Satyajit Das: The Re-Shaping of the Persian Gulf and Energy Markets

Yves here. We had thought that one way the Iran war might unexpectedly start moving towards a resolution would be fractures among the Gulf states with perhaps even some refusing to be good vassals. Mind you, given the current complete lack of overlap in bargaining position, any non-escalatory shifts could be salutary. As Satyajit Das points out below, it has become all too clear that Israel is America’s pet interest in the region and in a crunch, all the others are of little to no import. He also posits that the US might try the Ukraine solution of trying to exit and dumping the mess on its poodles. But even that provides no resolution of the Strait of Hormuz outtrade, with Iran not about to relax its grip and the US repeatedly and loudly calling that unacceptable.

Alternatively, and path that might undercut the US enough to force changes, is of some Gulf states coming to accept that survival requires that they come to a reconciliation with Iran, even if with gritted teeth.

Richard Pape gives an overlapping perspective on the Gulf states, that they are no longer acting more or less in unison now that the US is no longer an anchor, but are fragmenting.

By Satyajit Das, a former banker and author of numerous technical works on derivatives and several general titles: Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives (2006 and 2010), Extreme Money: The Masters of the Universe and the Cult of Risk (2011) and A Banquet of Consequence – Reloaded (2016 and 2021). His latest book is on ecotourism – Wild Quests: Journeys into Ecotourism and the Future for Animals (2024). This is an amended version of a piece first published in the New Indian Express print edition.

The Israel-US war of choice against Iran is re-shaping the always combustible energy markets and the Persian Gulf. Some contours may be emerging. Israel’s objective is to destabilise and weaken Iran and its Arab neighbours to allow it to annex Palestinian land and establish Judea and Samaria. The US will choose its objectives after it declares “victory”, its involvement reminiscent of its disastrous post-WW2 support of France’s colonialist agenda in Indochina.

With many moderates killed in air strikes, Iran’s Revolutionary Guards hardliners have emerged stronger. Their objective is to eliminate the existential threat to the Islamic Republic. To avoid continuous wars as Israel periodically “mows the lawn” as in Lebanon, Iranian demands include withdrawal of US bases and personnel from the region and security guarantees, underwritten by trusted powers. They want monetary reparations, new arrangements for the Straits of Hormuz including a probable tolling structure as well as lifting of sanctions, and release of frozen assets totalling between $100 billion and $120 billion.

The role of the Gulf Cooperation Council (GCC) States (Saudi Arabia, UAE, Qatar, Kuwait, Bahrein, Oman) may be central.

The primarily Sunni Muslim GCC are in a trap of their own making. Despite banalities about brotherhood, the GCC’s objective has been a weakened Iran which cannot dominate the region. They are reliant on US “protection” allowing American military bases on their territories. The ruling monarchies have deep economic links with America. They are major investors, through their sovereign wealth funds, in Western assets and their petrodollars help maintain the US currency’s reserve status. Some GCC members have normalised relationships with Israel under the Abraham accords.

Since the start of hostilities, Iran’s strategy of well telegraphed attacks on GCC countries is designed to undermine these arrangements. It has launched strikes on US bases which have played a part in the military campaign although the relevant states do not acknowledge American and Israeli use of their land or airspace. In parallel, the targeting of GCC energy assets, restricting transit through the Straits of Hormuz, and closure of airspace are designed to disrupt their economies. Alongside buyers of energy, the strategy hurts the energy export dependent GCC regimes, some already financially strapped. It echoes the Game of Thrones: “If we burn. You burn with us.”

The GCC find themselves facing an invidious choice. It can join America and Israel and retaliate militarily against Iran. Israeli Prime Minister Netanyahu wants to open a land front. The Arab Gulf states are crucial to any such campaign as in the Iraq wars. This may provide America the off-ramp they are seeking, allowing a switch from active participation to the lucrative business of supplying armaments as they have done in Ukraine by Europeanising that conflict. The US recently approved $16.5 billion arms sales to Gulf states. Alternatively, the GCC can reach an accommodation with Iraq embracing neutrality, dismantling US bases, agreeing to finance reparations, and jointly controlling crucial shipping channels.

Each option has issues. Siding with the US-Israel axis would outrage Gulf populations, sympathetic to Iran and Palestine. It may prove terminal for the unpopular, autocratic rulers. Joining with Iran would antagonise their Western allies whose primary interest is to guarantee the flow and cost of energy supplies.

Several background factors affect the choice. There is widespread resentment of hypocritical American and Western support for Israel. There are doubts about the nature of the American security guarantee. Khalaf al-Habtoor, a prominent Emirati businessman, spoke for many in a social media post addressed to Trump. “A direct question: Who gave you the authority to drag our region into a war with #Iran? And on what basis did you make this dangerous decision?…Did you calculate the collateral damage before pulling the trigger?” Pointing to the fact that the Gulf states were being asked to pay for the rebuilding of Gaza and support the “Board of Peace”, he queried whether “they were funding peace or funding a war that exposes the region to danger?”

Republican Senator Lindsey Graham, an ardent supporter of President Trump and advocate for the war, has questioned Saudi Arabia’s refusal to join military operations against Iran. The GCC seemed to mistakenly believe that the American bases were shielding them not that they were protecting Americans. Given Iran’s resistance and resilience(unsurprising to anyone with even a passing knowledge of Shia history), the aura of US-Israeli invincibility has diminished. The monarchies belatedly have realised that outsourcing your security leaves you exposed to that party acting against you. They now fear US led regime change initiatives against them and confiscation of their wealth which is mainly overseas.

The GCC itself is also deeply divided. The UAE and Saudi Arabia have long-standing differences over oil production levels. The Emiratis want to export at maximum levels to monetise the commodity to generate funds for a new post-oil economy. Saudi control over OPEC output agreements has long been resented culminating in the decision of the UAE to leave the cartel. Saudi Arabia implemented a blockade on Qatar between 2017 and 2021 in retaliation of Doha’s alleged support for extremist groups and ties to Iran. While the 2021 Al-Ula Declaration led to the reopening of borders and reestablishment of diplomatic links, the relationship remains fragile.

Whatever they choose, the decision will have wider ramifications, perhaps widening the conflict. If the GCC sides with the US and Israel, then it will create long term regional instability. Russia (whose relationship with Iran is transactional and pragmatic) will see it as an expansion of Western influence in the region and further encirclement. China will be concerned about the security of its energy imports and the future of the extensive Belt-and-Roads infrastructure investment in the area.

If the GCC joins with Iran, then it gives these countries control over the Straits of Hormuz, the ability to set prices and use the threat of selective embargoes to further their agendas.  The long-term risk to energy security will concern Europe and US aligned Asian countries like Japan. It increases the chance of them joining a Western military coalition to secure shipping lanes and energy supplies.

Israel would view any Iran-GCC alliance as a security threat. It is reliant on US and Western continued support. Notwithstanding the influence of the American Zionists and Armageddon-loving Christian evangelical zealots, resentment that it pushed the US and the West into this war is mounting. President Trump has already prepared the case for reducing engagement: “You could make the case that maybe we shouldn’t even be there at all…It’s almost like we do it for habit —but we also do it for some very good allies that we have in the Middle East.”

This conflict is far from over and its impact remains uncertain. Its implications for the availability and price of fossil fuels, still critical to the global economy, are unknown. As Adolf Hitler noted: “The beginning of every war is like opening a door into a dark room. One never knows what is hidden in the darkness.”

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