By Anna Jordanová

On July 30, two tankers transferring oil from Russia’s Novorossiysk terminal through the Black Sea were hit by Ukrainian drones, adding to five earlier incidents that month. The vessels sustained limited damage, but the attacks deepened concerns conflict was spilling over into vital trade corridors.

Decades of infrastructure investment have stitched the Caspian Sea and Black Sea into a single transportation and energy corridor, linking East and West. Transit through the so-called “Middle Corridor” has emerged as an important alternative route for the delivery of both Central Asian energy and Chinese goods to Europe. This corridor, which avoids the sanctions pitfalls of logistics networks that pass through Russia and the Middle East, is also an economic and diplomatic lifeline for the states of Central Asia and the South Caucasus.

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Section: (integrated-futures-initiative) Photo: Valentina Perfilyeva

By Aria Kia

On 22 July, Iran connected its first geothermal power plant to the national grid. Located near Meshginshahr on the slopes of Mount Sabalan in Ardabil Province, the facility has an installed capacity of 5.4 MW. Against an electricity system generating hundreds of terawatt-hours annually and facing shortages measured in gigawatts, its immediate contribution to the grid will be almost imperceptible.

Yet measuring the project only by its initial output misses its significance. The Sabalan plant represents Iran’s first attempt to produce continuous renewable electricity from underground heat. It also tests whether capabilities developed in Iran’s oil, gas, and power industries—including deep drilling, reservoir engineering, steam systems and turbine commissioning—can be transferred to an energy technology that reduces fossil-fuel consumption rather than expanding it.

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By Esfandyar Batmanghelidj

Last week, the Financial Times published a major report that examined a new “truce” between the UAE and Iran, one that has spared Emirati cities and critical infrastructure from direct attacks even as Iran has sustained strikes on other Gulf states. According to the report, the deescalation began after direct contacts between senior Iranian and Emirati officials in mid-June. UAE officials pursued dialogue with Iran as part of a “suite of strategies to manage relations” in the face of ongoing instability in the region and the failure of the Trump administration to shield Gulf countries from the blowback of the U.S. and Israeli war.

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A moderated discussion featuring:

• Khalifa Al Suwaidi, Bourse & Bazaar Foundation

• Yousuf Al Bulushi, Muscat Policy Center

• Rashid Al Mohanadi, Center for International and Policy Research

• Mahdi Ghuloom, Observer Research Foundation

• Mansour Almarzoqi, Prince Saud Al-Faisal Institute for Diplomatic Studies

The ongoing Iran–US negotiations cannot be understood solely as a bilateral process between Washington and Tehran. The GCC states are directly affected by their outcome and are already playing different roles in shaping the diplomatic environment surrounding the talks. Qatar is involved as a mediator, Oman is central to the Strait of Hormuz file, and Saudi Arabia and the UAE are influencing the wider regional context through their diplomatic positioning, security concerns, economic interests, and postwar engagement with Iran.

The Bourse & Bazaar Foundation is convening a 90-minute public dialogue with Khalifa Al Suwaidi, Yousuf Al Bulushi, Rashid Al Mohanadi, Mahdi Ghuloom, and Mansour Almarzoqi. Moderated by Mehran Haghirian, the dialogue will examine the role of the GCC states in the Iran–US MoU, the ongoing negotiations, and the prospects for a future regional security and economic architecture.

The discussion will test three propositions: whether the GCC states already have a meaningful role in the negotiations through both direct and indirect channels; whether the Hormuz file could provide the basis for an inclusive multilateral administrative framework for the strait, including possible maritime service or environmental fees consistent with freedom of transit; and whether a parallel process is needed to prepare the ground for a structured Iran–GCC–Iraq dialogue on regional security, deconfliction, and economic interdependence.

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By Esfandyar Batmanghelidj and Mehran Haghirian

Editor’s Note: This article was originally published on Friday. A full Persian-language translation of this article was published by Iran’s state news agency, IRNA, on Sunday.

This week Iran resumed attacks on commercial vessels passing through the Strait of Hormuz, targeting ships attempting to transit through a southern channel established by Oman in coordination with the International Maritime Organization and with the encouragement of the United States. The attacks have further weakened the already fragile Memorandum of Understanding signed between the U.S. and Iran on June 18. Iranian leaders believe that the Trump administration is seeking to reduce their negotiating leverage by enabling ships to transit through the strait without coordinating with Iran.

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By Hadi Kahalzadeh

Two weeks ago, amid fragile negotiations with the U.S. and mounting domestic tensions, Iran’s Supreme National Security Council set a nationwide 25% ceiling on rent increases. More than a housing measure, it was a dramatic signal that the cost-of-living crisis had crossed into the realm of national security.

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By D.A. Leusder

The Islamabad Memorandum of Understanding (MOU) between the U.S. and Iran was officially signed on June 17 at Versailles. The 14-point framework commits the U.S. to “develop a definitive, mutually agreed plan with at least $300 billion for the reconstruction and economic development of the Islamic Republic of Iran” in concert with “regional partners.”

Access to this capital, as well the release of Iran’s own frozen assets, are tied to Iran’s compliance with other points of the agreement. Under this framework, the U.S. will serve as the enabler of private sector- and regional capital flow into Iran. In practice, this entails U.S. Treasury waivers for oil exports immediately upon signing and full sanctions termination in the final deal., if agreed within 60 days after the signing of the MOU.

Despite some reports indicating that half of the headline figure is already “committed,” much about how the capital will be allocated remains uncertain. The MOU does not specify whether the $300 billion will be structured in a dedicated fund, or whether the amount will reflect commitments made across a range of investment vehicles.

However, assuming that the full amount of $300 billion is eventually disbursed, it is worth asking how these inflows will affect Iran’s external economic position and whether the Iranian economy is even large enough to absorb such significant inflows. After all, emerging market economies are vulnerable to large changes in their external balance sheets. If foreign claims on its economy increase too rapidly, then a windfall injection of investment in the near term could risk pushing Iran into a balance-of-payments or solvency crisis somewhere down the road.

Considering that the $300 billion will only flow into Iran in a scenario when Iran benefits from broad sanctions termination, a simple, illustrative model of Iran’s long-term growth path, is enough to dispel such fears, even within the large uncertainties that such exercises necessarily involve.

Iran’s economy is large relative to its current external liabilities stock, which sits at a minuscule 2.5% of GDP after being closed off from global capital markets for decades. And its oil export revenue, which is set to increase, underwrites its ability to acquire foreign exchange reserves and service its debt.

Then there’s the potential nature of the fund itself: as a reconstruction and economic development fund it is fundamentally not a loan facility. Such funds are generally equity-heavy: we can expect private investors and Gulf sovereigns to take project stakes and enter into joint ventures in the energy, petrochemicals, infrastructure sectors, with upside participation and risk-sharing.

We can therefore reasonably assume that the majority of the inflows will be foreign direct investment (FDI) as opposed to debt and that the returns and the capacity to service it would accrue across the economy wide. This enables projecting the path of external liabilities against GDP, as opposed to foreign exchange earnings or fiscal revenue more narrowly. On this basis, we can paint a stylized picture of Iranian growth over the next three decades, with the economy progressing sequentially through a reconstruction and opening up phase, a phase marked by investment ramping-up, a maturation phase of plateauing growth, and a wind down phase.

To project Iran’s external liabilities through 2056, we assume a 65% to 35% split for FDI and debt for the $300 billion and that the funds are disbursed across the three decades, with the annual rate of inflows halving in the last decade. We also need to account for returns generated by the inbound flows. That is, over time, what is the average return on investment, how much is reinvested or repatriated, and how much interest revenue leaves the country as the external debt stock grows?

As a relatively closed economy, Iran has no observable market cost of capital, so the returns figures are bracketed between two reference economies, Saudi Arabia and Turkey. The first is an investment grade and oil-rich economy with cheap debt but a high resource-sector FDI returns. The second is a large, diversified, sub-investment-grade emerging market with expensive debt but with moderate, broad-economy FDI returns.

For Iran, then, a realistic assumption is that both FDI returns and risk premia remain high throughout. Based on historical norms across comparative emerging markets, we can further assume a reinvestment ratio of 0.5 (50% of returns are put back into the economy) and a holding period for FDI (when capital starts exiting) of 15 to 20 years.

The crux is that a developing economy like Iran can’t efficiently absorb unlimited investment: skills, institutions, project pipeline and implementation capacity are bottlenecks. As the investment rate rises, the marginal efficiency of investment falls convexly. The relevant parameter here is the incremental capital output ratio (ICOR), which captures the additional capital investment required to produce a unit of output in GDP. It rises as investment becomes less productive. Iran’s realized ICORs in this model change over time (a different value of each in the four phases) but they are benchmarked against typical ranges for emerging markets.

Since the GDP denominator is expressed in U.S. dollars, exchange rate effects matter. We nonetheless assume only modest real movements in the long run. The gap between the managed NIMA/ETS “agreed” rate and the parallel market rate has effectively closed, so GDP is already priced at a market rate. That is, because the big adjustment has already happened, the path of Iran’s debt ratios isn’t artificially kept down by some hidden devaluation shock that would shrink the denominator. And even if Iran doesn’t immediately rein in high inflation, the picture doesn’t change much, since a correspondingly weaker rial leaves the rial-dollar real exchange rate (and, by extension, dollar-denominated GDP) roughly unchanged.

So, the real growth engine is non-oil endogenous growth: Iran’s annual oil revenue above the 2026 base driven by sanctions relief with the addition of the fund disbursements generate non-oil investment which leads to real GDP growth via a convex ICOR. This trend sits on top a conservative 2.45% autonomous structural growth trend for the non-oil based part of the economy, well below emerging market averages of 4 to 4.5% annually, which are similar to Turkey’s and Saudi Arabia’s long run averages.

Taking these together—the modest autonomous growth rate and the additive growth from both increasing oil revenue and investment fund inflows—the average growth rate in all scenarios is assumed not to exceed 3.5% per annum, well under the 4 to 4.5% long-run trends for similar economies.

This implies two things: that what matters most for the projections are different oil price scenarios, and, that what is driving the external liabilities share over time is the GDP denominator. Accordingly, the growth projections are based on three different oil price scenarios, derived from the World Bank and International Energy Agency (IEA) forecasts, from a 2026 war-adjusted nominal GDP baseline of just above $400 billion.

The realized total compound annual growth rate (CAGR) across these scenarios ranges between 2.2 and 3.6%. The “low oil” path, in which countries’ aspirational energy transition goals are realized, should be treated as the most realistic one. In the model, this path reflects lower export volumes, which feed back into the denominator. Based on the IEA’s 2024 Announced Pledges Scenario (APS), then, Brent crude oil falls to $58/bbl by 2050, with grade differentials (medium sour/heavy barrels trading below Brent) pulling Iran’s effective long run price down to $49/bbl and capping export volumes at 2.8 million barrels-per-day (bpd) instead of 3.2 million bdp in the central and high oil paths.

In that scenario, Iran’s economy expands to around $775 billion, just short of a 95% rise from our estimated 2026 baseline. This is conservative for both fast-growing diversified emerging markets and for major oil exporters. Iran’s own realized growth, despite sanctions, was 152% between 1994–2024, during which the median cumulative growth for similar oil exporting economies was well over 200%. And none of them benefited, as Iran might, from a large investment fund or a sanctions-induced low baseline conducive to catch-up growth.

So, in the most realistic ‘low oil’ scenario under conservative assumptions, Iran’s gross external liabilities ratio (Fig. 1) breaches 50% of GDP in 2037 and peaks at 76% in 2046, remaining elevated thereafter. This seems high. By comparison, Saudi Arabia’s and Turkey’s current shares sit at 58% and 48% respectively.

But the gross measure is the sum of the inbound FDI and debt stocks. As we recall, in Iran’s case this is likely skewed heavily towards equity. Accounting for the likely split, the projected stock of external debt (Fig. 2) peaks at a mere 15% in 2046 in the same scenario. This is well below the International Monetary Fund’s (IMF) medium 40% debt sustainability threshold for low income countries, and less than half the ratio of the two reference countries, both around 35%. The reason is simply that Iran’s starting point is very low at 2.5% of GDP.

