitimacy. What was designed to protect the state has instead destabilized the social contract on which it ultimately depends.

Iran has weathered previous cycles of unrest over the past two decades, from the Green Movement in 2009 to the 2019 fuel protests to the ‘Woman, Life, Freedom’ demonstrations following Mahsa Amini’s death in 2022. What distinguishes the current moment is not simply the scale of dissent, but also the economic context in which it is unfolding: a state that has reconstructed external lifelines while allowing its internal economic foundations to rot. The result is a regime that appears durable geopolitically, yet is increasingly brittle domestically.

Economic Unraveling

Several months ago, I argued that shifting regional dynamics were undermining Iran’s ability to extract value from the now-decrepit Axis of Resistance, particularly in Iraq, Syria, and Lebanon. The picture has not gotten prettier for the regime. The rial lost roughly 84 percent of its value over the course of 2025, rendering it effectively unusable as a store of value. Inflation has climbed to and hovered above 40 percent, catalyzing this latest round of anti-regime protests. In September, the UK, France, and Germany triggered a UN mechanism to reimpose international sanctions after Iran failed to meet its JCPOA obligations. Tehran remains cut off from global banking networks, its foreign exchange reserves are shrinking, and chronic water and energy shortages have become so acute that President Masoud Pezeshkian floated—remarkably—the idea of relocating the capital away from Tehran.

External Lifelines, Internal Brittleness

In response to its diminished regional leverage and the beating it took during the 12-day war in June, the regime has doubled down on cultivating strategic depth through China and Russia. Beijing has emerged as Iran’s most important economic lifeline, purchasing around 90 percent of Iranian oil exports despite U.S. efforts to curb demand via sanctions on so-called “teapot” refineries. As the Wall Street Journal has reported, China effectively pays for this oil through a sanctions-evading barter system: Iranian crude is exchanged for Chinese-built infrastructure projects, financed off-book through opaque financial channels and insured by a state-owned export credit agency, neatly bypassing the international banking system.

Iran’s partnership with Russia is even more expansive. In 2024, the two countries integrated their payment systems by linking Iran’s Shetab network with Russia’s Mir system. Tehran has been unusually explicit in its material support for Russia’s war on Ukraine, most notably through cooperation on drone technology. By mid-2023, Russia had launched a factory in Tatarstan to produce Iranian-designed Shahed drones at scale. Unsurprisingly, the two heavily sanctioned states have also collaborated to move oil outside formal markets. A Bloomberg investigation and designation by the U.S. Treasury Department revealed how Hossein Shamkhani—the son of a senior regime insider and top advisor to the Supreme Leader—has played a central role in facilitating Russia’s illicit oil trade.

These arrangements have enhanced regime durability, by generating hard currency, sustaining core security institutions, and signaling defiance abroad. But they have also cast into stark relief the widening gap between regime survival and societal survival. Sanctions evasion has not translated into improved living standards for ordinary Iranians. Instead, it has entrenched a predatory political economy dominated by insiders, intermediaries, and security-linked firms, often with close IRGC ties. Economics professor and expert in Iran’s economy Djavad Salehi-Isfahani estimates that Iran experienced between $10 billion and $20 billion in capital flight last year alone—a damning indicator of elite pessimism about the country’s economic future. Money is leaving because confidence has collapsed.

As Azadeh Moaveni recently detailed in the Financial Times, the most recent protests are rooted less in ideological demands than in raw exasperation. They began in Tehran’s Grand Bazaar among small shopkeepers unable to keep pace with the collapsing rial, then spread to low-income districts and provincial towns. These are constituencies—the mostazafin (the honorably oppressed), in the regime’s own lexicon—that once formed the backbone of the Islamic Republic’s social base. Today, that base could be fracturing. Years of inflation above 30 percent, combined with distorted exchange-rate subsidies that reward connected importers while punishing ordinary consumers, have broken the social contract. Food prices, particularly staples like chicken, have become symbols of systemic mismanagement. This is not episodic unrest; it is structural exhaustion.

Control is Not Governance

Technology offers another striking lens into the regime’s priorities. In spite of decades of financial warfare, Iran has managed to acquire and embrace advanced tools where they reinforce coercion and regime resilience, but not citizen empowerment. Tehran has used AI-enabled operations to interfere in foreign elections, collaborated with Russia on unmanned aerial vehicles, and increasingly turned to cryptocurrency to evade sanctions. Last year, Iran’s Ministry of Defense’s export arm reportedly began offering advanced weapons systems for sale in cryptocurrency—an extraordinary (and brazen) signal of how normalized circumvention has become.

This approach stands in sharp contrast to regional peers. Saudi Arabia and the UAE are aggressively partnering with U.S. technology firms to position themselves as global hubs for artificial intelligence and advanced services. Israel remains a world leader in cyber innovation in spite of its own challenges. By contrast, Karim Sadjadpour has aptly described Iran’s strategy vis-à-vis that of its neighbors as “Vision 1979 vs Vision 2030”: a model in which technology serves surveillance, repression, and survival, rather than productivity, inclusion, or growth.

Post-Endurance?

What comes next is uncertain. Iran has faced mass protests before, but the participation of bazaar merchants—a historically pivotal class—raises the risk of contagion. Initial reports suggested that against the backdrop of the ongoing Internet blackout, authorities have killed at least 3,000 protesters and possibly closer to 4,000, underscoring both the regime’s penchant for violence and its fear of losing control. Even if the current system eventually gives way, expectations of a clean democratic transition are likely deeply misplaced. As Arash Azizi has argued, the most plausible successor is not liberal democracy, but rather a more openly authoritarian, IRGC-dominated order—less ideological, more nationalist, and focused on preserving elite interests.

The regime faces competing imperatives: addressing acute domestic economic collapse while recalibrating a foreign policy that has become increasingly costly and unproductive. There are signs that it is already becoming less revolutionary and less doctrinaire—lax enforcement of hijab rules, generational turnover among elites, and a population largely disconnected from the revolutionary mythology of 1979.

Here, the parallel with another [erstwhile] revolutionary system—the Soviet Union—is instructive. Both Marxism-Leninism and velayat-e faqih (guardianship of the jurist) rest on claims of ideological authority and a vision of society guided by doctrinal principles. In the Soviet case, it took generations after 1917 before leaders emerged who had not personally lived through the founding trauma and carnage. Perestroika (restructuring) and glasnost (openness) were Mikhail Gorbachev’s attempts to reform the Soviet system from within, and his anti-Stalinist outlook was shaped in part by personal history — both of his grandfathers were arrested under Stalin’s repressions — even as the reforms unleashed forces that the regime ultimately could not contain. Yet amid the precipitous collapse of the Iron Curtain, even a relatively peaceful dissolution in Russia produced chaos, kleptocracy, and eventual domination by the security services.

Iran’s trajectory probably will not mirror the Soviet experience exactly. But among the most compelling similarities is that the seeds of systemic decay are embedded in a deeply repressive governing ideology that privileges control over legitimacy and regime resilience over true renewal and engagement with an increasingly interconnected world. The Islamic Republic has shown it can survive pressure. It has not learned how to govern a society that no longer believes in it.

All statements of fact, opinion, or analysis expressed are those of the author and do not reflect the official positions or views of the US Government. Nothing in the contents should be construed as asserting or implying US Government authentication of information or endorsement of the author’s views.

1 Big Deal: Israel Partially Privatizes State-Owned Defense Firms
Israel announced it would partially privatize two of its largest defense companies – Israel Aerospace Industries (IAI) and Rafael – both legacy, state-owned companies since their founding in the 1950s.

Why we care: Raising capital through public markets reflects deeper shifts in the U.S.-Israel defense partnership. The US and Israel have begun negotiations on the next generation of a 10-year defense pact, following the current arrangement that provides roughly $3 billion annually in U.S. military support to Israel. At the same time, the Trump Administration has been pressing allies to assume greater responsibility for their own security – from NATO to Asia – and Israel is unlikely to be exempt. PM Netanyahu has also signaled the need for Israel to be self-reliant and phase out U.S. military assistance. The IPOs of IAI and Rafael would inject cash into Israel’s booming defense industrial base which has proven its mettle in battle over the past 2+ years across multiple theaters. As a preview of Israel’s confidence in market demand for its defense sector: Elbit Systems, Israel’s largest defense company by revenue, listed on the NASDAQ since 1996, has seen its shares nearly double over the past two years alone.

1 Policy Shift: US Launches AI Supply Chain Coalition with Middle East Partners
The U.S. State Department launched Pax Silica, a new initiative to form a trusted global coalition – which includes Israel, Qatar, and the UAE – to build, power, and secure the supply chains critical to America’s AI and technology dominance.

Why we care: The coalition also includes Australia, Japan, the UK, South Korea, Singapore, and the Netherlands, with some hints that India will soon join. This so-called “silicon statecraft” adds a formal policy frame to the surge of AI and digital infrastructure investment and partnerships in the region. It also creates a quiet pathway for increased contact between Israel and Qatar, grounded in tech cooperation, and further anchors the Middle East inside a U.S.-led technology and economic security alliance amid the global AI race with China.

1 Source of Friction: Iran saw mass protests alongside an extended internet blackout, a currency in freefall, reports of at least almost 4,000 people killed, and rising external pressure in the form of potential military action and secondary tariffs.

Why we care: No longer episodic unrest, the Iranian regime faces a systemic crisis spanning its legitimacy, liquidity, and coercive capacity. The collapse of the rial and digital shutdowns signal a state prioritizing regaining control over economic functionality, accelerating informal dollarization and capital flight. The threat of secondary tariffs also raises the stakes for Iran’s key trading partners (China, India, Iraq, Turkey and the UAE), potentially shrinking Tehran’s dwindling economic lifelines. Together, internal instability and external pressure sharply increase the risk of miscalculation by Iran or its adversaries.

1 Under the Radar Development: Following the Yemeni government’s capture of Aden on 7 January, the secessionist Southern Transitional Council (STC) reportedly dissolved, effectively ending its role as a coherent political actor.

Why we care: The STC’s collapse will affect Yemen’s internal balance of power in the anti-Houthi coalition, and has cast into relief long-standing Saudi–UAE divergences over the country’s future. A key anti-Houthi interlocutor in southern Yemen is off the board, which may simplify negotiations on paper while raising new questions about representation, local legitimacy, and long-term stability in the south. Yemen’s war hasn’t ended—but one of its most important subplots just did.

1 Fun Thing: Saudi Arabia again hosted the 2026 Dakar Rally—one of the world’s most grueling endurance races—while simultaneously opening Six Flags Qiddiya, home to the Falcon’s Flight roller coaster, set to be the fastest and tallest in the world.

Why we care: This fits into the Kingdom’s broader strategy of large-scale investment in entertainment and culture, alongside initiatives such as LIV Golf, major gaming and esports ventures, professional wrestling events, and global music festivals, and of course the FIFA World Cup, which Saudi Arabia will host in 2034. The Dakar Rally showcases Saudi terrain and logistics capacity, while Six Flags signals a long-term bet on leisure and domestic consumption. These projects won’t replace hydrocarbons, but they do underscore that the Kingdom is a multi-dimensional global destination rather than a single-sector economy.

1 Big Deal: India and Oman Sign Major Economic Pact
India and Oman signed a Comprehensive Economic Partnership Agreement (CEPA) in mid-December, cutting tariffs on most goods and expanding cooperation on services, investment, and labor mobility.