A better metric for future solvency risk is the composition of the country’s entire external balance sheet: assets and liabilities. What the IMF and others consider a more precise measure of financial stress is the net external position. Based on the same projections, a current foreign asset stock of $90 billion and a conservative effective saving rate of ~5% of total oil export revenue once export volumes ramp to a 2.8 million bdp ceiling, Iran’s net international investment position (NIIP) turns negative but never becomes unsustainable (Fig. 3).

Though it briefly dips below –50% in the low oil path, this NIIP threshold is a statistical signal from the technical literature and is not widely considered meaningful: some countries sit well below it without experiencing financial stress and many debt crises have occurred at significantly higher NIIP ratios. The IMF’s External Balance Assessment (EBA) instead emphasizes its trajectory (the “NIIP-stabilizing current account”) and its composition: the active ingredient is net external debt, while equity type liabilities barely raise risk.

Put simply, NIIP includes equity, and equity isn’t debt: it has no fixed repayment, doesn’t roll over, and investors bear the downside. Iran’s negative net investment position stabilizes toward the end of the low oil path, and, crucially, is skewed towards FDI equity, reflecting the footprint of the $300 billion development and reconstruction fund.

What truly matters is the net debt component. If we exclude equity, then, we get a real measure of the difference between foreign assets and foreign defaultable liabilities, or NENDI (NIIP excluding non-defaultable instruments). In all three scenarios, Iran comfortably remains a net creditor, with its NENDI bottoming out at 9% of GDP in 2046 in the low oil projection (Fig 3.).

This means that solvency risk does not become an issue for Iran even under pessimistic assumptions on a realistic oil price growth path. This in itself does not quite rule out liquidity events: the risk of a “sudden stop” of capital inflows endangering Iran’s ability to roll-over its debt depends on the ratio of its gross short-term liabilities to its usable foreign exchange reserves. But the overall size of the debt leg remains modest throughout.

If Iran’s entire external debt stock only peaks at 15% of GDP, then even an adverse maturity profile (say a third of liabilities being short-term) means the volatile component remains small relative to usable reserves. And on the reserves side, the denominator improves alongside the inflows, since access to those $300 billion are premised on the same sanctions relief that unfreezes reserves and generates the foreign exchange revenue to expand the asset stock over time. These same inflows also mitigate the need for Iran to later refinance itself with short-term portfolio debt once its access to capital markets has normalized. As with all emerging markets seeking new capital inflows, Iran will need to make extensive domestic reforms to improve the attractiveness of its economy for foreign investors and creditors, especially considering the lingering effects of sanctions. But these complex reforms are worth pursuing given the structural opportunity presented by Iran’s minimal external liabilities.

Overall, it is highly unlikely for Iran’s external economic position over the next decades to be destabilized even if the full investment fund windfall is realized and oil markets are glutted. Its economy is too diversified and too large, while decades of sanctions have guaranteed that its debt stock remained small and that its reintegration into global oil markets can produce large relative gains from a low baseline. Barring any geopolitical reversal of fortunes, then, Iran’s ability to comfortably absorb investment at scale could well result in a sustained period of economic development and prosperity.

Dominik A. Leusder is a political economist and writer based in London. An experienced macroeconomic analyst, he has held various research roles at the London School of Economics and leading economic policy think tanks.

Section: (vision-iran-initiative) Photo: Mehdi Ghorbani

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A moderated discussion featuring:

• Stephen Fallon: Founder of DBM Consulting and an Associate Fellow at the Bourse & Bazaar Foundation. Previously the Chief Compliance Officer at INSTEX.

• Josh Kram: Managing Director of Westbrook Global Advisory. Previously Senior Advisor for Strategy and Policy at the U.S. International Development Finance Corporation and Vice President, International Strategy & Global Partnerships at the U.S. Chamber of Commerce.

• Delaney Simon: Senior Analyst for the US Program at the International Crisis Group, where her research focuses in part on U.S. approaches to sanctions termination.

On 17 June, the President Trump and President Pezeshkian signed the Islamabad Memorandum, a framework agreement that establishes terms for further negotiations between the United States and Iran, including cessation of military strikes, the lifting of the blockades in the Strait of Hormuz, and the provision of interim sanctions relief.

Nearly halfway through the 60 days allotted for the negotiations, the Bourse & Bazaar Foundation is convening a 75-minute webinar with Stephen Fallon, Josh Kram, and Delaney Simon. Moderated by Esfandyar Batmanghelidj, the panel will examine the potential global, regional, and national economic impacts of the U.S.-Iran MOU. The speakers will interpret the economic provisions of the agreement and discuss the interim sanctions relief to be received by Iran, including the newly issued general license, GL-X. Given the historic risks and lingering effects of sanctions, the panelists will also discuss the feasibility of full sanctions termination for Iran, and the conditions that international and American businesses might require to pursue economic opportunities in Iran.

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By Esfandyar Batmanghelidj

Editor’s Note: Several hours after this analysis was published, further versions of the MOU were made public. U.S. sources provided a “final” version of the MOU to Axios and Iranian sources provided a final version to Amwaj. There are no substantive differences between the two versions and the analysis of the clauses presented below, which was based on an early draft text published by Bloomberg, continues to apply.

On Monday, the United States and Iran electronically signed a historic framework deal, ending the war in the Persian Gulf, and setting the terms for further negotiations towards a comprehensive peace agreement. The so-called “memorandum of understanding” or “MOU,” which will be formally signed on Friday in Switzerland, raises the prospect of a transformation in relations between the U.S. and Iran.

Despite the significant obligations the MOU places on Iran, including the commitment to “refrain from the threat or use of force” against the U.S., the reopening of the Strait of Hormuz, and the freezing of its nuclear program—steps that, in effect, eliminate the coercive pressure that Iran’s leaders have managed to impose on the Trump administration since February—the MOU is being roundly criticized, most vocally by Democrats eager to deny Trump a face saving way out of his blunderous war.

Senator Chris Murphy has characterized the MOU as a “surrender” to Iran, claiming that the early sanctions relief gives away U.S. leverage. Brett McGurk, who led Middle East policy during the Biden administration, has claimed that the initial sanction relief offered Iran “reduces incentives” for Iran’s leaders to pursue a full agreement.

There are many valid reasons to criticize the MOU. It is a loosely drafted document which raises significant questions over the sequencing of confidence building measures by the U.S. and Iran and provides little guidance for how the general commitments will be converted into technical terms in a comprehensive agreement. At best, it establishes the core principles for further negotiations. But the argument that the MOU relinquishes U.S. leverage is mistaken. Such claims fail to take into account both the tremendous economic challenges Iran’s leaders now face and also fundamentally misunderstand how sanctions leverage actually works.

Economic Commitments

Several media outlets, including Bloomberg, have published what is described as a “draft” text of the MOU. The idea that the U.S. and Iran would agree to a simple framework agreement before beginning technical negotiations is not new. This was the approach being pursued in May of last year by Omani, Qatari, and Saudi mediators eager to establish mutual understandings and trust ahead of technical negotiations. My understanding is that the text published by Bloomberg is close to the final version. Several clauses of the MOU pertain to economic concessions that the U.S. has promised Iran.

Clause 4 obligates the U.S. to lift “the naval blockade and prevent any interference or obstruction against the Islamic Republic of Iran.” In tandem, as stipulated in Clause 5, Iran “will immediately take steps to ensure that the movement of merchant ships from the Persian Gulf to the Sea of ​​Oman and vice versa is resumed.” Both sides are expected to facilitate the “pre-war volume” of maritime traffic through the strait within 30 days.

As part of negotiations, Iran has demanded compensation for the damage incurred during the war. While it does not frame the commitment in terms of compensation, Clause 6 obligates the U.S. to develop a “comprehensive plan agreed upon by both parties for the rehabilitation and economic development of the Islamic Republic of Iran.” The plan is intended to provide Iran with financing of “at least $300 billion” for this purpose but does not specify how the funds will be raised.

During the negotiations last year, just prior to the 12-Day War in June, it became clear that the Trump administration had proposed the potential lifting of primary sanctions to incentivize larger Iranian concessions. This prospect is reflected in Clause 7 of the MOU, in which the U.S. “commits to ending, on a schedule to be agreed upon as part of the final agreement, all types of sanctions currently facing the Islamic Republic of Iran, including resolutions of the United Nations Security Council and the Board of Governors of the International Atomic Energy Agency, and all unilateral U.S. sanctions, both primary and secondary.”

Clause 9 dictates that while Iran will “maintain the status quo” on its nuclear program, meaning that it will not reconstitute its facilities or resume enrichment, the United States neither “impose new sanctions on Iran” nor “strengthen its forces in the region.”

Finally, the MOU offers Iran the prospect of immediate economic relief through two mechanisms. In Clause 10, the U.S. undertakes that it will “issue waivers for exports of Iranian crude oil, petrochemical products and their derivatives, and all related services, including banking, insurance, transportation, and the like” while negotiations over a comprehensive agreement continue. In Clause 11, the U.S. commits to make “fully available” Iran’s frozen assets, in accordance with “progress of negotiations towards a final agreement.”

Iran’s Deeper Crisis

A facile reading of these economic clauses has spurred much of the criticism of the MOU. There are claims circulating that Iran is poised to receive $300 billion, when in fact the MOU simply obligates the U.S. to devise a reconstruction plan, which could provide Iran access to financing over a period of years, if not decades. Similarly, there is intense focus on the prospect of immediate sanctions relief in the form of oil waivers. But far less consideration is given to why Iran might be incentivized to reach a comprehensive agreement because of the prospect of a complete lifting of all sanctions, including the U.S. primary embargo.

Critics of the MOU fail to understand that the war has dramatically altered Iran’s economic circumstances and that the limited relief promised by the MOU does not solve the profound challenges faced by Iranian policymakers. Estimates suggest Iran may have experienced up to $300 billion in physical damage during the war — a figure commensurate with the financing target of the reconstruction plan. The U.S. and Israel recklessly struck at civilian targets, including residential, commercial, and industrial buildings. One study found that two-thirds of the nearly 3,000 buildings damaged by airstrikes in Tehran were civilian.

Across the country, air strikes on steel plants, petrochemical facilities, and critical infrastructure such as desalination plants, oil depots, and road and rail bridges undermined the normal operation of the Iranian economy. As a result of this damage, and in light of the extensive disruptions to normal trade owing to the war and the closure of maritime traffic in the Strait of Hormuz, Iran’s economy is expected to contract by around 10% this year, according to an early estimate from UNDP which compared with a “no-war” baseline. The drop in economic activity will dramatically increase pressure on Iranian firms and households.

Since Trump withdrew from the Iran nuclear deal in 2018, reimposing broad unilateral sanctions on Iran, the Iranian economy has experienced a long period of stagflation. The impact of sanctions on export revenue and access to international reserves thrust Iran into a balance of payments crisis. Supply chain disruptions, pass through effects from currency devaluation, and monetization of the fiscal deficit combined to keep annual inflation levels elevated at nearly 40%. The saving grace for the economy has been that industrial output did not decline. Oil production and exports began to recover beginning in 2021 and non-oil manufacturing proved resilience. The resulting economic condition, typified by low growth and high inflation, was one of “stagflation.” Iran found itself in a slow-moving economic crisis, not in an accelerating economic collapse.

Much of the economic hardship caused by U.S. sanctions was borne by ordinary Iranians, who have seen their living standards fall, leading to a rise in economic grievances and an increase in the frequency of protests. But Iran’s leaders felt increasingly confident about their ability to muddle through the economic crisis by deflecting the costs of the crisis away from economic elites and by relying on repression to quell dissent — at least until the war. Today, as inflation rises further and the economy tips into a recession, Iran’s leaders are facing a completely new set of macroeconomic challenges. Getting the economy back on track will require significant economic stimulus and reconstruction spending, measures that are impossible without broad sanctions relief. Not only is sanctions relief necessary to tame inflation, it is also necessary to enable Iran to import the industrial equipment and machinery needed to rebuild infrastructure and bring major industrial facilities back on line.