Why we care: The deal reinforces India’s strategy of embedding itself more deeply in Gulf trade, logistics, and capital networks, following its 2022 CEPA with the UAE. Alongside major Emirati, Qatari, and Saudi investments in Indian ports, energy, and infrastructure—and India’s enthusiasm for IMEC—the agreement signals a deliberate knitting together of Indian and Gulf economic and strategic ambitions. With trade talks also underway with Bahrain and the GCC, the trajectory of India–Gulf integration is increasingly clear.

1 Major Policy Shift: U.S. Repeals Caesar Act
The U.S. Congress fully repealed the Caesar Syria Civilian Protection Act in mid-December as part of the FY2026 National Defense Authorization Act.

Why we care: The repeal comes as Syrian President Ahmed al-Sharaa has been increasingly embraced by the US and key regional powers, with Türkiye and several Gulf states already prioritizing early investments in Syria’s rehabilitation and reconstruction. The move dismantles one of the most restrictive sanctions regimes imposed since 2019, opening pathways for reconstruction financing, trade, and gradual reintegration into global markets. It also signals a shift in U.S. economic statecraft toward more targeted, risk-based tools, a change that has already prompted U.S. energy and financial services to explore engagement in Syria.

1 Under the Radar Development: Lebanon’s ‘Financial Gap’ Law Aims at Investor Reset
Lebanon’s cabinet advanced a draft “financial gap” law to allocate more than $70 billion in crisis-era losses across the state, central bank, commercial banks, and depositors.

Why we care: The legislation is a key precondition for unlocking IMF support and restoring confidence among Gulf and international investors after years of paralysis. It also represents a rare acknowledgment that the state and banking sector must also shoulder responsibility for systemic failure rather than placing the burden solely on depositors. Still, investor caution is likely to persist given Hezbollah’s efforts to reconstitute its military capabilities and uncertainty over the Lebanese government’s ability—or willingness—to fully disarm the group.

1 Source of Friction: Iranian Rial Dives and Protests Erupt
The Iranian rial has taken a nosedive and is at a historic low relative to the dollar with inflation over 40%, triggering street protests and renewed concern about stability.

Why we care: The Central Bank of Iran governor resigned and amid protests, Iranian officials are bracing for further instability. The economic shock coincides with louder threats of intervention from the White House, the leadership’s lingering PTSD from the 12-day war in July, and the weekend’s capture of former Venezuelan President Nicolás Maduro, raising questions about Washington’s threshold for kinetic action. For a comprehensively sanctioned regime like Iran, the rial’s slide and the sustained unrest point to a more consequential issue than inflation alone: whether the current political order can endure prolonged economic and social stress without fracturing.

1 Fun Thing: Syria Redesigns Its Banknotes
Syria unveiled new banknote designs that notably omit images of Assad family members, breaking with decades of the ancient regime’s iconography and cult of personality.

Why we care: While largely symbolic, the redesign hints at an effort—however modest—to rebrand state institutions as Syria cautiously tests reentry into regional and global economic circuits. Currency imagery reflects national identity and mythology, and the new banknotes, which include images of national symbols like roses, wheat, olives, and citrus fruits, suggests sensitivity to how Syria is perceived by foreign investors and partners. At minimum, it is a telling marker of how Damascus is adjusting its global image in a post-sanctions environment.

The U.S.-Türkiye relationship has grown increasingly complex over the past few years. While Türkiye remains a key NATO ally, sharp divergences have emerged over Middle East politics (such as President Erdogan’s open embrace of Hamas and hard line against Israel) and its independent foreign policy has meant maintaining, and in some cases deepening, commercial ties with Russia, China, and Iran. Türkiye’s strategy to balance its relationships between East and the West has often frustrated the U.S., but these policies underscore Türkiye’s desire to assert itself as a regional and global power. Much has been written about the concept of new “geopolitical swing states,” a concept Goldman Sach’s Jared Cohen uses to describe countries that “chart their own course on an issue-by-issue basis” and by doing so, “may decide the future of the international balance of power.” Turkiye is a prime example of this growing class of influential nations.

Given this flexible strategy and diverse set of relationships, Türkiye has increasingly cast itself as a mediator of choice, from Russia and Ukraine, where it brokered a deal allowing millions of tons of Ukrainian grain and other agricultural products to move safely through the Black Sea to global markets, to Armenia and Azerbaijan, where it has influenced ceasefire diplomacy and post-conflict economic development. And In recent weeks, however, Türkiye has been given a lot of credit by the Trump Administration for helping broker the Israel-Hamas cease-fire. President Trump called President Erdogan “a tough cookie” – which, in Trump code, is high praise.

Türkiye today is a leading actor in the region. It’s a major market for U.S. and global companies, is strategically located at the intersection of Europe, Asia, and the Middle East — Istanbul is one of the world’s only cities spanning two continents — and can either be a force multiplier or a spoiler on key policy priorities. As reconstruction efforts take shape across the Middle East, Türkiye’s government is poised to play an outsize role in both shaping the politics around reconstruction and through Turkish construction firms that are set to be first-movers in what will be decades-long rebuilding efforts.

To understand – how Türkiye sees Middle East reconstruction, its relationship with the U.S., its broader economic growth agenda, and even what books to read to make sense of the region – we called upon our longtime friend Ussal Şahbaz, a sharp strategist and navigator of the region’s policy and political dynamics. Ussal runs a consultancy that helps businesses navigate Türkiye’s complex political and regulatory landscape. He previously served in the Turkish Government, at leading economic policy research institute TEPAV, and had senior roles in the private sector and the World Bank.

Below is his interview with Riyalpolitik – edited for length.

Türkiye is getting a lot of credit for its role in supporting the Hamas–Israel deal and pressuring Hamas to accept. What do you think Ankara is really trying to get out of this? How do you read Turkey’s broader strategic interests at this moment?

Türkiye has recognized both the State of Israel and a Palestinian state and has historically been a neutral intermediary. Given the level of polarization at this time in history and specifically at this instance of the Gaza conflict, I think it was not possible for Türkiye [to] stay neutral.

First of all, we should all be happy that the humanitarian tragedy is likely to be over soon. Contributing to this process seems to be one of Turkish foreign policy’s main objectives.

Second, for Türkiye, the ceasefire is critical because it is positive for Turkish-American relations. After a decade of swinging between geopolitical blocs, with President Trump taking office, Türkiye now understands that it has much more to gain by remaining in its place within the Western alliance. Anything contributing to this relationship is a gain for Türkiye.

Türkiye’s construction and infrastructure companies have been early movers in post-conflict environments. What’s their strategy and how do they navigate sanctions, political risk, and financing gaps?

Operating in conflict zones or transitional environments requires agility, crisis management, and adaptability. Looking at the more than five decades of Turkish business abroad in the construction sector, I can say that Turkish companies have developed these skills to global standards. They also know the playbook for dealing with (quasi-) authoritarian regimes. They don’t carry the colonial legacy of some European countries. Turkish businesspeople have been risk-takers for decades.

As a result, Turkish companies established a broad network with well-developed capabilities of Turkish construction and infrastructure contractors since the 1970s. Türkiye now has the second-highest number of major construction companies, after China.

Thus, Turkish contracting companies can leverage the accumulated knowledge and expertise gained over decades, combining it with an entrepreneurial spirit. Furthermore, they build fast, and they stay when the cameras leave. These factors make them reliable partners with a strong record of finalized projects in the Middle East, in post-Soviet countries, and most recently in Africa.

How do you see Turkish firms engaging in potential reconstruction in Syria or Gaza? Would this be government-backed, more private-sector driven, or both?

In February 2023, Türkiye had a large earthquake, the destruction (and the loss of human lives) of which were commensurate with those of the war in Gaza. [It’s estimated that around 60,000 people died in Türkiye and Syria]. After almost two years, all destroyed cities have been rebuilt. In terms of agility and mobilization power, there are not too many construction companies like those in Türkiye. This power should also be utilized in Syria and Gaza.

In Syria, Turkish companies are already active, given the government support and existing networks of Syrian refugees in Turkey. For instance, the recent U.S.-brokered and Qatar-financed project to bring gas from Azerbaijan to Northern Syria will be undertaken by Turkish construction companies.

In Gaza, rather than government-to-government connections, there is more room for private-sector-driven engagement. Many Turkish companies have become accredited by international organizations, such as NATO or the UN, and have also established themselves as reliable partners and subcontractors of global organizations. Their proven capabilities make it easier to garner political backing, which gives the private sector a unique leverage as defined above.

Are Turkish contractors looking at partnerships with Gulf capital in regional infrastructure projects? How is Turkey viewed today across Arab capitals — competitor, partner, or something else?

The Turkish economy lacks the resources to finance reconstruction in Syria or Gaza. The natural source of financing will be the Gulf. I see Turkish construction companies and Gulf financing as complementary. Indeed, Turkish companies have undertaken various infrastructure projects in the Gulf, including the construction of airports, highways, and power plants.

Türkiye and the Gulf have similar partnerships in third countries as well. One of the concrete examples in which Türkiye plays a key role is the New Development Road project that aims to link the Persian Gulf with Europe. The Al Faw Grant Port in Basra will be linked to a highway and railway, enabling the transportation of cargo from Asia to Europe via Türkiye. The UAE and Qatar are partners of this project, along with Iraq.

One critical point about reconstruction in Syria and Gaza is that excessive financial inflows can sometimes create bubbles, and capital tends to focus on short-term returns. This results in extractive construction projects, such as luxury condos that will be sold to the diaspora. The international community should refrain from this approach and focus on infrastructure development and inclusive urbanization in these regions. Long-term peace is built on inclusive development.

You’ve written about Türkiye’s shift from “construction-led growth” to “technology-driven growth.” Where do you see the most promising sectors — AI, semiconductors, defense tech?

Being good at the construction business does not mean you don’t do other things! Indeed productivity is the only source of long-term growth and manufacturing always brings more productivity. If you compare with the other countries in the Middle East, Türkiye is a manufacturing giant both in terms of the diversity of its products and the markets it serves, from Europe to Asia.

Yet Türkiye is also trapped in middle-tech manufacturing, such as automotives, consumer durables, and some green tech. Most of these industries are now threatened by overcapacity in China. This mirrors what Mexico or Vietnam are facing, just like many other countries around the world. Like many other countries, Türkiye lacks a concise strategy to respond to China. This is an issue that we need to discuss more strategically with our Western allies.

Türkiye has been unable to develop manufacturing capacity in high-tech verticals, such as semiconductors. There are significant entrance barriers in these areas, both in terms of capital and skills, and major players are already concentrated in the U.S., Taiwan, the Netherlands, South Korea, Japan, and China.

Although the defense industry has recently achieved global success, Turkish drones are now well-known worldwide for their cost-effective design and agility. All innovations stem from external pressures. Türkiye’s success in the defense industry has its roots in the American defense embargo in the 1970s due to the Cyprus incident and then ongoing burning needs due to several wars we were involved in recently. However, the spillovers to civilian tech are, for the moment, questionable.

How real is Turkey’s ambition to become a digital hub between Europe and Asia? What policies or investments are moving the needle?

Türkiye’s immense investment in the energy sector since the early 2000s, combined with its well-trained human resources and its geolocation, along with the well-integrated logistical and financial infrastructure of Istanbul, makes it a potential bidder to become a digital hub between Asia and Europe. However, there are certain impediments, including financial constraints, a regulatory environment that seeks harmonization with the EU, and relatively higher energy costs compared to energy-rich countries in the region. The UAE and Saudi Arabia are also investing in becoming digital hubs, along with Kazakhstan in Central Asia.