This predicament is why Iranian officials have insisted on “compensation” for damage incurred during the war. The oil revenues that could be earned during the initial negotiation period, perhaps amounting to around $8 billion, are essentially meaningless when fully accounting for the cost of the war, a fact that critics of the MOU have failed to acknowledge. Iran’s leaders must gain more from diplomacy with the Trump administration if they are going to hoist themselves out of the deepening crisis.

Understanding Sanctions Leverage

Alongside their failure to understand why Iran would be incentivized to pursue a comprehensive deal, critics of the MOU have also failed to understand how sanctions leverage works, and why Iranian officials were unswayed at previous moments in which broad economic relief was on the table.

An absence of credibility has been the principal problem facing U.S.-Iran diplomacy since Trump reneged on the Joint Comprehensive Plan of Action (JCPOA). During the Biden administration’s long negotiations to restore the nuclear deal, U.S. negotiators were faced with intense Iranian skepticism about American commitments to roll back sanctions. Not only were Iranian officials concerned about the prospect of another U.S. president tearing up the nuclear deal for a second time, but they were also dismayed by the Biden administration’s insistence on maintaining maximum pressure sanctions on Iran throughout the course of the negotiations, a move that slowed the resumption of negotiations and also led to the talks taking place in an indirect format.

What this experience demonstrates is that sanctions leverage is not simply a product of coercive power and economic pain. Rather, to be useful in the context of diplomatic negotiations, sanctions leverage depends on another factor, the credibility of the commitments for sanctions relief and termination.

When talks did get underway, Iranian officials insisted on “guarantees” that the U.S. would fulfill its sanctions relief commitments, a demand that European officials facilitating the negotiations tried to address through some technical innovations in how sanctions relief would be sequenced, mainly by promising Iran greater up-front relief before requiring conclusive steps on the dismantling of key nuclear facilities.

Ultimately, while a complete agreement was agreed by the technical teams in August of 2022, Iran’s Supreme Leader refused to approve it. This was almost certainly a strategic mistake which contributed to the escalatory cycle that ultimately led to the February 2026 war. But the move was not completely illogical. In the wake of the Russian invasion of Ukraine and revelations about Russian-Iranian military cooperation, the political atmosphere had grown far more negative. Had the renewed nuclear deal been adopted and implemented in this environment, it was highly unlikely that Iran would receive the full economic benefits of the agreement, even if the terms of the deal promised broad sanctions relief. In this condition, many Iranian leaders preferred to remain under sanctions, and to delay the resumption of nuclear negotiations until a more conducive moment.

What this experience demonstrates is that sanctions leverage is not simply a product of coercive power and economic pain. Rather, to be useful in the context of diplomatic negotiations, sanctions leverage depends on another factor, the credibility of the commitments for sanctions relief and termination. The MOU addresses this issue directly in Clause 12 when it states that Iran and the U.S. “agree that an implementation mechanism will be established to oversee the successful implementation of and future commitment to the Final Agreement.”

Building Confidence

In this way, the MOU may actually represent a substantial improvement over Obama’s JCPOA and the aborted deal negotiated under Biden. Even before the initiation of technical negotiations, the MOU establishes a political commitment on the part of the Trump administration to repeal all sanctions targeting Iran and recognizes the need for such commitments to be subject to an oversight mechanism.

No U.S. administration has ever before made such a commitment, and the language underscores not only the profound ways in which the war has changed the strategic balance between the U.S. and Iran, but also the reality that President Trump, unlike any president before him, has a personal interest in transformative diplomacy with countries long considered U.S. adversaries. He may also be uniquely able to ignore criticism from across the political spectrum and from powerful lobbies as he pursues such deals, a fact demonstrated by the administration’s apparent lack of concern that the MOU may violate legislation such as INARA, which grants Congress a right of review over nuclear “agreements” with Iran.

Of course, Iranian leaders do not trust Trump. He tore up the nuclear deal, launched maximum pressure sanctions, and twice whipsawed between negotiations with Iran and launching wars against Iran. But the MOU is written in light of this distrust. The document establishes ambitious shared principles for a potential transformation of the U.S.-Iran relations, providing a set of mutual goals also endorsed by every major regional power except Israel. In pursuit of those goals, it obligates modest actions from both sides that can help build confidence and pave the way for the thorny technical negotiations necessary to craft a comprehensive deal. During the course of those negotiations, the U.S. will retain leverage over Iran, as the country’s economy continues to struggle. Whether Trump can effectively use that leverage depends entirely on whether he and his negotiators will acknowledge that Iran too enjoys latent leverage. The two sides are evenly poised in the negotiations. If, as the language of the MOU suggests, Trump is now willing to accept a win-win deal with Iran, diplomacy may yet have a chance.

Esfandyar Batmanghelidj is the Founder and CEO of the Bourse & Bazaar Foundation.

Section: (vision-iran-initiative) Photo: White House

By Mehran Haghirian

Donald Trump’s meeting with Xi Jinping in Beijing was not supposed to be about Iran. But the war in the Gulf looms large over the Beijing summit. While the conflict did not displace trade, technology, Taiwan, critical minerals, or the wider U.S.-China rivalry, Trump arrived in Beijing needing Xi’s help over the thorny issue of Iran.

China could use its influence to end the war on Iran and the instability in the Gulf. China’s role matters because of its interfaces with nearly every part of this crisis. It is the guarantor of the 2023 Iran-Saudi agreement signed in Beijing. It has been engaged with Pakistan and others in mediation efforts since the war began. It has used its position at the United Nations to shape the multilateral response to the crisis. It is the foremost customer of energy from the Gulf Cooperation Council states and from Iran. Its firms, trading networks, and nationals have been affected by U.S. sanctions, the risks around the Strait of Hormuz, and the disruption caused by the war. Chinese officials have also put forward a political approach through Xi Jinping’s four-point proposal on peace and stability in the Middle East.

China’s actions should be understood in continuity with its expanded role in Gulf diplomacy since 2023. As the guarantor of the Iran-Saudi détente, Beijing has played a role in reducing tensions between Tehran and Riyadh over the past three years. Much of that role has remained outside public view, just as it did when the agreement was signed. In March 2023, China’s role became fully visible only at the final moment, when reports emerged shortly before the announcement that Iranian and Saudi security officials were in Beijing to finalize the deal.

China has for years spoken of transforming the Gulf into an “oasis of security.” The phrase reflects Beijing’s view that the Gulf should move toward an inclusive regional security arrangement.

A similar dynamic may be at work today. Not every consequential part of this diplomacy is announced as it happens. China approach has often centered on quiet engagement, creating space for regional parties to negotiate. Chinese officials presented the 2023 agreement between Iran and Saudi Arabia as part of a broader, yearslong effort to move the Gulf toward dialogue and away from confrontation. That logic has become more important since the war began in February.

The war has also shown the limits of the Iran-Saudi détente, pointing to lessons for Chinese policymakers as consider their next steps. The bilateral deal did not prevent direct confrontation. Saudi Arabia, like the UAE, attacked Iran directly during the war. Riyadh’s position, however, has remained different from Abu Dhabi’s in one important respect. Saudi Arabia has remained diplomatically engaged with the Islamic Republic. It could be argued that Saudi offensive action, combined with possible Chinese involvement behind the scenes, helped prevent the tit-for-tat from escalating further. Riyadh showed that it could respond militarily while keeping a political channel open.

That point matters for China’s role. The 2023 agreement did not produce complete reconciliation between Iran and Saudi Arabia. It did not entirely eliminate mistrust. But it preserved a channel at a moment when the region could have moved toward a wider and less manageable war.

China has for years spoken of transforming the Gulf into an “oasis of security.” The phrase reflects Beijing’s view that the Gulf should move toward an inclusive regional security arrangement. Since the outbreak of the war, China has tried to turn that language into a diplomatic strategy.

On March 31, China and Pakistan issued a five-point initiative for restoring peace and stability in the Gulf and the wider Middle East. It called for a ceasefire, de-escalation, dialogue and negotiation, protection of civilians, and the safeguarding of shipping lanes and energy facilities. The initiative mattered because it showed that China was already working with Pakistan and other in the newly formed quadrilateral that also included Turkey, Egypt, and Saudi Arabia.

Beijing then moved further in April, when during Xi Jinping’s meeting with the UAE’s Sheikh Khaled bin Mohamed bin Zayed, China put forward four propositions on peace and stability in the Middle East. Xi encouraged peaceful coexistence, national sovereignty, international rule of law, and a balance between development and security. Chinese officials have also signaled that China wants to play a role in establishing a new post-war regional architecture. This moved Beijing beyond ceasefire diplomacy and indicates Beijing’s desire to shape the political framework that follows after the war ends.

Beijing’s approach is shaped by its own interest. It wants to preserve influence with Iran, but it also wants strong ties with Saudi Arabia, the UAE, Qatar, Kuwait, Oman, and Bahrain. It wants to push back against U.S. pressure, but it does not want a regional war to threaten Chinese energy flows, investments, ports, shipping routes, and supply chains across the Gulf and the wider Global South. China’s support for Iran exists within these limits.

China’s conduct at the United Nations has also been telling. An earlier Bahrain-backed resolution attracted 135 co-sponsors, with China abstaining. A later Bahrain-backed resolution on shipping protection in the Strait of Hormuz was vetoed by China and Russia. Another draft is now under discussion and is likely to face the same obstacle. Chinese actions at the UN showed that Beijing was prepared to block a line backed by the United States and others when it believed the text was too one-sided against Iran or risked worsening the crisis.

The UN track shows that China’s posture is not detached neutrality. By vetoing the resolution and rejecting approaches it views as imbalanced, Beijing has made clear that it has its own view of how pressure on Iran should be handled, how maritime security should be framed, and how the Gulf crisis should be internationalized. China wants to remain central to the diplomatic process without allowing the Security Council to become a platform for one-sided coercion. Its diplomacy is helping set the boundaries of the war’s diplomatic track, which matters even more considering the personal relationship between Trump and Xi.

The Strait of Hormuz is where China’s influence and limits are clearest. Iran has reportedly allowed the transit of Chinese vessels, with around 30 ships, mostly Chinese, passing through the strait as Trump was in Beijing. Tehran may see this move as proof that it can regulate access to the waterway while rewarding friendly states. But China is unlikely to treat such arrangements as anything more than wartime exceptions. Beijing may accept practical accommodations to keep ships moving during the conflict. It will not want Iran to institutionalize a system in which Tehran decides who can pass, under what conditions, and at what cost.

Senior U.S. and Chinese officials have agreed that no country should be allowed to exact shipping tolls in the Strait of Hormuz. This is one of the rare areas where Washington and Beijing have found common ground during the war. For the United States, it is about pressuring Iran to give up its hostile actions around the strait. For China, it is about making sure the Hormuz does not become a tool of permanent Iranian leverage over global shipping and energy flows. Beijing may oppose U.S. coercion against Iran, but it also opposes any Iranian effort to turn wartime control into a standing regulatory order and pit Beijing against GCC capitals and the rest of the international community that expects Chinese action on this issue.

The nuclear dimension makes China even harder to ignore. If the endgame of this conflict eventually turns on what is to be done with the highly enriched uranium buried under the damaged Iranian nuclear site, China may be one of the very few countries with the technical and political capacity to matter directly, according to Trump. That question goes to the heart of any future arrangement on Iran’s nuclear file and it also raises the issue of which outside powers would be capable of helping implement a settlement, rather than only urging restraint from a distance.

Through the war, Russia and China became important to Iran not only diplomatically, but also operationally, through political cover, intelligence support, military-related assistance, and resistance to U.S. efforts to isolate Tehran completely. The exact balance of that support remains only partly visible in public, but the broader direction is clear. Iran did not confront this war in complete isolation. China and Russia formed part of the external environment that helped Tehran absorb pressure, avoid total strategic abandonment, and hit American targets and assets.

The sanctions issue makes this even clearer. In recent weeks, Washington has imposed new sanctions on people and companies involved in aiding Iranian oil shipments to China, including firms in Hong Kong, the UAE, and Oman. It has also sanctioned Chinese and Hong Kong entities linked to Iranian weapons procurement networks. China, for its part, invoked its anti-sanctions law for the first time to order firms not to comply with U.S. blacklisting of Chinese refiners over purchases of Iranian crude, although it partly reversed course afterward.