Perhaps a more strategic vision would be a partnership among these states, that would make Türkiye an integral actor in the ongoing initiative for a digital hub in the region, situated at the nexus of Europe, Eurasia, the Middle East, and Africa. To this end, Türkiye should leverage its position outside the regulatory parameter of the EU, yet with a proximate location, to attract digital investments that are fleeing from overregulation in the EU. President Trump’s recent pro-tech policies, along with ongoing U.S. debates about reshoring and deregulation, resonate very well with Turkey’s position.

You’ve advised both government and business — what’s the biggest misunderstanding outsiders have about navigating Türkiye’s business and policy climates?

Türkiye is neither an eastern nor a western country. Thus, business development in Türkiye is somewhat complicated; it requires a unique playbook that involves navigating the [country’s] institutional framework, which is structured mainly along Western lines, while also building a people-to-people network, a crucial factor in these relations. Thus, successful marketing or operational models in the West, or those with loose institutional structures relying solely on networks, will not work efficiently here without understanding these characteristics. In this sense, having reliable partners in Türkiye is a key factor for success in understanding these dynamics. For the last eight years, at Ussal Consultancy, I have advised some of the most prominent American companies and multinational corporations on government affairs in Türkiye and this approach has been key to our success in these matters. Recently, I also began working on similar projects in the Middle East through our partnership with M&P, based in Cairo, and I have found many similarities in the institutional structures of countries throughout the region.

How do you see Türkiye’s economic identity evolving over the next decade — industrial power, logistics hub, and/or tech innovator?

I think an economy as large as Türkiye – the world’s 17^th largest with 85 million people – cannot rely on either of these verticals. It has to have everything.

Yet, we must be aware of some global trends: First, there is an ongoing deindustrialization trend in middle-income countries, and Türkiye is no exception. The share of manufacturing in total employment is falling. This is partly due to China becoming the world’s factory, and partly because manufacturing is becoming more automated and less labor-intensive. Given the competition, it is inevitable that some Turkish manufacturing companies will relocate parts of their value chains to lower-cost locations, such as Egypt, Syria, or even Bangladesh. Indeed, as a result of this trend, we have been helping many Turkish companies navigate government affairs in other countries. This will ultimately bring more prosperity and stability to our region in the long term.

In parallel, some of the economic activities will prosper in Türkiye. As value chains diversify, Türkiye will likely consolidate its position as a logistics hub by leveraging the investments made in the last three decades in the energy, transportation, and communication sectors. The management, finance, and marketing functions of industrial companies will also remain in Turkey, just as they did in Japan or Korea when their companies invested abroad.

Regarding technology, unlike Israel or Estonia, which are global tech hubs, Türkiye will have niche success stories. It is already the second-largest gaming hub in Europe, after the UK. Defense innovation is very strong. And I would expect more in health and climate tech in the upcoming years.

If you were writing Turkey’s trade and investment strategy for 2035, what would be its three pillars?

First, Turkey should get the basics right. These are robust macroeconomic policies, innovation policies, and trade policies. There are global playbooks on how to get these things right.

Let me add two overlooked issues:

First, Türkiye needs to strengthen its state capacity. As the successor of an empire, Turkish bureaucracy has traditionally been powerful — yet this legacy also brings a certain inertia. At the same time, the growing dominance of market-oriented and short-term financial priorities over the past decades has led to a gradual erosion of talent within public institutions. The most successful development stories in the world have always rested on strong and capable states. Reinvesting in Türkiye’s institutional capacity should therefore be a top priority.

Second, Turkish diplomacy is also very influential, but we are not as strong in economic statecraft as we are in political or humanitarian diplomacy. Turkey has a lot to contribute to its region and to the broader world, and in return, with its economic capacity and diplomacy, can pave the way. Countering China, as I mentioned earlier, will be one of the most significant challenges for economic development in the coming years.

Finally, what two or three works on these topics would you recommend our readers consult to get smarter on these issues?

• Simon Sebag Montefiore’s Jerusalem: The Biography is a classic to understand the Middle East. His recent book The World: A Family History of Humanity is the only book I have read that gives a chronological flow of history that unfolds in the different parts of the world, so it is unique.

• Azeem Azhar’s book, The Exponential Age: How Accelerating Technology is Transforming Business, Politics and Society is a classic for understanding AI and other emerging technologies, and how they will reshape the global economy. Without this understanding, you cannot understand individual country dynamics. Azeem’s weekly newsletter, the Exponential View, is also one of my favorites.

• Of course, Nobel laureate Daron Acemoglu’s Why Nations Fail is another classic. He is from Türkiye, and I think that is one of the reasons why he places more importance on institutions for economic development than anyone else.

Four weeks after a tenuous cease-fire was brokered in Gaza, the region is entering a fragile new phase. Major Israel Defense Forces (IDF) operations are paused, Hamas has asserted its commitment to stop fighting, and while there continue to be skirmishes, there is a sense that this moment could open a path toward the oft-discussed “day after.” Yet the calm has also revived intractable questions about what peace, governance, and reconstruction should realistically look like in Gaza—and how regional actors might balance the immediate need for relief with a widespread desire for longer-term political change.

In recent weeks, as momentum builds around the newly agreed cease-fire and hostage-prisoner exchange framework, analysts are increasingly asking whether the reconstruction of Gaza and the reshaping of regional partnerships can sustain momentum. Last month marked the two-year anniversary of October 7, 2023, a date that will live in infamy in the annals of the Middle East. The brutal attack on Israel triggered the latest, and most deadly, round of the long war between Hamas and Israel, which neither wanted nor started this war. Since 10/7, many policymakers and pundits have focused on the day after, planning for what ought to follow for Gaza in the way of governance, humanitarian aid, and reconstruction.

The current agreement — finalized by the United States, Egypt, and Qatar in late October 2025 — secured the release of all 20 surviving Israeli hostages in exchange for roughly 2,000 Palestinian prisoners and detainees. It also commits Israel to a phased withdrawal from populated areas of Gaza and establishes an interim technocratic Palestinian committee to oversee basic governance and reconstruction with international support. The efforts driven by Washington and regional partners hinge on the Administration’s 20-point framework aimed at consolidating the truce: disarmament of Hamas, intensified humanitarian access, major infrastructure repair, and the eventual creation of a special economic zone intended to foster cross-border investment and employment.

There will be no shortage of thorny issues to address, and sequencing them will be critical. For example, hospitals, water treatment plants, and power stations must be rebuilt before longer-term governance and investment projects can be entertained.

Before any discussion of reconstruction, this moment is an occasion to consider this conflict’s many exorbitant costs, which have been borne by so many, first and foremost by Palestinians and Israelis, of course, but also neighboring Arab states, the U.S. and Western powers, and global economic and humanitarian organizations. What follows is a snapshot focused primarily on the costs incurred by Israel: many tangible, others deeply psychological, all of which point to a nation paying an ever-higher price for security.

Financial Costs

In spite of 24 months of fighting, Israeli financial markets have soared — the Tel Aviv Stock Exchange, Israel’s benchmark index, rose 21.3% in the first half of 2025, the shekel (NIS) is strong, and investments have poured in, mostly from abroad, according to Bloomberg reporting. But this does not tell the whole story.

Israel’s credit rating was downgraded several times in 2024 by major agencies S&P, Fitch, and Moody’s, raising borrowing costs. Throughout the conflict, members of Israeli Prime Minister Benjamin Netanyahu’s far-right coalition called for the IDF to fully reoccupy the Gaza Strip, although this prospect seems unlikely at the current juncture. Beyond the humanitarian toll and questionable strategic gains that reoccupation would bring, one Israeli analyst cited senior economic officials’ estimates that reoccupation would cost 180 billion NIS (approximately $54 billion) for the next year. Even a partial reoccupation would incur opportunity costs: reservists serving in Gaza could find their jobs and higher studies disrupted. Money spent financing any troop presence in Gaza is money not spent on Israel’s vibrant start-up and tech ecosystem, nor on other important areas, such as education and infrastructure.

Israel has seen adverse investment reflections. The rate of fundraising by venture capital (VC) funds, Israel’s main vehicle for investment in its privately-held tech companies, is down 40% compared to 2024. The ongoing humanitarian crisis in Gaza has also adversely affected some of Israel’s Western investments. In August, Norway’s sovereign wealth fund, the world’s largest by its $2 trillion assets under management (AUM), divested its positions from U.S. construction giant Caterpillar and five Israeli banks on ethical grounds. In August, Germany instituted a partial arms embargo, preventing the export of weapons to Israel that could be used in the conflict. And in September, Microsoft disabled some of its Azure cloud services in protest of the Israeli Ministry of Defense’s use of these services to surveil Gazan civilians, according to a Wall Street Journal report. Furthermore, European academic boycotts of Israeli universities — threatening billions of euros in EU research funding and longstanding partnerships — underscore the stakes of growing international isolation, which risks deepening damage to Israel’s world-class innovation and R&D ecosystem.

Finally, Israel continues to have one of the highest costs of living among OECD countries. Large-scale protests before 10/7 largely focused not on the fate of the peace process, but rather on domestic economic issues, such as rising food prices. Reports from Israel’s Central Bureau of Statistics that 82,000 Israelis left Israel in 2024 — nearly 48% of whom are between the ages of 20 and 45 and are well-educated — could also negatively impact Israel’s economic competitiveness. According to the Israel Innovation Authority, the country’s brain drain accelerated after October 2023. Earlier this month, Israel unveiled tax incentives, such as exemption from tax on income earned and accrued outside Israel, to encourage the return of high-tech workers.

In the face of these headwinds, Israel’s innovation ecosystem has proven resilient. In its 12-day war with Iran, Israel offered a powerful demonstration of its technological superiority and military dominance. Although Israel has been barred from global defense conferences in Paris and Dubai, sales of Israeli defense products are hitting record levels. So far in 2025, mergers and acquisitions reached a record $71 billion, nearly five times higher than the same period in 2024, driven largely by Alphabet’s $32 billion acquisition of cyber firm Wiz and Palo Alto Networks’ $25 acquisition of CyberArk. These deals signal confidence in Israel’s long-term potential in spite of shorter-term geopolitical volatility.

Humanitarian Costs

As of this writing, the remains of five hostages remain in Gaza. The war has also wrought various overlapping humanitarian catastrophes in Gaza — from famine to preventable disease to mass displacement — with tens of thousands killed, including women and children. According to the World Health Organization, fewer than 20 of Gaza’s 36 hospitals remained even partially functional as of several months ago. The near collapse of Gaza’s sewage pumping and waste treatment facilities has also raised dire public health implications: tens of thousands of cases of hepatitis A have been recorded, in addition to acute diarrhea, scabies, jaundice, and a confirmed case of polio that prompted a vaccination campaign amid the fighting.

Beyond the trauma of the 10/7 attack and Israel’s relentless retaliation, the war’s psychological costs will outlast the fighting. While there is no love lost for any trauma felt by Hamas, tens of thousands of innocent Gazans have experienced mass displacement, death of loved ones, and total destruction of their homes in the process. Fundamentally, the war has further entrenched deeply-held, zero-sum narratives of victimhood and a refusal to make space for the other side’s stories, which has fueled this stubborn conflict for decades, as renowned Israeli historian Yuval Noah Harari has argued.

Diplomatic Costs

Arguably the greatest costs — other than the loss of life and psychological trauma — have been in the diplomatic domain.

Before 10/7, it was reported that Israeli-Saudi normalization was within reach, but today, a Saudi-Israel deal remains elusive. After it was attacked by several Iranian proxies, Israel successfully seized the moment to effectively destroy Iran’s so-called Axis of Resistance, assassinating Hamas, Hezbollah, and Houthi senior commanders in Lebanon, Syria, Yemen, and even Iran itself. However, its airstrikes against Hamas senior leadership in Qatar — a major non-NATO ally and site of al-’Udeid, the largest U.S. military base in the region — were a bridge too far in the eyes of many Arab leaders. Not only did the strike not kill its intended targets, it also caused an uproar in the Gulf and broader Arab world. In early October, President Trump issued an executive order declaring that any strike violating Qatar’s sovereignty would be viewed as a direct threat to U.S. interests.

For its part, days after the attack, Saudi Arabia hosted Pakistani Prime Minister Shebaz Sharif in Riyadh and concluded a strategic mutual defense pact with Pakistan, a nuclear power. This agreement is best viewed as a hedge and simultaneous signal to Washington; Pakistan is not likely to replace the US as the Kingdom’s primary defense partner, but the Qatar strike raised serious questions about U.S. security commitments to its allies.

As if this were not enough, alongside the deteriorating situation in Gaza, some Israeli politicians have made a renewed push for annexation of the West Bank — a longtime goal on the Israeli Right — and speaking from the West Bank settlement of Maale Adumim in early September, Israeli Prime Minister Netanyahu himself vowed there will be no Palestinian state. Emirati leaders forcefully warned Israeli counterparts that annexation is a red line that could very well spell the end of the Abraham Accords and its potential for regional integration.

Critically, the war in Gaza greatly strained Israel’s relationship with the US, the cornerstone of its strategic doctrine for decades. These tensions have included increased scrutiny over U.S. military aid, such as paused shipments in 2024 of 2,000- and 500-pound bombs over concerns they would be used in densely populated areas of Rafah. This strain has also further driven a wedge into America’s Jewish community, the diaspora’s largest and most influential, and has fueled criticism of U.S. support for the Jewish state across the political spectrum. According to a recent Washington Post poll, 61% of American Jews believe Israel committed war crimes, and about 4 in 10 believe the country is guilty of genocide against the Palestinians.

A common Israeli refrain is that more needs to be done in terms of hasbara (public diplomacy and messaging). To be sure, there have been numerous journalistic mishaps and even blatant lapses in standards. For example, following the attack on the al-Ahli Arab Hospital in Gaza City in October 2023, The New York Times reported that Israel had conducted the strike, amplifying claims from Hamas without independent corroboration, when in fact Israel did not carry out the strike, U.S. intelligence officials publicly concluded with high confidence and according to a retraction by the Times’ editors.

Nonetheless, the core issue is the magnitude of destruction and death toll itself, which is now approaching 70,000 and has included the targeting of journalists, aid officials, and hospital workers, rather than one of spin. Recognizing this, numerous Israeli luminaries and dignitaries, from former Shin Bet director Ami Ayalon to literary icon David Grossman to retired prime ministers Ehud Barak and Ehud Olmert and beyond, have sharply criticized the war, which they have said is making Israel more internationally isolated, and even a global pariah.

One related trend is Israeli officials’ growing sanctions liabilities. The UK, Canada, France, Australia, New Zealand, Norway, and Slovenia subjected Israeli Finance Minister Bezal’el Smotrich and National Security Minister Itamar Ben-Gvir to travel bans, asset freezes, and prohibitions from transactions with financial institutions in their countries for incitement to violence and violating Palestinian human rights.

These restrictions are likely to have ripple effects, because the sanctioning countries are major economies and financial and travel screening databases are global. Smotrich, who has self-identified as ‘a fascist homophobe,’ has repeatedly called for Gaza to be totally destroyed and its citizens to be starved and forcibly relocated. Ben-Gvir, who Israeli authorities have convicted multiple times for supporting terror organizations, has called for Gaza to be emptied of Palestinians and for Israel to resettle the territory. Both ministers also support the ethnic cleansing of Gaza, having called for forcible transfer of Palestinians out of the territory and for Israel to reconquer the strip, which could very well spark additional sanctions from EU states. This looming threat is meaningful, as Europe is Israel’s main trading partner.

Total Strategic Cost

To say that the 10/7 pogrom and the multi-front war it unleashed have been very costly is a gross understatement. Wars are often easy to start, but rarely easy to end. Even if they start justly, as with the U.S. invasion of Afghanistan to destroy al-Qa’ida, mission creep can quickly change a conflict’s scope, duration, and intensity, making it orders of magnitude more expensive than envisaged in terms of lives lost, money spent, infrastructure destroyed, and lasting trauma felt. Time and again, decision-makers have set challenging, if not impossible, military objectives when confronting enemies intentionally enmeshed in deeply populated urban areas, from Algeria to Vietnam to Afghanistan to Gaza.

As gruesome and costly as this conflict has been, Israel remains very much a nation at odds with itself. The protest movement against the proposed judicial overhaul that would weaken the Supreme Court, Israel’s only check on executive power, temporarily receded in the face of Gaza, but the issue remains front and center. On both sides of the Atlantic and in the Middle East, Israel is facing not only fraught diplomatic relations and economic uncertainty, but also a combustible source of social and political volatility domestically.

Netanyahu’s comments in mid-September that Israel would have to be a ‘super Sparta’ and a self-sufficient economy with autarkic characteristics risk undoing the very foundations of Israel’s prosperity: its openness, global integration, and role as a magnet for talent, investment, and innovation (Ancient history spoiler alert: Sparta’s pursuit of autarky preserved its independence briefly, but ultimately led to economic stagnation, demographic decline, and strategic weakness that hastened its downfall.) A turn toward self-sufficiency may offer the illusion of temporary security, but it would likely isolate Israel from the very international networks that helped propel it into a start-up powerhouse in the first place, eroding the competitive edge that has long distinguished its economy from those of its neighbors.

In spite of the carnage and despair, a glimmer of possibility remains. If Gaza can one day sustain a functioning economy, anchored in reconstruction, regional trade, and human development — supported by regional leaders such as Egypt, Saudi Arabia, the UAE, and Qatar — it could eventually become a zone of opportunity, rather than fertile ground for Hamas’s bloodthirsty and malignant ideology. While still distant, a future grounded in self-determination in which Gazans can build dignified livelihoods and connect economically and politically with other Palestinians, regional states, and the world, while not imminent, is one worth investing in, and one worth tracking closely in the months and years ahead.

All statements of fact or opinion, or analysis expressed are those of the author and do not reflect the official positions or views of the US Government. Nothing in the contents should be construed as asserting or implying US Government authentication of information or endorsement of the author’s views.

By Josh Kram

Once upon a time, the Middle East was the central corridor for global trade. The region sits between Asia, Africa, and Europe, and was the only way to move goods from East to West from ancient times until European-dominated maritime routes became the preeminent vehicle for global trade. The Silk Road developed over 1,500 years as land caravan routes converged on Damascus, Baghdad, and Aleppo. Arab merchants controlled the key shipping lanes between the spice producers in Indonesia and India and the Middle East commercial hubs and ports. And the Middle East was more than just a transit hub, it was a value-added center for the global economy. As trade expanded – both in volume and distance – there was innovation around trade finance and facilitation through credit and banking channels, legal systems, and even infrastructure (i.e., roads and inns) to support the flow of goods. Under the Umayyad and especially the Abbasid Caliphates, the region was not only a capital of commerce but also a center for intellectual, scientific, and technological progress.

Today, the Middle East is one of the most economically fragmented parts of the world. Despite its natural geography and long history as a trade hub, the Middle East has among the lowest rates of intra-regional trade anywhere in the world. Rough estimates peg the flow of goods within the region at around 17%, with higher rates within the Gulf Cooperation Council (GCC), compared to Europe (>50%) and Asia (>60%+). While there are a few vestiges of its past as a commercial hub – Dubai International Airport has the largest number of international passengers in the world and the Suez Canal manages 30% of global container trade, by and large, the region’s wars, borders, sanctions, and political rivalries have undermined its power as a commercial bloc.

Yet as what comes next in the Middle East takes shape – with the end of the Israel-Hamas war, reconstruction and nation building, and ambitious Gulf states increasingly asserting larger roles on the global stage – new corridors are emerging to move goods, energy, data, and people around and through the region. As policymakers look to stabilize the region and promote lasting peace, these corridors will serve as critical foundations to link economies, build shared infrastructure, and create complementary dependencies that can weave together a new Middle East.

India-Middle East-Europe Economic Corridor (IMEC)

Atlantic Council

Announced by the G7 in 2023 in New Delhi, this ambitious multimodal trade corridor which includes seaports, railroads, energy infrastructure, and digital connectivity would link India to Europe via Saudi Arabia, the United Arab Emirates, Jordan, and Israel. The vision is to “increase efficiencies, reduce costs, enhance economic unity, generate jobs, and lower greenhouse gas emissions— resulting in a transformative integration of Asia, Europe, and the Middle East.”

India’s Prime Minister Modi sees an opportunity to use this trade corridor to support the country’s “Make in India” initiative by creating a faster, more reliable, and cheaper access to key markets for India’s export-led growth ambitions. IMEC would also ensure India’s access to Gulf energy and build a strategic alternative to China’s BRI-dominated supply chains. This project would also serve the national and geopolitical ambitions of the Saudis and the Emiratis who see themselves as the bridge between the East and the West. During Prime Minister Modi’s visit the White House in February, he and President Trump both reaffirmed their commitment to IMEC and directed their teams to advance it. Since then, the U.S.-India relationship has cooled, triggered by sweeping U.S. tariffs on Indian goods. How the two countries navi so how the U.S. and India cooperate on IMEC will remain to be seen.

Israel isn’t yet part of the IMEC discussions given the political dynamics and the involvement of the Saudis. The U.S. will continue to be a key player in determining Israel’s inclusion and the West’s financial stake in this corridor. While there have been a smattering of MOUs by Indian and Gulf-backed companies to explore project feasibility in IMEC, this corridor is still a diplomatic dream at this stage.

Iraq-Europe Development Road

Carnegie Endowment

One notable regional power left out of IMEC is Turkey, which is a key backer of an alternative corridor that would link it to the Persian Gulf through a new rail and road transport network across Iraq. This project would give Turkish traders an alternative to the Suez Canal while opening easier access to Iraq’s oil sector and reconstruction economy for Türkiye.

With an estimated cost of $17 billion, Iraq’s Ministry of Transport says that 60% of the project design has been completed and the government is now pivoting to raise investment dollars and find implementers. There continues to be a lot of skepticism about Iraq’s ability to finance and execute a mega-project of this scale, especially given institutional and governance challenges within its bureaucracy, but this corridor is one to watch, especially given Türkiye’s backing and keen interest.

Eastern Mediterranean Basin

U.S. Energy Information Agency

The world-class natural gas fields in the Eastern Mediterranean – off the coast of Israel, Cyprus, and Egypt – have also turned the region into a vital energy corridor. The reserves have drawn in U.S. and European majors to develop these fields and build the infrastructure to transport the gas to markets in the region and to Europe.

In 2019, the producers and consumers of these resources, including Israel, Egypt, Cyprus, Jordan, the Palestinian Authority, along with Italy, Greece, and France, joined forces and created the Eastern Mediterranean Gas Forum (EMGF), an international organization to promote cooperation. EMGF helped build regulatory convergence among different countries and systems; fostered dialogue on cross-border infrastructure and export frameworks, and laid the foundation for a more interconnected gas market. Even during the height of Israel’s war in Gaza–just last month–Egypt signed a $35 billion contract with the operators of Israel’s Leviathan field to import 130 billion cubic meters of gas from Israel over the next 15 years.