The U.S. moves demonstrated two things at once. Chinese firms are central enough to the Iran-related trade network to be targeted by Washington. But they are also important enough for Beijing to defend from external coercion. China will resist U.S. pressure where it can, but it will manage exposure when the costs become too high. There are clear limits to Chinese support for Iran. China has no interest in sacrificing its Gulf partnerships for Tehran. It will not welcome permanent instability in Hormuz or Iranian wartime regulations to become a normal feature of Gulf shipping. It also does not want U.S. sanctions on Chinese firms to expand to the point that Iran becomes a larger liability for Chinese companies, refiners, insurers, and banks.

China is the principal economic actor still tied to Iran while also being one of the most important external partners of the Gulf states. It buys energy from the region, trades across the region, invests within and with the region, and now faces direct American pressure because of those ties. China’s role is tied to the material structure of the Gulf. Energy, ports, shipping, insurance, investment, industrial supply chains, and critical minerals all connect the war to Beijing’s wider interests. A durable end to the war will have to take China’s interests and channels of influence into account.

China’s support of a regional non-aggression pact and a broader post-war security framework should be viewed within this context as well. A non-aggression framework would reduce risks to Chinese energy flows, infrastructure investments, trade networks, and political partnerships on both sides of the Gulf. It would also give Beijing a larger diplomatic role in a region where Washington has long dominated the security architecture but is growingly seen as unreliable.

Trump’s Beijing meeting was not a summit on Iran. But the war changed the context of the trip, delayed it, and made Iran one of the issues that had to be discussed. When Trump and Xi spoke about Iran, China entered the conversation as the guarantor of the 2023 Iran-Saudi détente, as the supporter of a diplomatic initiative with Pakistan, as the sponsor of a four-point political approach of its own, as a state signaling interest in a new post-war regional architecture, as a UN veto-holder that has already shaped the diplomatic track of the war, as the target of U.S. sanctions because of its ties to Iranian oil trade, and as a major power with direct economic and strategic interests in the future of the Gulf.

Beijing cannot impose peace on Iran, Saudi Arabia, the UAE, or the United States. It cannot make the nuclear file disappear. It cannot unilaterally guarantee maritime security. But China has enough weight with Iran, enough exposure to the Gulf, enough influence at the UN, enough leverage in oil markets, and enough interest in the post-war order to matter in any serious effort to end the war. To restore peace in the Gulf, Trump will need Chinese leadership.

Mehran Haghirian is the Director of Research and Programs at the Bourse & Bazaar Foundation. His work centers on conflict resolution and diplomacy, with a particular focus on the Persian Gulf region. Haghirian holds a PhD in Gulf Studies from Qatar University. He currently leads the Integrated Futures Initiative and the Rihla Initiative for Green Economic Growth.

Section: (integrated-futures-initiative) Photo: U.S. Department of State

By Mehran Haghiran and Jessica Obeid

A version of this article was originally published in French in Le Grand Continent.

The decision by Abu Dhabi to leave the Organization of Petroleum Exporting Countries (OPEC) is about more than energy policy. The move reflects a broader frustration with regional and international frameworks that no longer match how the United Arab Emirates sees its interests, both in the Gulf and beyond. The Iran war has brought that reassessment forward, not just for Abu Dhabi, but across the Gulf Cooperation Council (GCC) capitals, which largely share the same perceptions and predicaments.

The timing of the Emirati decision is central to understanding it. While the announcement comes as the war is paused, the ceasefire is uncertain and the Strait of Hormuz is effectively closed. The Gulf’s core systems are under pressure as shipping is disrupted, insurance costs have surged, energy flows are unstable, food cargo has been delayed, and aviation networks have been partially shut down. In this environment, coordination mechanisms that depend on stability have lost their meaning in the absence of meaningful action.

The region’s growing integration into global markets has created strength, but also vulnerability. Ports, airspace, desalination plants, financial systems, and supply chains are all part of the same ecosystem. Once disruption begins in one area, it spreads quickly.

Since the start of the conflict, Emirati officials have signaled a growing dissatisfaction with the institutions the country has long been part of. That includes not only OPEC, but also the GCC itself, the Arab League, and the Organization of Islamic Cooperation. The criticism has been consistent in that these platforms are not delivering, especially as the UAE has wanted to play a stronger role while its peers seek the same.

Energy Ambitions

For OPEC, the dissatisfaction runs way longer. The UAE has long been uncomfortable with constraints that do not reflect its capacity or ambitions. It has invested heavily in production and infrastructure and has pushed repeatedly for higher quotas within OPEC.

Since 2021, the UAE has consistently advocated for an unconditional increase in production, arguing that current market conditions justify higher supply. Over the medium term, it aims to raise output capacity to 5 million barrels per day (mbpd); around 1.5 mbpd above its current quota. This created a structural tension within OPEC, where production ceilings may constrain the UAE’s ability to fully utilize its planned capacity.

In the near term, output is effectively limited by reduced export capacity due to disruptions in the Strait of Hormuz. However, the UAE’s strategy is clearly forward-looking: positioning itself to capture a larger share of global markets once logistical constraints ease and production caps are revisited.

When conditions stabilize, the UAE will be able to increase production without being bound by OPEC limits. That matters in a market that is likely to remain volatile for some time. It also gives Abu Dhabi greater control over how it responds to shifts in demand and supply. This will likely trigger countermeasures from other producers, especially Saudi Arabia, further intensifying competition for market share.

The UAE is placing greater emphasis on control, flexibility, and direct management of its interests. That applies to partners, to institutions, and to adversaries.

There is also a precedent. Qatar left OPEC in 2018 during the blockade imposed by its GCC partners. That decision was not only about energy policy but it was about positioning. The UAE is now doing something similar, but in a far more consequential context. By doing so, it is also trying to shed light on a systemic crisis in the region and globally and demanding an international response or repercussion.

The war has introduced a level of uncertainty that makes flexibility more valuable than coordination. When flows through Hormuz are disrupted, when vessels hesitate to transit, and when insurance costs become prohibitive, the ability to adjust production quickly becomes more important than adherence to group quotas. For the UAE, this is not only a constraint to be removed but an opportunity to reposition itself.

UAE-Saudi Rift

The UAE’s move also needs to be understood in the context of its relationship with Saudi Arabia. The divergence between the two countries did not begin, or end, with the war. It has been building for nearly a decade and since 2016, the relationship has gradually shifted from alignment to competition. Vision 2030 and the UAE’s economic model are not complementary. They compete for the same capital, the same logistics role, the same talent, and the same position in the global economy.

Yemen made those differences visible earlier this year. What began as a joint military effort in 2015 evolved into a series of disagreements over objectives, partners, and outcomes in the decade that followed. That divergence is no longer tactical as heightened military conflict was seen just back in February. It reflects a broader difference in how each country approaches the regional order and its own role within it.

The war paused that tension for a short period but it obviously did not resolve it. If anything, it has brought it back into focus. The UAE’s decision to leave OPEC without consulting Saudi Arabia is part of that story. It signals a willingness to act independently on issues that were previously managed within a framework of coordination. That framework was fragile before the war, and this decision effectively broke it.

The decision creates a difficult moment for OPEC and for Saudi Arabia. OPEC has always relied on a degree of cohesion among its leading producers, and the UAE stood as the group’s fourth largest producer. That cohesion is now under strain. The UAE’s exit weakens the perception of unity and raises questions about how durable the current structure is under prolonged pressure. As of now, only Saudi Arabia and Kuwait are OPEC members from the GCC which now need to work more closely with Iran and Iraq.

Shifts Across the GCC

The broader question is whether the UAE’s move remains limited to OPEC or becomes part of a wider pattern. Abu Dhabi has already signaled that it is reassessing its position across multiple organizations. Other states in the region are also reviewing their options. The war has forced a reconsideration of how these multilateral frameworks, bilateral relationships, and foreign investments function, and whether they are worth maintaining in their current form.

But this is not a move toward isolation. The UAE is not configured for isolation as a policy option. Its economic model depends on openness. It relies on being a hub for trade, logistics, finance, aviation, and global movement. That will not change. All six GCC states are on the same boat.

What is changing is how they approach their relationships. The UAE is placing greater emphasis on control, flexibility, and direct management of its interests. That applies to partners, to institutions, and to adversaries. Even with Iran, the UAE is likely to maintain a managed relationship after the war. Managing relations does not require trust. It requires a clear understanding of interests and limits.

The same applies across the GCC. These states are not moving toward disengagement from the international community. Quite the opposite, but they are moving toward more selective engagement. There is now less assumption of alignment and more differentiation in how each state responds to the same set of pressures.

For years, the Gulf was often described as a bloc. That description was always incomplete and the war has made clear that each state is operating according to its own calculus. The UAE is moving earlier and more openly than others, but it is not alone in that direction. The decision to leave OPEC is one step in the process of reevaluating policy options and reflects a region that is no longer coordinating under a shared framework, but adjusting under pressure, each state in its own way and seeking to establish its agency within the international system.

Mehran Haghirian is the Director of Research and Programs at the Bourse & Bazaar Foundation. His work centers on conflict resolution and diplomacy, with a particular focus on the Persian Gulf region. Haghirian holds a PhD in Gulf Studies from Qatar University. He currently leads the Integrated Futures Initiative and the Rihla Initiative for Green Economic Growth.

Jessica Obeid is Founding Partner of New Energy Consult (Dubai) and a senior energy engineer and strategist with over 17 years of experience across the Middle East, Africa, and Europe. She has advised governments, the private sector, and multinational institutions in more than 40 countries, and has held roles at Chatham House, the Middle East Institute, SRMG Think, and the United Nations Development Programme, among others. Jessica is a Gulf Committee Member of the Rihla Initiative for Green Economic Growth.

Section: (integrated-futures-initiative) Photo: Government of Dubai Media Office

By Rumaitha Al Busaidi

During the initial 39 days of war, U.S. and Israeli strikes on Iran moved beyond oil depots to energy and petrochemical infrastructure and Iranian retaliatory strikes hit power, fuel, and desalination systems across the Gulf. More than 400 incidents carrying potential environmental risk have been documented across the region and the environmental consequences have widened with every new category of target.

Somewhere in the Gulf today, a desalination plant damaged by strikes is being assessed for structural and environmental contamination. The chemicals it needs to operate still arrive by sea, through a strait that has been effectively closed for two months. Families at the end of that chain do not track shipping indices or ceasefire terms. They turn on a tap.

Bushehr, Iran’s only operating nuclear power plant, has emerged as one of the most alarming flashpoints. Iran reports that it has been struck four times. The International Atomic Energy Agency has warned of a serious risk to nuclear safety. Qatar’s Prime Minister, who revealed that his government had simulated the effects of a Bushehr incident, put the consequences plainly: no clean water, no fish, no life. Gulf desalination plants are not designed to filter radioactive material. If contamination enters the sea, it enters the tap.

The environmental cost of this war is now embedded in the conditions of life across the Gulf. It is moving through contaminated waters, disrupted food systems, threatened desalination infrastructure, and ecosystems absorbing more stress than they were built to withstand.

Pollution from uncontrolled fires may enter soil and water, leach into groundwater, and be absorbed by crops. The war’s carbon footprint is accumulating alongside the visible destruction. Analysis of the first 14 days of fighting estimated more than 5 million tonnes of carbon dioxide equivalent—more than the combined annual emissions of 84 nations. The largest share came from the destruction of civilian buildings, homes, schools, and hospitals. Burning fuel in storage and targeted depots added another major share. Methane leaks from damaged gas infrastructure, rerouted civilian aviation, and the fuel consumption of thousands of combat flights are contributing to an atmospheric burden that will outlast the fighting itself.

Reconstruction will deepen that burden further, as damaged infrastructure is rebuilt using concrete, steel, and other energy-intensive materials. These emissions are part of the same chain of damage already moving through water systems, ports, coastlines, and food supply chains.

Ecological damage does not respect borders or battlefields. After a strike sank an Iranian warship off Sri Lanka, satellite imagery documented a 12-mile oil spill, illustrating how quickly the geography of this war has expanded. Toxic smoke from burning fuel and petrochemical infrastructure has drifted across urban populations and into ecosystems along major migratory corridors.