There is both opportunity and demand to further develop these fields. The 2024 agreement to settle the maritime border between Israel and Lebanon, combined with potential shifts in Lebanon’s political and regulatory landscape, could create new opportunities for international energy companies to again explore off the coast of Lebanon. Further south, there are also proven fields off the coast of Gaza. Known as Gaza Marine, this field has remained undeveloped since it was discovered more than 20 years ago but could play an important role as the U.S. and international community work with key Arab leaders on a sustainable economic vision for “the day after”.

A More Integrated GCC

Economist Intelligence Unit

It wasn’t long ago that the simmering tensions among the Gulf states burst into the open when Saudi Arabia, the UAE, and Bahrain (accompanied by Egypt) imposed a full trade and diplomatic blockade on Qatar. The rift reflected a long history of tribal and political competition for regional influence, though officially it centered on Qatar’s foreign policy—particularly its support for Islamist groups such as the Muslim Brotherhood and its longstanding ties with Iran. The move effectively isolated Qatar, closing its only land border, restricting access to Saudi airspace, and severing trade and travel links across much of the region. While there are still tensions and jockeying for primacy within the Gulf Cooperation Council (GCC), there are also efforts to integrate this part of the region with a $250 billion GCC Railway Project which is estimated to be completed by 2030 to connect all six members of GCC countries from Kuwait to Oman. And later this year, for the first time ever, the GCC bloc will also have a unified tourist visa that will grant entry to all six countries through one application.

What else we are keeping an eye on

• Digital Corridors The future of trade is also increasingly digital. The Middle East is playing to compete in this new AI era – building data centers, deploying massive amounts of capital into tech start-ups, and building partnerships with leading technology companies from the U.S. and China. At the same time, threats persist: terrorist groups like the Houthis in Yemen have targeted undersea cables in the Red Sea, disrupting internet access to the region. To support these ambitions and to create redundancies for internet connectivity in the region, new subsea and terrestrial cables are being planned and placed, along the routes noted above, and beyond.

• Middle East ties to Africa. It is worth watching how the region links up to Africa and what new corridors may emerge in the coming years. African nations are increasingly attractive alternatives for natural resources, production networks, and markets that could support the growth ambitions of the GCC countries. Over the past decade, the GCC has invested over $100 billion in Africa in a range of deals and through distinct investment strategies. Some notable examples: Saudi Arabia recently joined one of the largest pan-African infrastructure investment platforms, signaling intent to support industrial development. The UAE’s DP World operates or has stakes in at least a dozen ports in Africa, anchoring trade corridors linking the continent to global markets. And the UAE’s G42 announced a $1 billion partnership with Microsoft to build digital infrastructure in Kenya, showcasing the ambition of Gulf capital, U.S. technology, and Africa’s potential. Across the Gulf, however, investors and sovereigns alike are looking at ways to position themselves to tap into these emerging markets – the world’s largest free trade zone – through the historic African Continental Free Trade Area signed in 2021.

• Iran’s alternative trade corridors. On the other side of the ledger, Iran has been piecing together its economic corridor—leaning heavily on China, Russia, and even North Korea—as U.S. and international sanctions have cut off much of its access to the global financial system. Unable to trade freely with the West, Tehran has turned to alternative routes and partners, signing a 25-year $400-billion pact with China that includes investing in Iran’s industrial, energy, and transportation infrastructure. We recently saw an example of this in the Wall Street Journal exposé that looked at how Iran barters oil for construction deals with China to circumvent sanctions. Earlier this year, the Iranians hosted transportation officials from Iran, China, Kazakhstan, Uzbekistan, Turkmenistan, and Türkiye to discuss developing a transcontinental rail network as well.

• China’s Belt and Road corridors that lead to the region. BRI, launched more than a decade ago, is a multi-trillion dollar infrastructure and investment project which includes several corridors that reach toward the Middle East. The most prominent is the China-Central Asia-West Asia Economic Corridor, one of six land routes in China’s original BRI vision, which would be the main line linking China to the Middle East through Central Asia, Iran, and Turkey. China is one of the largest buyers of Middle Eastern oil and gas. For Beijing, these corridors are strategic plays to ensure access to energy, mitigate chokepoints in Western-controlled trade routes, and extend China’s influence in the region.

The end of the Israel-Hamas war — and let’s hope it holds — could accelerate the emergence of new economic corridors across the region. In many ways, these corridors are already taking shape, as countries stake out competing visions over which alignments to join, and what infrastructure to build. The competition for capital will be fierce.

For now, a lot of what we’re seeing is symbolic: broad MOUs, photo ops, and investment conferences. The real story will come in the deals and details of who’s building what, and where. Governments across the region, along with global powers, will push to steer investors toward their own politically aligned corridors, but just like the corridors of the past, these corridors will shape more than trade routes. They’ll define new patterns of influence, connection, and exchange across the region.

Following this summer’s 12-day war, a great deal of attention has been paid to the fate of Iran’s nuclear and ballistic missiles programs. Rightfully so. These are important regional and international security problems. Much analysis has also focused on the turmoil within Iran’s erstwhile Axis of Resistance, especially given Israel’s decapitation of the top operational and military leadership of Hamas, Hezbollah, and the Islamic Revolutionary Guard Corps (IRGC). Yet a series of quieter economic changes, several of which had roots predating the 10/7 attacks, have been equally debilitating to Iran’s power projection in Iraq, Syria, and Lebanon.

Iraq

For many years, Iraq was a site of Iranian sanctions evasion. For example, in 2020, the US Treasury Department designated Iran’s ambassador to Iraq — a general in the IRGC’s Qods-Force (QF) and a close advisor to Qasem Soleimani — for exploiting his position to obfuscate financial transfers conducted for the QF’s benefit. For years, banks closely affiliated with Iran-aligned Iraqi militias engaged in trade-based money laundering to take advantage of the so-called ‘dollar auction,’ in which various commercial banks in Iraq managed to obtain U.S. dollars shipped to the Central Bank of Iraq (CBI) from the Federal Reserve through an elaborate system of cash withdrawals and electronic wire transfers.

The CBI, however, put an end to this program in 2025, raising the compliance burden for the militias and other malign actors. Entities wishing to import goods into Iraq must now establish correspondent relationships with foreign banks, meeting the anti-money laundering and countering the financing of terrorism scrutiny those relationships require. Given the two countries’ longstanding religious, cultural, and political ties, this is likely not the end of Iranian interference in Iraq. The Islamic Republic has been known to cut its natural gas supply to Iraq – which generates about a third of Iraq’s electricity – at times to prioritize its own domestic gas needs and at others as political leverage over unpaid energy bills.

Syria

The Assad Regime’s implosion in late 2024 brought with it the end of the labyrinthine Syria sanctions regime. Following President Trump’s Riyadh trip in May, a swath of U.S. economic restrictions were reversed in short order: all Syrian financial institutions – including the central bank – are now removed from OFAC’s specially designated nationals (SDN) list; Hay’at Tahrir al-Sham (HTS), which announced its dissolution in January, is no longer designated as a Foreign Terrorist Organization; the Caesar Act, which codified Syria sanctions into law, was rescinded until November, and; export controls on the country have been lifted. The new Syrian military has also confronted Hezbollah on several occasions. Syria’s days as an Iranian ally are in the past, although given it still owes crushing debts to Iran (and Russia), which exceed its GDP and by some accounts are between $30-50 billion, it is unclear how Iran might seek to convert this debt into strategic leverage.

The deals that have shaped Syria’s reconstruction thus far exemplify the shifting balance of power. Turkey – a close ally of Syrian President Ahmed al-Sharaa’ – has not hesitated to play a large role in Syria’s rehabilitation, including deals to export 900 megawatts of electricity to Syrian households by Q1 2026, train and equip Syria’s armed forces, export natural gas from Azerbaijan to Aleppo via its border with Syria, and revive a free trade agreement suspended in 2011. The Gulf states have been similarly active. In July, the UAE’s DP World, a subsidiary of Dubai World, signed an $800 million, 30-year deal to develop the Mediterranean port of Tartous, and it was reported in August that the UAE’s National Investment Corporation would fund a $2 billion subway system in Damascus.

For their part, Saudi Arabia and Qatar have generously repaid Syria’s World Bank loans to enable fresh lending and have pledged to pay public sector wages. Riyadh in particular has taken a leading role in reconstruction, pledging $6 billion of public and private sector investments, although some estimates place the current cost of reconstruction closer to $500 billion — not a pittance. Mohammed Abunayyan, one of the Kingdom’s most influential businessmen, is set to head a joint Saudi-Syrian business council. Saudi Arabia has pledged at least $6 billion of foreign investments in Syria while lower oil prices have forced it to curtail some of its ambitious giga-projects, suggesting these investments are as geopolitical as they are economic, with Iran on the outs.

Lebanon

The tables are also turning in Lebanon. In the span of months, Israel decimated Hezbollah’s senior operational leadership, including the strike that killed the group’s longtime secretary general Hassan Nasrallah. Lebanon now has a new President and Prime Minister who are committed to the country’s sovereignty, long contested by nonstate actors such as Hezbollah and other sectarian militias. In addition to Hezbollah’s military setbacks, Lebanon has been undergoing a series of dramatic financial and economic changes aimed at introducing meaningful reform and accountability. Taken together, these changes are likely to make the country less hospitable to Iranian exploitation.

First and foremost, central bank governor Riad Salameh — who ran the Banque du Liban (the central bank) for three decades — was referred in April by a Lebanese judge to court for trial for the alleged embezzlement of $44 million of the BdL’s funds (Salameh also faces numerous charges for money laundering, tax evasion, illicit enrichment, and forgery). This summer, Lebanon passed a law to reform its defunct financial sector, which collapsed during the country’s 2019 economic meltdown during which the lira lost over 90 percent of its value and an estimated $70 billion of bank deposits were wiped out. This is a key step in unlocking funds to rehabilitate areas devastated by the latest round of conflict. In July, BdL Governor Karim Souaid issued a directive banning local banks and financial institutions from dealing with al-Qard al-Hasan (AQAH). First designated in 2007, AQAH purports to serve the Lebanese state, but in practice is a front for Hezbollah to gain access to the international financial system through shell accounts and facilitators, providing bank-like services while evading proper licensing and regulatory supervision, according to the US Treasury Department.

Lebanon’s efforts to disarm Hezbollah are commendable, but the group is resilient and its financial footprint is global. Recent press reporting suggests Iran, possibly in anticipation of another round of conflict, may be funneling cash through smuggling routes in Iraq and Syria to Hezbollah. In August, ‘Ali Larijani – Secretary of Iran's Supreme National Security Council and the most senior Iranian official to visit Lebanon since the country endorsed the U.S. roadmap to disarm Hezbollah – was warned by Lebanon’s President and Prime Minister against interfering in Lebanon’s internal affairs, illustrating how the tide may be turning.

The above summary, while not exhaustive, sheds light on the new fault lines coming into shape through new political and economic dealmaking. A future post will look more closely at how, in light of these developments, the regime in Tehran is trying to recoup its losses inside the Middle East and more broadly.

All statements of fact, opinion, or analysis expressed are those of the author and do not reflect the official positions or views of the US Government. Nothing in the contents should be construed as asserting or implying US Government authentication of information or endorsement of the author’s views.

Former Libyan leader Mu’ammar al-Gaddafi called the UN Security Council a ‘terror council,’ proposed moving UN Headquarters from New York to Libya, called for a two-state solution merging Israel and Palestine called Isratine, and tore up a copy of the UN Charter. Former Venezuelan President Hugo Chávez, speaking one day after former US President George W. Bush at the UN General Assembly (UNGA) in 2006, remarked, “The devil came here yesterday and it smells of sulfur still today, this table that I am now standing in front of.” In a matter of days, Syrian President Ahmed al-Sharaa will address UNGA, the first Syrian leader to do so since 1967. It is safe to assume al-Sharaa’s address will not be as bombastic as those of Gaddafi or Chávez. It will be interesting, nonetheless.