Over Israel, where more than 500 million birds cross each spring along the African-Eurasian flyway, air defense systems have shot down cranes and pelicans after mistaking them for incoming drones.

Across the Gulf, the pressure extends from sky to sea. Smoke, pollution, repeated explosions, and sustained maritime disruption are placing additional strain on ecosystems already weakened by warming seas, salinity, and chronic contamination. These waters are home to the second-largest dugong population in the world after Australia who are now threatened.

By mid-March, the region’s food import pathways were already under strain, with scarcity and price increases of between 40 and 120 percent reported across the region. Roughly 20,000 seafarers on nearly 2,000 ships remain stranded on either side of the waterway, a situation the United Nations has described as unprecedented in the post-Second World War era. Even during pauses in bombing, ecological risks continue to accumulate as vessels remain trapped, consuming fuel, rationing supplies, and operating as potential sources of pollution in confined waters.

This conflict has exposed the water-energy-food nexus in its most immediate form. The Strait of Hormuz carries around a fifth of the world’s oil. Gulf states remain deeply dependent on food imports, with more than 70 percent of GCC food supplies moving through Hormuz. Freshwater production relies heavily on desalination, which in turn depends on continuous energy and a steady maritime flow of chemicals, spare parts, and operating inputs. When the strait closed, pressure fell on all three systems at once.

The environmental cost of this war is now embedded in the conditions of life across the Gulf. It is moving through contaminated waters, disrupted food systems, threatened desalination infrastructure, and ecosystems absorbing more stress than they were built to withstand.

The 1991 Gulf War remains the closest precedent and offers one measure of the cost ahead. The United Nations Compensation Commission processed claims seeking roughly $352.5 billion and awarded $52.4 billion in compensation, including more than $5 billion for environmental and public health damage. It established that environmental harm from armed conflict can be documented, valued, and compensated at scale.

Today’s damage is broader and more complex. The ecosystems now absorbing the burden of this war were already under strain from chronic pollution, water insecurity, and rising environmental pressures. The scale and spread of industrial targeting raise the prospect of a far more complex remediation challenge. The damage is still accumulating, and the question of who will bear the cost remains unresolved.

A temporary pause cannot stop pollution from moving through soil and sea, carbon from settling into the atmosphere, or ecosystems from unravelling under pressures that long predate this war and will long outlast it. The region’s ecology is recording the price of this conflict in real time. Future generations will live inside that record long after the battlefield falls silent.

Rumaitha Al Busaidi is an Omani climate strategist, policy advocate, and sustainability leader currently serving as Business and ICV Development Manager at Hydrogen Oman (Hydrom). She is also the Vice President of the Environment Society of Oman. She is a member of the Gulf Committee of the Rihla Initiative for Green Economic Growth.

Section: (rihla-initiative) Photo: IRNA

Over the past decade, the member states of the Gulf Cooperation Council (GCC) have established themselves as central actors in climate finance across the Global South, deploying capital at scale, shaping investment corridors, and positioning themselves within the next phase of global green development. The war now unfolding in and around the Gulf is jeopardizing the GCC’s climate finance ambitions.

In this piece, Gulf-based climate policy experts Aisha AlRumaihi, Owais Jwaied, Ahmed Samir Elbermbali, Rumaitha Al Busaidi, Deema Almasri, Jessica Obeid, and Dawud Al Ansari offer an initial assessment of the impacts of the war.

The contributors are all members of the Rihla Initiative for Green Economic Growth, which brings together practitioners and policymakers working across energy, climate finance, infrastructure, and economic strategy in the Gulf and the Global South.

Across the contributions, the impact of the war becomes clear. Gulf investment will become more selective, more closely tied to resilience and security, and more attentive to the systems that underpin economic stability, such as utilities like water and energy, trade flows, or digital infrastructure. Capital is unlikely to retreat from the Global South, but will be redeployed with greater emphasis on strategic alignment, risk management, and long-term positioning. This reordering of priorities will shape not only the scale and direction of GCC investment, but also the structure of climate finance across the Global South in the years ahead.

Gulf Climate Finance Is Adapting, Not Retreating

Aisha AlRumaihi

The war has disrupted supply chains, increased uncertainty, and raised the cost of long-term investment. In this environment, investors are expected to become more cautious, prioritizing shorter-term and lower-risk opportunities over climate projects that depend on stability and extended planning horizons. At the same time, heightened geopolitical risk has reinforced the importance of energy security, which may lead some GCC countries to sustain or expand oil and gas production in the near term. This may slow elements of the transition, but it does not suggest a departure from longer-term climate objectives.

These pressures are also creating new openings. GCC countries are expected to increase investment in local innovation, regional capabilities, and domestic industries across renewable energy, green technologies, and sustainable infrastructure. This shift reduces exposure to external disruptions while strengthening resilience within national economies. At the same time, recent developments have elevated food and water security as core components of the climate finance agenda, pushing toward a more integrated and systems-based approach to sustainability.

The effect of the war is a shift in the form of Gulf climate finance rather than a retreat from it. Investment is becoming more flexible, more adaptive, and more closely aligned with resilience, while continuing to support clean energy, infrastructure, and climate partnerships across the Global South.

Gulf Green Investment Is Becoming More Selective

Owais Jwaied

Regional conflicts are unlikely to curtail GCC engagement in climate finance across the Global South. They are, however, reshaping its priorities, geographical orientation, and strategic function. The conflicts in and around the region are pushing Gulf states to view green investment not only as a mechanism of decarbonization, but also as an instrument of strategic resilience. Economic security, energy security, and climate resilience can no longer be treated as separate domains, particularly given the vulnerabilities associated with the Strait of Hormuz and repeated threats to critical infrastructure.

Climate finance is increasingly being integrated into a broader GCC strategy aimed at reducing exposure to shocks, protecting trade routes, and consolidating regional influence. This shift is making Gulf green investment more selective and more closely shaped by security considerations, even as countries such as the UAE, Saudi Arabia, and Qatar retain the financial capacity to invest abroad. Projects that combine climate and strategic value are likely to be prioritized, including grid resilience, desalination, food security, strategic ports, battery storage, green logistics, and renewable energy linked to industrial corridors.

The main effect of the war is not a reduction in Gulf climate ambition, but a narrowing of how and where that ambition is deployed. Without stronger de-risking mechanisms, blended finance structures, and local institutional capacity, more fragile parts of the Global South risk receiving less transformative finance, even as GCC green investment continues at scale.

Gulf Climate Finance Is Under Pressure

Ahmed Samir Elbermbali

Before the war, Gulf climate finance had real momentum. Major sovereign funds, infrastructure commitments, and clean energy deals had positioned the region as one of the few actors with both the capital and the time horizon to drive investment across the Global South. This mattered in a context where climate finance needs were already far outpacing delivery, particularly in lower-income and frontier markets.

That trajectory is now under strain. The region expected to anchor the next phase of global green investment is operating in a more constrained environment, shaped by heightened risk, pressure on infrastructure, and a weaker outlook for long-term capital deployment. Gulf climate finance has not receded, but it is facing more difficult conditions at a moment when demand for it remains high.

Capital depends on stability to move at scale. The immediate effect is not a collapse in Gulf climate ambition, but a slowdown in delivery. Commitments may remain in place, but implementation is likely to take longer, risk appetite is narrowing, and the gap between pledged and deployed capital is set to widen.

Environmental Risk Is Reshaping Gulf Climate Finance

Rumaitha Al Busaidi

The environmental cost of the war is becoming central to water security, maritime stability, and the systems that sustain daily life. As pressure on energy infrastructure reveals structural vulnerabilities, desalination systems are emerging as a critical point of exposure. Facilities damaged by strikes are being assessed not only for structural integrity, but for environmental contamination, while the chemicals required for their operation continue to depend on maritime access through a strait that has been under sustained disruption.

Beyond individual facilities, the environmental footprint of the war is expanding across systems and geographies. Early analysis of the first weeks of fighting estimated more than 5 million tonnes of carbon dioxide equivalent, exceeding the annual emissions of dozens of countries. Toxic smoke from fuel and petrochemical fires, oil spills moving across maritime routes, and damage to marine ecosystems are placing additional strain on environments that were already under pressure. These dynamics are exposing the water-energy-food nexus in its most physical form. The Strait of Hormuz carries around a fifth of the world’s oil, more than 70 percent of GCC food imports move through it, and freshwater production depends on energy-intensive desalination supported by steady maritime supply chains. When the strait came under pressure, all three systems were affected simultaneously.

This has direct implications for Gulf climate finance. The war is shifting capital toward environmental resilience, water security, and the protection and repair of critical systems. Investment priorities are placing greater weight on safeguarding infrastructure, managing ecological risk, and strengthening the systems that sustain daily life, both within the Gulf and across similarly exposed regions.

Water Security Is Moving to the Center of Gulf Investment

Deema Almasri

The war is exposing a vulnerability that has long been overshadowed by the focus on oil and gas: water. With direct strikes on energy and civilian infrastructure, including water tankers and desalination plants, the Gulf is being forced to recalibrate. The era of large external climate and green economic investments is being reassessed, with greater emphasis now placed on domestic infrastructure resilience.

From a water security perspective, this shift is not surprising. In the Gulf, water and energy are tightly interconnected. Desalination accounts for a significant share of electricity use across GCC countries, and in a region where more than 90 percent of municipal water depends on desalination and groundwater, disruptions to power infrastructure translate directly into water insecurity. Recent developments have made clear that energy infrastructure is also water infrastructure. This is changing the underlying logic of investment. Efficiency and cost optimization are no longer sufficient. Redundancy, flexibility, and the ability to withstand disruption are moving to the centre of planning and financing decisions.

This will shape Gulf climate finance at home and abroad. Outward investment is unlikely to disappear, but it is becoming more selective and more closely tied to resilience and security objectives. Capital is expected to prioritise projects that strengthen food systems, water and sanitation, clean and reliable power, and supporting infrastructure across the Global South. In this context, investment decisions are increasingly guided by the extent to which they contribute to shared resilience and long-term stability.

Resilience Is Driving the Next Phase of Gulf Renewable Investment

Jessica Obeid

The vulnerabilities exposed across water and environmental systems are mirrored in the region’s energy infrastructure. The conflict in the Middle East is destabilizing energy markets, but it is also set to drive the next phase of GCC green investment, particularly across the Global South. Energy infrastructure has long been a target in times of war, but recent developments have elevated pipelines, refineries, and LNG facilities into instruments of geopolitical and economic pressure. From drone strikes on Gulf energy assets to the use of fuel supply as leverage, these dynamics have exposed the risks embedded in fossil fuel-dependent systems and oil-based economic models.

This is shifting investment priorities. Sustainability, efficiency, and resilience are taking on a more central role as pillars of economic and energy security. Over the medium to long term, the move toward localized and clean energy systems is expected to accelerate, driven increasingly by security considerations. GCC countries are well positioned to shape this transition, supported by capital capacity and a strategic approach focused on geographic diversification and long-term positioning in global energy markets.

For Gulf climate finance, this translates into a stronger focus on decentralised renewable systems, including solar generation, battery storage, and distributed microgrids, which are structurally more resilient than concentrated fossil fuel infrastructure. Investment in these systems across the Global South serves not only climate objectives, but also longer-term economic and strategic interests. Gulf capital is therefore likely to remain active at scale, with resilience emerging as a core driver of deployment.

Climate Technology Is Gaining Strategic Importance in the Gulf

Dawud Al Ansari

It may be tempting to assume that climate tech will become less relevant in the post-war Gulf. Crisis conditions tend to shift attention toward hard security, reconstruction, and economic stabilization, while foreign direct investment is likely to become more constrained. Yet the opposite may prove true. The war is reinforcing the importance of resilience and the internalization of financing, while pre-existing domestic priorities, particularly the need to diversify economic structures, remain firmly in place.