In July, The Jerusalem Post reported that al-Sharaa’ would meet in Washington ahead of UNGA with his Israeli counterpart, Benjamin Netanyahu, to sign a security agreement under the patronage of President Trump. Speaking from Damascus in late May, US Ambassador to Turkey and Envoy to Syria Tom Barrack said that Israel and Syria had a ‘solvable problem’ and a solution could start with a non-aggression pact focusing on boundaries and borders. More recently, in August, Syrian Foreign Minister As’ad al-Shaibani met in Paris for direct talks with Israeli officials, brokered by U.S. officials, to discuss security and stabilization issues; Syrian officials have not yet embraced the prospect of joining the Abraham Accords, which the Administration has pushed for. Is peace about to break out?

Perhaps. But more likely as part of a limited security agreement that prevents tensions from escalating than in the context of the Abraham Accords. Syria’s longstanding territorial disputes with Israel make it more like Egypt and Jordan – which fought several large conventional wars with Israel – than any of the Abraham Accords signatories on the region’s periphery, such as the UAE, Bahrain, Sudan, or Morocco. Israeli cartoonist Amos Biderman captured this dynamic masterfully in a political cartoon in mid-July. In it, Trump asks al-Sharaa, “Will you join the Abraham Accords?” to which al-Sharaa replies “If you will it, it is no dream,” the famous quote by the founder of modern political Zionism Theodor Herzl that served as a call to action for the Zionist movement, urging followers to realize their seemingly impossible goals. Yet two primary primary factors complicate Israeli-Syrian peacemaking:

1. The Golan Heights

At the heart of the countries’ dispute lie the Golan Heights, the strategic plateau Israel conquered after the Six Day War in 1967, and which has been the focus of previous rounds of negotiations between Damascus and Jerusalem. What could therefore be on the agenda is some kind of land-for-peace formula that invokes the 1974 Disengagement Agreement. The composition of the current ruling coalition in Israel – the most right-wing in the country’s history – casts doubt on Israel’s appetite to make territorial concessions, especially since the US recognized Israeli sovereignty over the Golan during the first Trump Administration. The old Israeli bumper sticker Ha ‘Am ‘im HaGolan (The nation is with the Golan) reflects the popular opposition to returning the territory. But the Golan’s importance to Syria has similarly been emphasized repeatedly by Syrian officials and pundits over the years. Former Syrian President Hafez al-Assad himself famously told his U.S. counterpart Bill Clinton in 2000 he wanted to swim in the Sea of Galilee. As some analysts have pointed out, a useful first step could be a non-aggression pact with clearly delineated rules of engagement that prioritizes security cooperation.

In a recent podcast interview (in Hebrew) with Ynet podcast HaKoteret (the headline), Dr. Yehuda Blanga of Bar Ilan University laid out three reasons a deal is probably not imminent, focusing on the Golan: (1) al-Sharaa’s family, as his kunya once suggested, is al-Jolani (i.e. from the Golan, or al-Jolan in Arabic). For a leader with direct family ties to the Golan, giving in to Israeli demands on highly symbolic territory is not a great look (2) From 1994 – when former Prime Minister Yitzhak Rabin engaged in negotiations with former Syrian President Hafez al-Assad – until the outbreak of the civil war in 2011, all previous Israeli prime ministers have discussed returning the Golan to Syria in exchange for peace, and; (3) beyond its strategic geography, the Golan is also an economically and agriculturally important area.

2. Military Interventions in Syria and Beyond

Shortly after the Assad regime collapsed in December 2024, Israel launched dozens of airstrikes targeting Syria’s conventional and chemical weapons arsenals to remove future military threats. Since then, Israel has intervened on behalf of Syria’s Druze minority – concentrated in the southwest and who have clashed with neighboring Sunni Bedouin tribes – striking the Syrian Ministry of Defense in Damascus and citing protection of the Druze as justification.

While these strikes do not make a diplomatic arrangement impossible, they have led Syrian authorities, including al-Sharaa himself, to speak up, accusing Israel or seeking ‘chaos and destruction.’ Israel has also found itself in hot water with several key allies of the new Syria, such as Turkey and the Gulf states. Beyond southwestern Syria, broader competing Israeli and Turkish security objectives in Syria have raised the risk that an accident could escalate into hot conflict. In April, Israel bombed a site in Syria earmarked for a Turkish base; although a military hotline now exists, Turkey recently suspended trade with Israel and closed its ports and airspace to Israel in protest of its war in Gaza. Beyond its support for the Druze, Israeli officials have expressed deep suspicion of al-Sharaa due to his jihadist roots. Turkey, however, was and remains very close to al-Sharaa.

Israeli attacks across the region, most recently against Hamas senior leaders in Doha, have alienated the Gulf States. Saudi, Emirati, and other regional officials strongly condemned the attack. Earlier this month, the UAE – which is investing heavily in Syria’s reconstruction – publicly threatened that Israel’s planned annexation of large portions of the West Bank would ‘end the vision of regional integration.’ For its part, Saudi Arabia – which has repeatedly criticized Israel’s actions in Gaza and is leading, alongside France, a global campaign to hasten the implementation of a two-state solution through recognition of a Palestinian state – has been an active partner in promoting investment in Syria and in helping the country overcome its debt burden.

In this environment, it is hard to imagine a scenario where al-Sharaa concludes a full-blown agreement with Israel while his closest economic and diplomatic partners of Turkey and Gulf states are increasingly creating distance from Israel. We will be watching closely to see what results concretely from al-Sharaa’s upcoming visit to the US beyond photo ops, meetings, and written statements, and whether these take Syria and Israel closer to a sustainable arrangement of one form or another.


All statements of fact, opinion, or analysis expressed are those of the author and do not reflect the official positions or views of the US Government. Nothing in the contents should be construed as asserting or implying US Government authentication of information or endorsement of the author’s views.

Several years ago, the two of us met and quickly bonded over our shared obsession with the Middle East — a region where history moves dizzyingly fast and often sideways. We live around the corner from each other and would meet for walks around the neighborhood with our dogs to trade takes on the day’s events in Jerusalem, Gaza, Tehran, and Beirut, and occasionally debate where to find the most authentic hommous.  From the launch of transformational national plans like Saudi Arabia’s Vision 2030, to the shock of October 7th and subsequent regional convulsions, to the once-unthinkable promise of integration through the Abraham Accords and the precipitous collapse of the Assad regime — we are witnessing seismic change.  What started as a casual conversation turned into an ongoing dialogue and an interest to go deeper.

Professionally, we’ve spent years working in and on the region.  One of us from the world of intelligence, national security, and sanctions; the other from the world of trade, investment, and business. Both of us have worked in government and understand how economic tools — both carrots (e.g. FDI, market access, and deals) and sticks (e.g. sanctions, tariffs, export controls) are used, where they’ve worked, and where they have fallen short. Our perspectives often diverged — not surprisingly, the view from inside a SCIF looks quite different than the view from the corridors of an American company. But we always found value by putting those competing, and occasionally conflicting, perspectives in dialogue.

What interested both of us — and what animates this project — is our sense that the economic stories beneath the headlines of the Middle East are too often overlooked or misunderstood. The region is still in the thick of war, but that turbulence is simultaneously accelerating strategic and economic shifts that will have lasting impacts on the region. Capital is moving in and out. Technologies are being developed and deployed. New partnerships are forming across borders and sectors. And governments, both in the region and beyond, are putting their fingers on the scale.  And yet, conflict persists, humanitarian needs are growing, and the need for reconstruction is massive, with no clear roadmap in sight.  

Despite this uncertainty and churn, it’s clear that the region is being shaped not only through peace deals and summits, but also through capital allocation and strategic investment.  We’re fascinated by the people, politics, and power plays shaping decisions in the region. 

Here’s what we’re watching and the types of questions we have:

• Regional Investment: What can we learn about the influence and strategy of Gulf sovereign wealth funds and cross-border investment in sectors like energy, infrastructure, logistics, tech, and food security?  

• Reconstruction: Is there meaningful regional and multilateral action and opportunity on reconstruction in the region, particularly in Gaza, Lebanon and Syria? 

• Supply Chains and Economic Corridors: How are countries in the region positioning themselves – and the region as a whole – amid global economic change and intensifying great power competition?  

• Normalization:  Are there signs of expanding the Abraham Accords and deepening economic ties between Israel and the region (and beyond)?

• Innovation Ecosystems: How are regional tech hubs emerging—and what roles are governments, corporates, and venture capital playing in building platforms for AI, fintech, climate tech, and defense innovation?

• Economic Statecraft: How are tools like sanctions, incentives, export controls, and investment agreements being leveraged by the U.S., Gulf states, and multilateral institutions to shape outcomes across the region?

We’re doing this because we are endlessly curious about the region’s transformations, and eager to capture our ongoing conversations about the economic forces reverberating throughout the region, and, believe it or not, are eternally optimistic that better days lie ahead. And by the way: there is also good news in the Middle East! Yes, that’s a thing.   

We didn’t invent the term “Riyalpolitik,” which has been used in journals and articles to refer specifically to Saudi Arabia’s use of its financial strength (i.e., Saudi Arabian Riyals) to advance the Kingdom’s political interests around the world.  But we’re applying the term to something broader happening in the economic sphere across the region.

Riyalpolitik is our attempt to make sense of all of this — to explore the emerging economic narratives beneath the surface, where power, money, and ambition are converging to shape the region’s future.  We’re tuning in to the economic stories that often get lost and that will lay the foundation for what comes next in this complicated, strategic, and fascinating part of the world.

By Josh Kram

​​This article in Bloomberg caught our attention, because it broke down this amorphous concept that seems to be inescapable in today’s tech and investment landscapes — that the U.S. and China are locked into a two-way race for AI supremacy, with grave consequences for the loser. The piece breaks this down like the Olympics of tech – scoring the U.S. and China on who leads in which part of the tech stack, including regulation, capital expenditure, talent, and infrastructure.

At the same time, the Middle East is playing an increasingly prominent role in the AI race. There is a dizzying amount of activity coming out of the region. Gulf countries, most notably Saudi Arabia and the UAE, are spending tens of billions of dollars to put AI at the core of their economic modernization plans – capex akin to what the magnificent seven are spending in their own AI arms race against each other. Massive AI infrastructure is being laid, AI campuses are being built, and large-scale partnerships between American tech giants are taking shape in the region. And across the Middle East, investment dollars are looking for winning innovation.

Why the focus? As countries like Saudi Arabia and the United Arab Emirates continue to diversify their economies away from oil and gas, they see great potential in AI driving GDP growth across industries and sectors. PWC believes that by 2030, AI could contribute nearly 14% and 12.4% of GDP to the UAE and Saudi Arabia, respectively. Those would be massive gains.

PWC

So it got us thinking: how does the Middle East stack up in the global “AI Olympiad?” And what will it take to compete on the world stage?

Here are the four I’s that we’re watching:

1. Intent

The UAE launched its National Strategy for AI in 2017 and along with it, the world’s first Minister of State for Artificial Intelligence. The strategy is guided by the vision to position the UAE as a global hub, integrate AI into government services and educational curricula, and invest in talent, R&D, and an AI-supportive ecosystem.

As part of Vision 2030 – Saudi Arabia’snational plan for economic diversification, the Kingdom has laid out an ambitious strategy for data and AI that includes skills development, creating the right policy environment, and investing in and attracting international capital to boost AI assets. Its official national plan seeks to make the Kingdom among the top fifteen countries in AI.