Declining FDI is unlikely to halt economic expansion in the GCC, but it will change how it is financed. Where foreign capital becomes less reliable, domestic funding will need to compensate, and GCC sovereign wealth funds have the institutional capacity to do so. This is likely to expand the range of sectors supported domestically and lower the threshold for investments justified by resilience. At the same time, industrial policy priorities are likely to be reassessed. Under these conditions, expected returns alone no longer determine sectoral viability. Greater weight is placed on whether a sector can be financed independently, operate with limited external dependency, and contribute directly to systemic resilience.

Climate tech meets these criteria. Defined as the engineering and systems-level adaptation of infrastructure, water, and the built environment to climate stress, it connects domestic development, strategic resilience, and external engagement. For Gulf climate finance, this implies a greater focus on adaptation infrastructure, water systems, and other engineering-intensive sectors, alongside continued outward investment. The war is therefore likely to elevate climate tech within GCC economic planning and investment strategies, rather than marginalize it.

Section: (rihla-initiative) Photo: Acwa

By Esfandyar Batmanghelidj

For eight years, Iran has been subjected to the most comprehensive sanctions program ever devised, targeting nearly every sector of the Iranian economy. For forty days, Iran was targeted with one of the largest air campaigns in history, with nearly 100 airstrikes per day targeting military sites, government buildings, industrial facilities, and civilian infrastructure. While Iran’s economy has been significantly impacted by the war, the combination of sanctions, airstrikes, and most recently, a naval blockade has not led to an outright economic collapse.

Iran’s economic resilience has flummoxed U.S. officials and boosters of Trump’s “maximum pressure” sanctions. For eight years, U.S. policymakers promised that sanctions would “crush” the Iranian economy. Economic pressure was intended to achieve one of two outcomes. Either the Islamic Republic would make broad concessions to the United States, or it would be toppled in a revolution fueled largely by economic grievances. Instead, the U.S. found itself launching the kind of war that sanctions were meant to avoid. So far, the Iranian economy has demonstrated enough resilience to enable Iranian leaders to draw their much more powerful adversaries into an attritional conflict.

Despite waging economic war on Iran for the better part of two decades, American policymakers have a poor understanding of the Iranian economy. Numerous datapoints would have enabled the Trump administration to anticipate Iran’s ability to sustain most industrial output during wartime conditions.

Inventory Data

Perhaps the clearest indication of this underlying resilience can be seen in data for “days of inventory outstanding,” a standard measure of inventory levels of raw materials, work-in-progress goods, and finished products. This data can be found in the quarterly filings of the more than 700 companies listed on the Tehran Stock Exchange.

Looking at the most recent reports, which were filed in December 2025 in accordance with the third quarter of the Iranian calendar year that ended in March 2026, it becomes clear that Iranian firms held high levels of inventory at the outbreak of the war.

Inventory levels ranged between two weeks and six months depending on the subsector. On average, looking across 30 industrial subsectors, Iranian companies maintained 96 days of inventory. This is about 30 days more inventory than reported by European manufacturers, which have notably increased stock levels in recent years in response to geopolitical shocks. Iranian inventory levels exceed those maintained by American firms by about 40 days.

The variation in Iranian inventory levels is explained by the type of final product, import dependence, and sanctions vulnerability. Companies in subsectors that are largely exempt from sanctions, such as food and beverage manufacturing, or sectors that have limited dependence on imported intermediate goods, such as the petrochemical sector, typically maintain lower inventory levels.

Companies that are highly dependent on imported parts and equipment and are significantly targeted by sanctions, such as those in the industrial equipment or electrical machinery subsectors, maintain the largest inventories. Crucially, these are the sectors most closely connected to Iran’s defense production. Just as Iran reportedly maintains around 40 percent of its drone arsenal and 60 percent of its ballistic missile launchers after forty days of conflict, it also likely maintains extensive inventories of the materials and parts necessary to sustain production of those weapons systems.

Somewhat counterintuitively, Iranian firms have significant financial incentives to maintain large inventories, especially of imported materials and parts. In light of Iran’s persistent currency devaluation, companies use their inventories as a kind of inflation hedge. Rather than hold cash, companies seek foreign currency allocations from the Central Bank of Iran and import materials, parts, and machinery that are likely to appreciate in value in local currency terms. In this way, inventories provide a boost not only to supply chain resilience, but also to corporate balance sheets.

Importantly, the stock levels reported in company filings do not reflect availabilities of all materials or products, just an average. Across industrial subsectors, Iranian firms are beginning to run down inventories. Concerning shortages of certain goods have materialized following the disruptions of the war. But the practice of maintaining large inventories means that such pressures are mounting more gradually and slowly than many U.S. policymakers expected.

Bottom-Up Resilience

The upshot of this analysis is that Iran’s economy is more resilient to sanctions, pressure or blockades than is widely recognized. Should Iran experience a near total interruption in trade, inventories could be stretched in the face of depressed demand or managed through wartime rationalization. Of course, such interruptions remain unlikely, even if the U.S. blockade is strictly enforced. Around half of Iran’s non-oil trade is conducted via overland corridors and through Caspian Sea ports. The combination of large inventories, demand rationalization, and alternative supply chains suggests that Iran’s wartime economy could sustain most industrial production for at least three months, and possibly for as many as six, before significant contractions in output are felt.

Notably, unlike Russian policymakers, who mobilized state resources at the outset of the invasion of Ukraine to boost defense production and shore up domestic manufacturing, Iranian policymakers have largely left firms to their own devices, both during the eight years of sanctions and the recent forty days of war.

In this respect, Iran’s wartime endurance is less a reflection of the power of the Islamic Republic, and more an indication of the underlying structural resilience of the Iranian economy and the firms and households from which it is composed. Among industrial firms, resilience has been achieved through indigenization or diversification of supply chains, the maintenance of large inventories, and the prioritization of technological simplicity and efficiency. American policymakers did not account for these adaptations because they have not waged war against an industrialized country in over 80 years.

Shaped by years of sanctions disruptions, the Iranian approach to industrial management is characterized by a readiness for worst case scenarios, including military conflict. Ironically, Trump’s decision to impose maximum pressure sanctions, while contributing to a slowdown of economic growth in Iran, may have spurred the development of an industrial base more resistant to supply-chain shocks, such as the disruption to maritime traffic in the Strait of Hormuz. Arguably, Iranian leaders were only able to weaponize the closure of the strait because of bottom-up adaptations, such as high inventory levels, that made Iran’s economy less vulnerable to the inherent disruptions to maritime trade.

Of course, the greatest threat to Iran’s economy is not disruptions to trade flows, but rather direct targeting of industrial infrastructure and utilities by the U.S. and Israel. Attacks on major steel and petrochemical facilities have hit production in those sectors, putting millions of jobs at risk.

Trump’s threat to bomb Iran’s major power plants, issued just before the ceasefire went into effect, reflects U.S. frustration with the resilience of the Iranian economy. Destroying Iran’s power plants would absolutely hobble Iranian industrial production. But it would also constitute a war crime and would trigger catastrophic Iranian attacks against power plants and desalination facilities in the Gulf states. Trump may be able to shorten this war by intensifying it, but his options to do so would make the war much costlier for the global economy.

Esfandyar Batmanghelidj is the Founder and CEO of the Bourse & Bazaar Foundation.

Section: (integrated-futures-initiative) Photo: Ali Hamed Haghdoust

By Henna Moussavi

From more than 4,000 kilometers away, Tehran arrives as a man’s voice heard through a pair of headphones. The speaker, referred to here as Nima, is a civil servant working extended shifts in the middle of an unprecedented aerial bombardment, observing how a city of millions absorbs active conflict and is altered by it.

Internet access in Iran was severed on the first day of the war, and those contacting foreign entities still risk prosecution. Nima used a VPN without certainty it would hold. “I was a bit hesitant,” he says, “mainly because these VPNs aren’t reliable… so I thought I should say this now, and you can listen whenever you’re able.” The recordings reflect a kind of precarity, while the background noise of music and traffic serves as a reminder that life in the city continues.

Walking through a city responding to destruction, he recorded several hours of voice notes during long hours on the job, with the rhythm of someone thinking out loud. His reflections trace fractures in public opinion, the destruction of infrastructure, and the informal systems that emerge to fill gaps left by the state.

Informal Resilience

One of the more striking features of Nima’s testimony is his description of how Tehran residents had to improvise in the absence of functioning state services. “During the Iran-Iraq war, there were clear air raid sirens. People knew when to go to shelters. There was a recognisable system. In this war, that hasn’t really existed,” he explained, as the defence infrastructure that would enable early warning was largely damaged at the outset of the war. In their place, with roots in the 12-Day War in June, an informal system has emerged.

“People themselves have effectively created an informal warning network,” Nima explains. When someone hears fighter jets overhead, they message their contacts, and those contacts message theirs. On domestic platforms—Bale, Eitaa, Soroush, Rubika, or specialised Telegram channels like RahBandoon—people post real-time notices, ensuring that “information spreads quickly between people and across different areas.” A message may warn about jets over northern Isfahan, another about airstrikes Mazandaran, and others with updates from Tehran. While people can still be nervous to confide in and openly message on these public forums, they have been invaluable resources in the absence of better warning systems.

Many users make attempts to infer trajectory and timing based on observation, estimating where a strike might land and how many minutes remain. This has become particularly important due to the evidence that U.S. and Israeli forces have conducted double-tap strikes, putting aid workers and residents trying to help others at severe risk.

A population experienced in navigating institutional failure has learned to replace reliance on state broadcasts with lateral communication, led by an instinct to protect their fellow citizens. “This, to me, is one of the more striking aspects of what’s happening,” Nima said with some pride.

When residential buildings are hit by airstrikes, the damage is rarely limited to a single address. The impacts are felt throughout neighbourhoods, where residents are quite literally left to pick up the pieces. Neighbors are evacuated and belongings need moving from high floors, quickly.

Volunteer groups have appeared to help search and rescue and cleanup efforts. Some volunteer groups are religious, others are secular. Many travelled from other cities to help in Tehran specifically, due to the disproportionate number of strikes in the capital. “This kind of work requires a large amount of manpower, which naturally cannot be fully provided by government administrative structures. “ As they clear glass from stairwells, carry furniture down ten-storey blocks, and pack the remaining possessions of people whose homes have been damaged.

Divided Communities

Beyond these examples of community resilience, Nima is quick to acknowledge the division of perspectives among his friends, family, and colleagues, not just with regards to the conflict, but in confrontation with the Islamic Republic on the whole. He describes three groups.

There are those who support the Islamic Republic and interpret the war as an existential struggle, one that demands loyalty and national unity to sustain their ideological mission of anti-Western and anti-imperial sentiment. There are others who reject the government and, in this case, saw external pressure as a necessary, if uneasy, means of forcing regime change. And then there is a third group, distinct from the latter: individuals who are openly opposed to the Islamic Republic but remain equally resistant to foreign intervention, driven by a deep scepticism that any external power carrying out military action against their country could genuinely be acting in their interest.

As Nima described the situation in Tehran while I followed headlines from afar, it became clear that his observations reflected a kind of equanimity that one achieves through proximity to hardship and devastation.

A defining feature of the third camp is how it recognizes that whatever the outcome of this conflict, whether a ceasefire is upheld or not, ordinary Iranians will bear the cost. They anticipate that, in the aftermath of the war, the Islamic Republic will only emerge more repressive, using the war as justification to tighten control over all aspects of social and political life in Iran. This has become more apparent with continued executions, arrests, and restrictions on internet access and other public freedoms, which have been even more aggressive since 28 February.

The different groups have been visible during the war. “Almost every night there have been gatherings in streets and alleys that would normally be empty, it feels like the whole city is involved,” Nima explains. These gatherings included pro-government rallies and quietly defiant New Year celebrations, where dissent is felt, if not openly expressed. Sometimes dissent was heard, if not seen, as in the case of slogans chanted from apartment buildings, celebrating the death of the Supreme Leader Ali Khamenei.

But in the midst of war, political sentiments became even more complicated. “Even among people who were critical of the government, I heard something quite striking: if they noticed anything suspicious, especially given concerns about internal incidents, they would report it,” Nima explained. “Some people said they had never done such a thing before, but during that period they even called official numbers, like those of the intelligence services, to report suspicious activity.”

Likewise, when U.S. President Donald Trump warned that “an entire civilization” would die if Iran did not yield to U.S. demands, many Iranians were dismayed by the indiscriminate nature of the threat. “There was less visible effort, even rhetorically, to distinguish between the government and the population,” Nima noted.

When imagining Iran’s future, public imagination appears to oscillate between two poles: North Korea, a country home to an entrenched authoritarian regime, and Libya, a country that has collapsed into lawlessness and disorder.

“Overall, there’s a feeling of uncertainty,” he states, “people are trying to adapt, but no one really knows what’s coming.” If understanding Iran’s political trajectory is challenging from afar, Nima’s account suggests that the same uncertainty, disagreement, and contestation persist within the country itself. Even the boundaries between the three camps Nima identified at the outset of the conflict have begun to blur, as ideas and allegiances shift between them and individuals reassess their positions in light of the war’s personal impact on their lives. What emerges is not a singular public mood, but a society negotiating its divisions in real time, under the pressure of conflict.

Wartime Routines

With the way events have unravelled, “many people are pessimistic,” Nima concludes. “They don’t think the aftermath of the war will improve things. Economically, the damage could take years to repair. There’s a general sense that even when it ends, life won’t return to normal quickly.” But he is also able to reflect the spirit Iranians have been able to sustain during the war, laughing to himself as he recalls the moment Tehran’s residents suspected the water might be cut off​​—the first priority for his friends and family was “taking a shower.”

Nima sounds unsure about the ceasefire and the high-level talks between the U.S. and Iran. “It’s not clear how serious or advanced these talks are, or how willing each side is to make concessions. Past experience hasn’t been very encouraging, and there isn’t much public confidence that negotiations will lead to a meaningful agreement.”

In a final voice note recorded in the days after a ceasefire was announced, Nima describes what those last hours of bated breath felt like from inside the city. Trump’s deadline for catastrophic attacks on Iran’s power plants had been extended several times before. Most people assumed it would be extended again. But as the clock moved toward the final cut-off, set for around 3:30 a.m. local time, no announcement was made and the atmosphere shifted.

Roads out of Tehran were congested, with petrol stations surrounded by growing queues. Inside homes, people filled containers with water, charged phones and power banks, and scrambled to buy generators, anticipating a blackout they weren’t sure was coming but couldn’t rule out. There was the expectation of cascading failure. Logically, electricity goes first, then water, then the already-fragile mobile networks, then fuel.

Much of Tehran simply stayed awake. Nima himself fell asleep from exhaustion at some point, but woke to the confirmation that a ceasefire in fact had gone into effect. His account of these delicate moments was palpably nerve-wracking, though he maintained a degree of humor throughout. As Nima described the situation in Tehran while I followed headlines from afar, it became clear that his observations reflected a kind of equanimity that one achieves through proximity to hardship and devastation.

The following day, he recalled, “the atmosphere was strange.” Petrol stations fell quiet and traffic returned. By Friday, coinciding with the end of the Nowruz holiday period as well as the end of the Iranian working week, cars were flowing back into the city. Offices were operating at roughly half capacity. Schools and universities remained closed, running mostly online, but still running.

Nima is not a soldier or politician, but a civil servant going about his life in a city fundamentally altered by the conflict. His voice notes, sent intermittently across 40 days of war, reflect the precarity of the subjects he discusses. “The emptied-out Tehran, which we saw even before the New Year, has regained its energy,” he concludes, his voice calm.

“In a way, this is natural. People need to reopen their businesses and get back to work. The reality is that, over time, even wartime conditions begin to feel routine.”

The subject’s name has been changed to protect his identity.

Henna Moussavi is a reporter for The Wall Street Journal, focusing on Iran. Her writing spans political and cultural coverage of the Middle East, and beyond, and she has previously held editorial roles at the Middle East Institute, the Bourse & Bazaar Foundation, and the Oxford Middle East Review.

Section: (vision-iran-initiative) Photo: IRNA

By Hadi Kahalzadeh

After forty days of war, Iran’s families are returning home under a fragile ceasefire. But the pause in the conflict may not prevent the coming shock to Iran’s economy. As ordinary Iranians confront the destruction of roads, ports, and industrial infrastructure, they are discovering that the war has taken away their jobs, their wages, and, for many, their only means of survival. If this war had a hidden target, it was not Iran’s military power projection; it was the labor market that sustains the livelihoods of ordinary citizens.

War has damaged more than 125,000 residential and civil buildings, including 339 health facilities, 32 universities, and 857 schools, and has directly destroyed over 20,000 industrial units, forcing many related businesses to shut down. In other words, around 20 percent of the country’s production units have been directly damaged. Iran’s ports and transportation systems, which move essential goods and raw materials across the country, have also been heavily damaged. According to some estimates, the war has already cause more than $300 billion worth of damage to civilian infrastructure alone, excluding military facilities. This staggering figure captures only the reconstruction cost, not the wider economic toll.

But war does not just destroy buildings. It breaks economic systems. Supply chains, transport networks, and commercial services have been disrupted, and many firms have suspended operations under the combined pressure of war, inflation, recession, and collapsing demand. What makes this especially striking is the pattern of the damage. The sectors hit hardest by U.S. and Israeli airstrikes represent the core pillars of employment and production: steel, construction, petrochemicals, pharmaceuticals, and retail.

Job Uncertainty

The pattern of attacks on infrastructure suggests that Israel and the United States mapped Iran’s labor market and struck at its core pillars. Among the thousands of destroyed production units, the damage to Iran’s steel sector is especially consequential. A review of Iran’s Labour Force Survey and Manufacturing Industries Survey suggests that steel is a critical input for 42 percent of Iran’s industrial supply chain and underpins activity across manufaturing, including automotive production, and construction. When steel supplies are interrupted, the consequences spread far beyond the plants themselves, rippling through manufacturing, transport, building activity, and the many jobs connected to them.

By my estimate, disruption to steel production and distribution threatens 1.8 million jobs across industrial sectors and 3.8 million jobs tied to construction. The petrochemical and pharmaceutical units, which were also damaged in the war and together account for around 30 percent of Iran’s industrial output, represent another major source of labor-market exposure. Because these sectors supply critical industrial inputs and essential goods, their disruption puts another 1.2 million jobs at risk.

About 10 to 12 million jobs, roughly 50 percent of Iran’s workforce, are now at risk. That does not mean all of those jobs have already disappeared. It means that a very large share of Iranian workers, mostly in the informal sector, now live under the shadow of furloughs or layoffs.

Even firms and sectors that have not been bombed are scaling back amid broader pressure from the war. Faced with recession, liquidity constraints, weak demand, and deep uncertainty about what comes next, many are suspending production, postponing investment, and halting expansion. Inflation has made that shock even harsher. In March, point-to-point inflation reached 72 percent, one of the highest rates since the revolution. The long shutdown caused by the war, combined with falling family incomes and fears of further escalation, has reduced private consumption and depressed demand nationwide. Many small firms had hoped that the end-of-year season and the period around Nowruz would offer a chance to recover income through sales and service activity after earlier closures and lost sales. Instead, many now face insolvency and shutdown.

The effects are especially visible in wholesale and retail trade, which employs 17 percent of Iran’s labor force, or roughly 4.1 million jobs. Taken together, industrial production, construction, wholesale and retail trade account for more than half of total employment in Iran. This does not mean the agricultural sector or other parts of the service economy have been spared. But because internet shutdowns have sharply limited visibility into conditions across regions and occupations, the full extent of labor-market damage remains difficult to measure in real time.

Considering the pattern of attacks, about 10 to 12 million jobs, roughly 50 percent of Iran’s workforce, are now at risk. That does not mean all of those jobs have already disappeared. It means that a very large share of Iranian workers now live under the shadow of furloughs or layoffs.

Even before the 40-Day War, Iran’s labor market was already fragile. Prolonged sanctions, stagflation, and lingering pandemic effects had weakened the country’s capacity to absorb macroeconomic shocks. From March to September 2025, Iran’s economy contracted by 0.5 percent owing to the compounding effects of drought, the April explosion at Shahid Rajaee Port, and the 12-Day War last June, resulting in the loss of 750,000 jobs.

Given the economic situation after the 12-Day War, the labor market is likely to continue to contract. If no further losses occur beyond those recorded since last September, and if only 30 percent of the 10 to 12 million jobs now at risk are eventually lost, Iran could lose approximately 3 to 4 million jobs. This would represent about a 15 percent contraction of the labor market, marking the largest decline in Iran’s modern history.

Difficult Response

The Islamic Republic appears to have planned for a six-month war scenario, including military readiness, the supply of essential goods, and the provision of subsidized loans, tax incentives, and exemptions for damaged production units. The administration has also announced that those who lose their jobs may be eligible for unemployment benefits equal to 55 percent of their wages, or at least the minimum wage. But many employees in the informal sector may not be eligible for benefits, and the financial burden of these commitments appears to exceed Iran’s capacity to meet them.

Providing 3 to 4 million unemployment benefits for six months, for example, would require nearly IRR 5 quadrillion. A 15 percent contraction in the labor market would also mean a 25 to 30 percent drop in revenue for the Social Security Organization, Iran’s largest pension fund. Filling that financing gap would require another IRR of 5 to 6 quadrillion. Altogether, the financial burden of war-induced unemployment would consume at least 20 percent of Iran’s public budget, which is already running a large deficit.

Whether by design or by consequence, this war has struck at the foundations of how Iran’s most vulnerable citizens work, earn, and survive. An estimated 10 to 12 million jobs are now under threat, putting the main source of income for millions of households in both the formal and informal private sectors at risk. And these estimates do not even include the 22 percent of Iranian households that rely on public-sector wages. As so often in war, the highest costs are falling on those least protected by the state welfare benefits.

Even if the ceasefire holds, Iran’s most vulnerable people will suffer the long-term consequences of this 40-day conflict. The bitter irony of this war is that the very population President Trump claimed to support by this war is now bearing the brunt of the damage.

Hadi Kahalzadeh is a welfare economist. He is a non-resident fellow at the Quincy Institute and a research fellow at the Center for Global Development and Sustainability at Brandeis University. Before his academic career, he spent eight years as an economist at Iran’s Social Security Organization, analyzing the impacts of Iran’s economic and social policies.

Section: (vision-iran-initiative) Photo: Ali Hamed Haghdoust

By Sahand Sehatpour

Iran’s capital markets play a far larger role in the economy than is often appreciated from the outside. The Tehran Stock Exchange and the broader capital market today include more than 700 listed companies across more than 50 industries, while more than 50 million Iranians are tied to the market as shareholders or stakeholders through direct equity ownership, pension funds, fixed-income products, and government debt issuance. Around 70 percent of market turnover is driven by individual investors rather than institutions, a much higher retail share than in developed markets, where institutional investors typically account for most trading. This gives the market a broader retail and social footprint.

Over the past two decades, the market has repeatedly shown an ability to absorb shocks, including sanctions, inflation, currency depreciation and episodes of political unrest, while continuing to function as an important mechanism for savings, price discovery and capital formation. The last year, however, has presented a very different and unprecedented test, combining war, market closures, social unrest and direct damage to strategically important listed industries.

The first major disruption to Iran’s capital markets came during the 12-day conflict between Iran and Israel from 13 to 24 June 2025. During that period, the equity market was closed, while fixed-income instruments and fixed-income ETFs resumed trading only after being shut during the first week. Gold-backed ETFs remained suspended throughout.

The equity market reopened quickly on 28 June, soon after the ceasefire took hold. That reflected an important reality: despite the geopolitical shock, there had been little meaningful direct damage to most listed companies. The challenge was therefore less about destruction of earnings capacity and more about a sudden repricing of risk.

That repricing was significant. Investors who had been unable to access liquidity during the closure moved quickly to reduce exposure once the market reopened, while the conflict itself had raised the overall country risk premium. Much of the market opened at the daily down limit. The Capital Market Stabilization Fund intervened to absorb part of the pressure, but the market remained under strain through the end of August.

Overall, TEDPIX declined by roughly 20 percent in local currency terms in the weeks following the war. Because the index is weighted towards larger names, that figure understated the pressure experienced by many smaller and less liquid companies. Meanwhile, the free market USD/IRR exchange rate continued to rise, meaning the market fell by around 35 percent in dollar terms. Total market capitalization dropped to about $80 billion, one of the lowest levels seen in recent years despite several major IPOs since 2019.