Other regional players, such as Qatar, Bahrain, Oman, Egypt, and Jordan, - have put national AI strategies in place that include regulatory frameworks, use of AI for public services, and institutional initiatives focused on talent development, but the scale of the ambition is more national; Saudi and the UAE are seeking to impact on a global scale.

Meanwhile, Israel has launched a series of national AI initiatives over the past few years. The most recent effort, led by a government-appointment advisory committee, created a national plan to accelerate the country’s focus on AI and specifies the need for Israel to catch up to other regional states, such as UAE and KSA. This includes development of super computing infrastructure, centralized government decision-making authority, and investment in human capital to position Israel “among the top five countries in the world in AI.” Israel is seeking to replicate its successful play ran ten years ago in the cybersecurity domain, which made it one of the main destinations for investment in cyber technology globally.

But good intentions will only get you so far…

2. Investment & Infrastructure

One of the biggest differentiators across the region is the amount of capital they have to plow into these ambitions. In Saudi Arabia and the UAE, massive capex commitments from their sovereign wealth funds set them apart. Not only in the region but as global players as well.

In the UAE, G42 is the sprawling AI conglomerate chaired by Sheikh Tahnoun bin Zayed aka TbZ, the country’s national security advisor and brother of the ruler. To call it a “company” understates its role. G42 is the embodiment of the Emirates’ ambition to become a global AI hub, building the infrastructure, applications, and investment channels to make it happen. Wired’s piece earlier this year on TbZ is a must-read on the personification of UAE’s strategic ambition in technology driven by its massive wealth and the bets it’s making in the “multiplayer game of strategy that is the AI arms race.”

G42 also launched MGX, a $100 billion investment fund, alongside Mubadala, to invest in and deploy advanced AI technologies and infrastructure. MGX has also joined forces to create a consortium with Blackrock and Microsoft to mobilize billions of dollars for investments in data centers and the energy to power them. Nvidia, xAI, the Kuwait Investment Authority, and Tamasek have joined the consortium as well.

In May, Saudi Arabia’s Public Investment Fund (PIF) launched Humain, the Kingdom’s flagship vehicle to drive investment in AI infrastructure, platforms, Arabic large language models (LLMs), and applications. Humain is set to become the Kingdom’s central hub for AI activity and is already moving quickly, securing access to hundreds of thousands of Nvidia’s most advanced chips and forging major partnerships with U.S. tech firms, such as NVIDIA, AWS, and Groq, to build out infrastructure in the Kingdom.

And not to miss the wave, the Qatar Investment Authority just announced a significant investment in Anthropic, among other smaller AI firms. Sara Bazoobandi, a research fellow at the German Institute for Global and Area Studies described Qatar’s strategy aptly as a case of Qatar not wanting to fall behind its Gulf peers. “There is always a flying geese pattern,” she said. “As soon as one enters a new market, sector or region, the rest tend to follow.”

The region’s push for infrastructure rests on the premise that it brings an unparalleled combination of factors: an abundance of cheap energy, open space for data centers, a great deal of capital, and a highly strategic location at the nexus between Europe, Asia, and Africa. (Some pundits have argued that the Gulf’s proximity to the region’s conflicts cast doubt on its desirability as a global hub, while others have emphasized the need for the US to bring the Gulf states to its side in its zero-sum tech competition with China.)

Stargate UAE – a partnership between G42, OpenAI, Oracle, and Nvidia – seeks to build 5 gigawatts worth of data centers over a ten square mile campus in Abu Dhabi. Not to be outdone, Saudi Arabia’s Humain is targeting 6.6 gigawatts for the Kingdom over the next decade. Together, these initiatives aim to make the Gulf a global hub for AI infrastructure, with computing power that could be tapped from thousands of miles away, potentially serving nearly half the world’s population.

It’s also noteworthy in the scheme of geopolitical chess the Trump Administration reversed the Biden era AI diffusion rule (just days before his visit to Saudi Arabia and the UAE) which had limited which cutting edge American chips could be exported around the world based on national security risks. This major shift paved the way for NVIDIA and AMD to sell boat loads of their most sophisticated GPUs to Saudi and the UAE, effectively anchoring them as a key node in the U.S. tech ecosystem.

3. Innovation

Among the most visible areas of strategic competition between the U.S. and China (think ChatGPT vs DeepSeek) is the technology itself – the software, applications, algorithms, and models that are transforming workers, entire industries, and society as we know it. This is the most-closely watched battleground between Google and Microsoft or OpenAI and Meta.

Outside of Israel, the Middle East has not been known as a global hub of innovation and technology. That appears to be changing, as the Gulf pours resources into education, talent development, funding, and infrastructure, all against a permissive regulatory approach. We will continue to track this closely.

Humain recently launched a chatbot similar to ChatGPT that the company says “is fluent in Islamic culture, values, and heritage” and is powered by its own Arabic large language model, which. While all the U.S. chatbots and converse in Arabic, an early test will be to see how the region’s 400 million Arabic speakers react and whether a homegrown, native chatbot will better serve this market. It’s worth noting that the Arabic internet has long lagged in content, services, and tools, which makes Humain’s launch even more significant… and interesting to watch.

Saudi has a long record of importing the best talent and institutions when it wants to leapfrog the competition in any given arena. Starting in the 1930s, after oil was discovered in Saudi Arabia, the Kingdom relied heavily on American geologists, engineers, and operators to build out its oil industry. Over time, those expats trained Saudis and helped establish world-class training centers like the King Fahd University of Petroleum and Minerals. Nearly a century later, Saudi Aramco is one of the most sophisticated companies in the world, led largely by Saudi nationals. Saudi is pursuing this playbook in other areas - most visibly in sports - by attracting global football (soccer) stars like Cristiano Ronaldo and top golfers for the LIV Tour, to give this new sector a boost. Given the fierce competition for AI talent today, it would be no surprise if the Saudis begin writing big paychecks to bring in the “Ronaldos of AI R&D.”

Beyond the sovereign wealth funds and big financial platforms, there is money moving into support AI entrepreneurs in the Middle East and North Africa. For example, Google recently committed backing a new $100 million fund aimed at early stage start-ups in the region but most of the western money showing up in the Gulf is focused on infrastructure bets, not technology.

Israel is an exception and has gained the moniker “Start-up Nation” for good reason. With the highest number of start-ups per capita in the world, a base for hundreds of foreign R&D centers, and a long record of successful tech exits, Israel has proven itself as a hub for innovation. Israel’s elite technology units, like 8200, are already applying AI in real-world scenarios. When these highly trained graduates leave the military, they will bring with them the skills, experience, and entrepreneurial drive to launch new companies. The same cycle that made Israel a global leader in cybersecurity is now poised to fuel a new wave of AI start-ups.

As policymakers, business leaders, and technologists watch the U.S.-China AI Olympiad unfold and vie for advantage wherever they can, it is increasingly clear that the Middle East will be an important factor in the competitive race. The real question is how Washington and Beijing will leverage these regional forces and pull them onto their respective “national teams.” This will play out not over months, but years, and will be shaped by both big decisions made by governments and individual deals made by companies.

Will the Gulf try to hedge its bets and balance between the U.S. and Chinese interests? Will Gulf investments flow into U.S.-aligned AI ecosystems and technologies, or will the Chinese secure anchor positions through their massive Belt-and-Road Infrastructure plan that will lure Gulf participation? Will the Gulf move toward U.S.-oriented regulatory approach on AI, emphasizing data and IP protections, or drift closer to a Chinese model where AI systems are shaped by top-down political calculations and national security? This is an incredibly fluid space – much like the technologies and applications themselves (and much for us to watch at Riyalpolitik) – but there is no question that just as the region has been a pivot actor in energy over the past century, it too will be an influential player shaping the development of AI in the decades to come.

Originally published in Foreign Policy, September 5, 2025

By Eitan Danon and Daniel Schneiderman

Later this month, Syria’s Ahmed al-Sharaa will appear before the U.N. General Assembly —the first Syrian leader to do so since 1967. The world will be watching to see how he plans to navigate the religious and ethnic kaleidoscope of a country still traumatized by five decades of brutal authoritarian rule under the Assad family. The challenge that Sharaa faces is herculean, and it is in the interest of the United States and its partners to help him succeed.

Since becoming Syria’s interim president, Sharaa has sought to build a strong central government. However, sectarian violence has challenged these plans, raising fears that different factions could play spoiler to an orderly transition. In June, a Sunni extremist suicide bomber killed 25 people and injured 60 more at the Mar Elias Greek Orthodox Church in a Damascus suburb. In March, Syrian forces and government-aligned militia groups killed 1,500 Alawites along the western coastline. More recently, communal violence erupted between the Druze and Sunni Bedouin in Syria’s southwestern Suwayda province, with Israel intervening and saying it did so to protect the Druze.

Any heavy-handed attempts by Sharaa to forcibly subdue unrest in the Alawite, Druze, and Kurdish communities is a recipe for disaster. With questions lingering about transitional justice and reconciliation for crimes committed against the Syrian people, Sharaa shouldn’t be surprised by minority groups’ skepticism of the state.

Sharaa’s government has promised to be inclusive, and in September, Syria will hold its first parliamentary election since Assad’s ouster. Sharaa has also put technocrats in key positions, such as economist Mohammed Yisr Barnieh as finance minister as well as electrical engineer and energy sector professional Mohammad al-Bashir as energy minister.

Much more, however, still needs to be done. The United States can’t single-handedly solve Syria’s sectarian tensions. But it can help build a more prosperous economic climate in which these tensions are easier to manage. With this in mind, Washington should take three concrete steps to support Syria’s transition: reopen its embassy in Damascus, use the Global Fragility Act to spur economic development, and back a multidonor trust fund to facilitate financing for critical services and technical assistance.

For almost five decades, Syrians bore the brunt of comprehensive sanctions and coercive economic measures. Even with the lifting of sanctions, many investors are still likely to think twice before doing business in the country. By making and facilitating investments, the United States would not only directly help Syria build its future but also send a strong signal to the country and international investors.

This will help keep Syria’s transition on track and increase the prospects of Sharaa building a stable and secure country. For Syrian citizens, this will finally deliver the future that they deserve. For Washington, it will be vital in weakening Iranian influence and winning the fight against the Islamic State and al Qaeda.

The success of any political process in Syria hinges on Sharaa’s ability to resolve a host of interlocking institutional and economic problems. Like other countries with long- ruling, brutal regimes, such as Muammar al-Qaddafi in Libya or Saddam Hussein in Iraq, Syria saw its institutions and civil society thoroughly hollowed out. The mixed experiences of Libya and Iraq in transitioning away from authoritarian rule suggest that rebuilding institutions will be a tall order.

One major ongoing challenge concerns the formerly regime-aligned business community. A committee tasked with reappropriating and restructuring assets linked to regime cronies is exploring granting them immunity—for financial crimes and corruption but not war crimes—in exchange for surrendering their assets. A related question is whether to carry out complex financial crimes investigations against wealthy Assad loyalists—difficult while the courts are still staffed with many Assad-era judges—or to simply seize and nationalize their assets at the risk of scaring off foreign investment.

As if this were not enough to complicate its recovery, Syria is still grappling with the dismantlement of its Captagon industry, which previously generated $5 billion annually. Although production is now down by up to 80 percent, demand for the drug persists, keeping smugglers and militias invested in the trade.

Humanitarian and economic conditions also remain extremely fraught. Since 2011, the Syrian lira has lost 99 percent of its value, and unemployment has recently hovered around 24 percent. Many Syrians are still internally displaced and live under the poverty line. As of June, the country’s electricity grid was limited to two to four hours of daily supply, leaving Syrians in a state of acute energy insecurity and hampering recovery efforts in other indispensable sectors, such as water and health care.

The good news is that Saudi Arabia and Qatar have generously repaid Syria’s outstanding World Bank loans to enable fresh lending and have pledged to pay public sector wages. Riyadh in particular has taken a leading role in reconstruction and has pledged $6 billion of public and private sector investments—a generous amount, certainly, but far less than the $400 billion that some estimate as the total reconstruction cost. Saudi Investment Minister Khalid al-Falih traveled to Damascus in late July to meet with Syrian officials, and Mohammed Abunayyan, one of the kingdom’s most influential businessmen, is set to head a joint Saudi-Syrian business council.

This kind of sustained support will be critical, but economic stabilization will take time and patience. Gulf partners’ debt repayments on Syria’s behalf, while a net positive, do not address the crushing debts that Syria still owes to Iran and Russia, which exceed its GDP and by some accounts are between $30 billion and 50 billion. It is safe to assume that Moscow and Tehran will look to convert this debt into strategic leverage.

And Chinese companies are already vying for reconstruction contracts. This means that Syria and its Mediterranean ports could further become enmeshed in great-power competition, especially if the United States and its regional partners do not fill the void.

Those who have helped secure these investment deals—including Tom Barrack, the U.S. ambassador to Turkey and special envoy to Syria—deserve credit. But investment deals alone aren’t enough to help Syria move to the next phase of development, or to avoid the backsliding and nationwide ethnic strife that has bubbled to the surface. More must be done from Damascus to stitch the state and its people back together.

To make things better for all Syrians, Sharaa and his coterie in Damascus should focus on improving the day-to-day lives of ordinary Syrians by providing services, utilities, and concrete economic opportunities. This is an area where Washington can and should do more to help.

First, it’s time to reopen the U.S. Embassy in Damascus. What Barrack has accomplished on the ground is valuable. But the best way to advise the new government through this fragile interim period is with an ambassador who can spend the time at the presidential palace and with Syria’s ethnic groups doing the hard diplomatic work of giving all Syrians an economic and political voice. An open embassy also provides a platform that regional stakeholders such as Jordan, Turkey, Saudi Arabia, and Qatar can leverage to make sure constructive steps are being taken inside the government.

The recent elimination of the U.S. Agency for International Development and the State Department’s Bureau of Conflict and Stabilization Operations has complicated U.S. support for Syria’s transition. However, Washington still has tools at its disposal and a cadre of trained officers who would be eager for this kind of assignment.

The Global Fragility Act (GFA), signed into law by President Donald Trump in 2019, is designed to improve conflict prevention and stabilization efforts in fragile states. It delineates a set of authorities that the State Department could use to rapidly provide to do so—if the appropriate funding were made available and if Syria were added into the GFA’s priority country list.

Under the GFA, the United States could play an active role in supporting Syrian civil society by providing financing for small, medium, and micro enterprises. It could also support local reconciliation committees recognized as legitimate governing bodies in charge of service delivery, reconstruction, and the voluntary return of displaced persons. The GFA’s pilot efforts in Libya have already taken such steps with positive results.

The United States can and should also help Syria put in place structures to provide essential services for citizens in the short term. The provision of social services is a critical part of building legitimacy with average Syrians. One relatively fast way to accomplish this is through a multidonor trust fund, which has been used in other contexts as well. The World Bank’s Middle East and North Africa Multidonor Trust Fund (MDTF), whose last round ended in 2021, is one potential model.

The MDTF can help finance infrastructure in sorely needed areas such as electricity and housing while coordinating with reconstruction efforts funded by Turkey and the Gulf states to avoid duplication. Furthermore, as an international program, the MDTF is not subject to the vicissitudes of U.S. politics, should Syria policy change in this or a future administration.

Washington has already spent significant political capital on the success of Syria’s new government, including the first in-person meeting between Trump and Sharaa in Riyadh, Saudi Arabia, in May. It should now be doing everything possible to capitalize on these efforts. To forge a Syria at peace with its neighbors and itself, the United States needs to get serious about increasing its investment there—both figuratively and literally.

Originally published in the Times of Israel, August 8, 2025

By Josh Kram

This week, the White House imposed “reciprocal tariffs” on nearly 70 countries, including a 15% tariff on Israeli goods, effectively upending the U.S.-Israel Free Trade Agreement, signed forty years ago this month. “If it ain’t broke, don’t fix it,” a senior Israeli trade negotiator used to say to me whenever I brought up the idea of modernizing the FTA. But with a sizable trade surplus and a Trump administration laser‑focused on evening the score, Israel now faces a new paradigm for its trade relationship with the United States.

The U.S.-Israel FTA, America’s first modern free trade agreement, was signed when Israel’s largest exports were agriculture products, and the broader political winds were pushing toward globalization and trade liberalization. Today, Israel is a technology powerhouse that despite 22 months of war, is by all accounts economically thriving—the Tel Aviv stock exchange is up, the shekel has strengthened nearly 10% against the dollar, the start-up sector is doing well.

For the past several months, Israel has been in deal-making mode with its U.S. counterparts, aiming to lower its tariff rate, but so far, no deal has been reached. In the meantime, as the U.S. finalizes new trade agreements with the EU, Japan, South Korea, the UK, and others, there are important lessons for Israel–lessons that go beyond trade and are critical for strengthening the broader bilateral relationship and advancing shared economic interests.

Trade Talks Are Security Talks

U.S.-Israel trade talks over recent years have been divorced from the myriad other issues in our bilateral relationship, which predominantly focus on defense and security issues. Even before October 7^th, these issues tended to crowd-out the economic agenda. While the U.S. Trade Representative pushed Israel on a number of trade issues over the years, bilateral economic matters rarely rose to the level of presidential attention. Now, trade policy is at the center of U.S. foreign policy—and being driven from the top.

As such, these agreements take into account more than just last year’s imports and exports. They incorporate a broader set of U.S. priorities, chief among them, national security. The European Commission’s trade chief said, the U.S.-EU trade deal is also “about Ukraine,” admitting that the pact was not only about trade but broader security concerns. The Trump Administration recently reversed course on both U.S. support for arms to Ukraine and its commitment to NATO.

Similarly, Israel must acknowledge that its trade deal with the U.S. will be part of a larger bargain that also takes into consideration the U.S. security assistance package and other support for Israel’s defense. Underscoring the point, when asked about the planned tariffs on Israel during Prime Minister Netanyahu’s visit in April, President Trump said: “Don’t forget, we help Israel a lot. We give Israel $4 billion a year, that’s a lot.” This support will be considered and gives USTR major leverage in the horse-trading aim for parity that seems to animate the Trump Administration’s negotiating approach.

The Baseline Rate Is the New Duty-Free

The U.S.-Israel FTA stipulated that the two countries should eliminate both duties and “other restrictive regulation of commerce on trade.” Over the years, there have been thorns in the U.S.-Israel trade relationship that have frustrated American companies such as limited market access, protectionist measures in various sectors, pesky non-tariff barriers (i.e., regulatory, standards-related, or policy measures that add cost and bureaucratic hurdles), and inadequate intellectual property protections—to name a few.

Leading up to this week’s tariff slap, Israel has been trying to claw away at the originally announced 17% rate – taking steps to liberalize the agricultural sector and address non-tariff barriers. Israel needs to continue to do this work if it’s going to achieve its best-case scenario of a 10% baseline tariff rate which is the lowest rate imposed to trading partners across the world.

Clearly, the era of unfettered U.S. market access is over… but that is only part of the story when it comes to bilateral trade.

Investment Commitments Are Critical

Recent investment announcements in U.S.—from Saudi Arabia’s $600 billion investment pledge during President Trump’s visit to the region earlier this year to the EU and Japan’s commitments to buy American energy and pour billions of dollars into U.S. manufacturing—underscore a new reality: investment is now a critical deliverable in trade negotiations. For Israel, this will require some creative messaging.

The U.S. is already Israel’s largest export market, and Israeli firms have invested an estimated $22 billion in the U.S. economy but Israel’s economy is concentrated in hi-tech rather than large‑scale manufacturing. And while it doesn’t have sovereign wealth funds or major manufacturers to deploy, it has a strong case to make: Israel is a leading R&D center for American companies. The work done in Israel fuels U.S. innovation, enhances American companies’ global competitiveness, and, in many cases, supports U.S. jobs.

The challenge (and opportunity) is for Israel to package this story in a way that lands with today’s Washington. In a Trump‑era trade paradigm that prizes bringing back U.S. manufacturing and is deeply focused on strategic competition with China, “investment” announcements from Israel could highlight U.S.-based research partnerships, expanded R&D facilities, joint ventures, and the downstream American jobs and industries they support. Cases in point: Recently, California-based Palo Alto Networks bought Israeli firm CyberArk for $25 billion and Google announced it was acquiring Wiz for $32 billion. These are two landmark deals that give U.S. companies access to some of the world’s most advanced cloud and cybersecurity technologies – critical assets amid the explosive growth in AI – and bolster American national security and economic competitiveness.

An Opportunity to Reimagine the Economic Relationship

However, Israel can’t just play defense on trade. Now is the time to put forward an ambitious bilateral economic agenda that will lay the foundation for the next forty years of partnership.

The original FTA agreement doesn’t address the wide range of sectors and issues that make up so much of our modern economy. For years, American industry groups have urged both governments to update the agreement, making it fit for a high‑tech, innovation‑driven era by adding chapters on digital trade—setting common rules for areas like AI, cybersecurity, and other emerging technologies.

An updated agreement could also break new ground as its 1985 predecessor did and broaden the economic agenda. Even without new market access, a modernized U.S.–Israel trade framework could deliver wins that speak directly to President Trump’s priorities.

First, it could help drive U.S.‑led investment in Israeli projects through tools like the U.S. International Development Finance Corporation and Export-Import Bank of the United States, ensuring American companies win contracts while partners share the costs. There are already signals that the Trump Administration has “big plans” for DFC, including allowing it to invest in high-income countries, like Israel, a major shift from its original remit to focus on emerging economies.

Second, it could establish clear rules that incentivize Gulf and other regional partners to do business with Israel, building on the Abraham Accords. While the days of using U.S. market access as leverage, as in the Qualifying Industrial Zones (QIZs), may be over, a new bilateral agreement could deploy other tools to encourage joint ventures, co‑production arrangements, and supply chain partnerships that deliver benefits to U.S. companies. This could include aligning regulations and standards—especially in the digital arena—in ways that set benchmarks other Middle Eastern countries would want to match to attract American firms and investment, alongside financial incentives for joint projects linking Israeli innovation with regional partners.

And, finally, it could open new pathways for Israeli technology to integrate into U.S. supply chains—from semiconductors to defense systems—in ways that strengthen American manufacturing, create U.S. jobs, and keep American industry globally competitive. This could include procurement provisions that make it easier for U.S. and Israeli firms to jointly bid on major defense, infrastructure, and technology contracts in the U.S. and around the world.

After signing the FTA into law, President Ronald Reagan said, “[This agreement] symbolizes once again our two countries’ deep community of interest and our shared values and aspirations for a better future. It also underscores the importance of Israel to the United States as an ally, as a trading partner, and as a friend.”

While the contours of the U.S.-Israel relationship have evolved alongside a shifting regional landscape—and with it, our trade ties—what remains clear is that America’s economic partnership with Israel will continue to serve as a cornerstone of our strategic alliance: driving innovation, promoting economic growth, and advancing the interests of both nations.