Fragile Recovery

Once the immediate post-conflict selling pressure was absorbed, the market began to recover, supported by a combination of currency adjustment and policy change.

Following the snapback of UN sanctions on 27 September, the USD/IRR exchange rate resumed its upward move. In Iran, this has historically been one of the central drivers of equity performance, particularly for exporters, commodity-related businesses and investors seeking a hedge against inflation and currency weakness.

At the same time, the authorities moved away from the multiple exchange-rate system, including NIMA and other official rates that had traded at a substantial discount to the free market rate. These mechanisms had long distorted pricing, foreign-currency allocation, and corporate earnings. For many listed companies, especially exporters and producers linked to the Iran Mercantile Exchange, subsidized exchange rates had effectively meant monetizing revenues below economic reality. Their removal therefore improved transparency and, in many cases, strengthened the earnings outlook.

This became a major catalyst for the market. The TEDPIX index rose by more than 85 percent in the six months following the war and reached a new high near 4.5 million. In dollar terms, however, the rally was much more modest, at roughly 40 percent, and the market still remained below its pre-war level.

The foreign exchange reforms also created pressure elsewhere in the economy. The removal of preferential rates increased the cost of many basic goods and added to inflationary strains. By late December 2025 and early January 2026, protests had emerged in response to deteriorating purchasing power, the weakening rial and the wider economic environment. Although the demonstrations initially appeared limited in scale, they were geographically broad and reflected a deeper build-up of frustration over living standards. What began as economic protest gradually took on a more overtly political character as inflation accelerated and expectations of further hardship grew.

Iran’s authorities then responded with a much harsher crackdown, which materially increased the domestic political risk premium. At the same time, the external dimension became more serious. Donald Trump signaled that a violent response by the Iranian authorities would not be tolerated and warned of possible consequences if the crackdown continued. That raised fears that domestic unrest could evolve into a broader geopolitical confrontation, particularly against the backdrop of regional military build-up.

At the same time, Iran’s risk-free interest rate rose from around 33 percent before the conflict to above 40 percent by January as fiscal and monetary conditions tightened. That was a meaningful headwind for equities. These factors together triggered another leg down in the market. Equities declined by roughly 20 percent in rial terms and around 30 percent in US dollar terms. As a result, measured in dollar terms, the TEDPIX index fell to a level even lower than in the immediate post-war period.

Direct Impacts of War

While Iran’s capital markets were still recovering from the impacts of the 12-Day War and the January protests, a new war began. The market was open on 28 February when the attacks began, but trading was halted and the day’s trades were cancelled. Since then, cash equities and equity derivatives have remained closed. Unlike the previous conflict, however, fixed-income instruments, fixed-income ETFs, and also gold- and silver-backed ETFs have continued to trade. Gold-backed funds have seen outflows of around $60 million, while fixed-income funds have attracted approximately $130 million of retail inflows.

The impact of the war on the capital markets will be substantial. U.S. and Israeli airstrikes have directly targeted major industrial facilities, including those operated by publicly traded companies. In the steel industry, the most important example is Mobarakeh Steel, the country’s largest hot-rolled coil producer. Other affected companies include Khuzestan Steel, Yazd Alloy Steel and Kavir Steel.

The directly affected companies represent more than 15 percent of the combined market capitalization of the Tehran Stock Exchange and the Iran Fara Bourse, the secondary exchange.

In petrochemicals, the larger issue is the damage to three centralized utility providers serving the Mahshahr and Assaluyeh regions: Mobin, Fajr, and Damavand. These utility facilities supply electricity, gas, oxygen, compressed air and other essential services to the surrounding petrochemical complexes. Because Mobin, Fajr, and Damavand have been put out of service, petrochemical plants across Mahshahr and Assaluyeh have also been affected and, in many cases, forced to cut production. Since more than 80 percent of Iran’s petrochemical output is concentrated in those two regions, the damage has disrupted a very large share of the country’s petrochemical production capacity.

At this stage, timelines for repair remain uncertain, though even constructive estimates suggest a multi-year process. There were also companies in other sectors that suffered damage, but steel and petrochemicals are clearly the most significant from both a market and macroeconomic perspective.

The broader economic implications are straightforward. These sectors are among Iran’s leading non-oil export earners, so disruption could reduce export receipts by close to $15 billion, placing additional pressure on the external balance. The impacted facilities also supply feedstock and industrial raw materials to a wide range of downstream industries. Any interruption therefore has second-order effects, either through lower domestic production or higher import dependence.

Careful Reopening

When the equity market next reopens, the process is likely to be more selective and more disclosure-driven than the reopening after June 2025. The directly affected companies represent more than 15 percent of the combined market capitalization of the Tehran Stock Exchange and the Iran Fara Bourse, the secondary exchange. If one includes listed holding companies with substantial exposure to the impacted companies, the effective share may rise to as much as 25 percent of the market.

The Securities and Exchange Organization will likely require operational updates from listed companies before reopening trading, particularly from those that may have been directly or indirectly affected. The market will need visibility on the extent of damage, the status of production, and the expected timetable for returning to more normal operations.

Once trading resumes, the market is likely to split into two very different stories. For companies directly affected by the conflict, a sizable correction is likely. For the broader market, however, the outcome will depend much more on the political and sanctions backdrop than on the conflict alone.

If the current ceasefire ultimately creates a path towards a broader understanding between Iran and the United States, followed by some degree of sanctions relief and reintegration into the global economy, the current dislocation could create a particularly interesting entry point for investors. It is still too early to determine the precise market reaction, but under such a scenario the period around the reopening could prove to be an important opportunity.

If sanctions remain in place, the adjustment is likely to be more demanding. Lost export capacity would weigh on the trade balance and probably push the USD/IRR exchange rate higher, which could support parts of the market in nominal rial terms but would still leave equities under greater pressure in US dollar terms.

Taken together, the events of the past year have left Iran’s capital markets at an unusually important juncture. Much now depends less on valuation alone and more on the political and economic direction from here: a deal could create a broad and meaningful opportunity set across much of the market, whereas in its absence, opportunities are likely to be narrower and more selective against a more negative outlook for the Iranian economy.

Sahand Sehatpour is a portfolio manager at Amtelon Capital focused on Iranian capital markets, with experience across both public and private investments. His work covers listed equities, market structure, and the broader investment environment in Iran.

Section: (vision-iran-initiative) Photo: Amir Ghoorchiani

By Mehran Haghirian and Mohammed Baharoon

A version of this article was originally published in French in Le Grand Continent.

Beyond the tragedy, the US-Israeli attacks on Iran and the Iranian strikes targeting the Gulf states – which continued unabated from 28 February 2026 until the April 8 ceasefire – have starkly highlighted a glaring absence: the Gulf region fundamentally lacked any security architecture.

The semblance of order that existed before the outbreak of this war was based on a polarization of how the various states in the region perceived security and threats. On the one hand, the Iranian threat to the Gulf Cooperation Council (GCC) and, on the other, the US threat stemming from Washington’s presence in the region dictated a fragile balance based on deterrence, external protection and ad hoc, discreet diplomacy between Iran and the Arab states. This balance has ceased to exist.

The threat is no longer merely perceived: all sides of the Gulf were ablaze.

The question is no longer whether a new regional security framework is needed, but who the actors will be, how they will interact with one another, and whether this new architecture could be purely regional — or whether it needs to extend further.

Restoring Trust and Deterrence

The Iranian attacks have caused a profound rift in Tehran’s relations with the Arab states on the other side of the Gulf and have undermined the tentative trust that had begun to take root through regional diplomacy over the past five years. Rebuilding that trust will be difficult and will take time. Whatever political configuration emerges in Tehran after the war, restoring relations with the Gulf states will necessarily become one of the most important priorities of any future Iranian government’s foreign policy — even if this is a consideration that the Islamic Republic’s new leaders have, for the time being, set aside.

Before the war, expert discussions on the future of the regional security architecture in the Gulf — in which we were involved — focused primarily on the new national security matrix encompassing the domains of energy, food, health and environmental security.

The war will necessitate an even broader reassessment of the Gulf’s security arrangements. And this new analytical framework will not only address the capacity to repel attacks, but it will also have to address the issue of deterrence itself.

One possible consequence of this new paradigm would be to compel the Gulf to become a highly securitised region. The Gulf Cooperation Council will inevitably engage in collective security coordination in the short term, which could include pooling stocks of interceptors, investing in next-generation air defence systems, strengthening crisis communication mechanisms, or establishing security arrangements modelled on NATO mechanisms.

These efforts are likely to become a central feature of the region’s trajectory in the near future, particularly in the context of expanding military ties with a group of countries that have proven themselves to be reliable partners.

Geopolitics of Grand Coalitions

However, contrary to what might have been expected, the resumption of discussions on a strategic alliance in the Middle East bringing together the Gulf states, Israel and the United States may not be an automatic consequence of the war.

Whilst the Iranian attacks might have accelerated such a rapprochement, this is an option that the Gulf states have so far rejected and may continue to avoid, as it would place them in a state of permanent war with a regional neighbor. The GCC states are just as concerned about the Islamic Republic as they are about Israel’s respective regional ambitions — for both powers have shown that brutal military action is their preferred means of resolving disputes. Conversely, the Gulf Cooperation Council’s tradition of patience and strategic restraint means it does not believe that military power alone leads to stability.

In the Middle East, a new order, even after this war, would not mean a total withdrawal of the United States. Nor would it mean, for those with ties to Israel, a complete reversal of that relationship.

Rather, it would involve a careful adjustment aimed at establishing a security architecture that strengthens the autonomy and agency of each state by taking into account the complex network of geopolitical ties and interests.

At the same time, the war has highlighted just how closely the security and stability of the Gulf are linked to global strategic interests: any future regional framework will almost certainly involve external actors whose economic and military presence in the region is already deeply entrenched.

China’s role as a major importer of Gulf energy, a key player in global trade networks and a guarantor of the negotiated détente between Iran and Saudi Arabia ensures that Beijing has a direct interest in preserving maritime routes, energy infrastructure and political stability in the region. Russia, which has already put forward proposals for a collective security framework at the United Nations Security Council, may seek to re-engage as debates on regional security evolve. The European Union and the United Kingdom have also strengthened their strategic and economic engagement in the region. India, Japan, South Korea, Brazil and other countries also have growing interests in the stability of the Gulf.

The diplomatic response to Iran’s attack on member states of the Gulf Cooperation Council has been global — notably with UN Security Council Resolution 2817 demanding that Iran cease its attacks, which was co-sponsored by 135 countries. This resolution was paving the way for a global response that began to manifest itself in discussions aimed at forming an alliance or consortium to maintain freedom of navigation in the Strait of Hormuz.

The war has highlighted just how closely the security and stability of the Gulf are linked to global strategic interests: any future regional framework will almost certainly involve external actors whose economic and military presence in the region is already deeply entrenched.

Such frameworks could resemble initiatives similar to the global coalition in the war on terror — which would exacerbate military polarization in the region and lock both sides of the Gulf into long-term animosity that will almost certainly lead to further instability, chaos and global repercussions.

What the war has highlighted is not merely military vulnerability: it has revealed the limits of deterrence and diplomacy, as well as the fragility of food supplies, water desalination systems, airspace, maritime transport, logistics, digital infrastructure, banking reliability and tourism. A diplomatic resolution to the conflict could lay the foundations for an inclusive, realistic security framework rooted in regional cooperation. The first step, however, is to better understand the ends, not the means.

Ends Not Means

Previous proposals for dialogue, cooperation and regional security have all been rejected as insufficient.

Iran had proposed the “Hormuz Peace Endeavor.” Russia has repeatedly reiterated its idea of collective security. China has put forward the idea of transforming the region into an “oasis of security.” The Gulf Cooperation Council itself had presented the “GCC Vision for Regional Security in 2024,” which remains to this day the most comprehensive framework for cooperation in the region. Whilst none of these proposals attracted sufficient interest at the time, they all reflected a recognition that the existing order was inadequate. There has never been a serious collective effort to replace it. War now demands a change of course.

Before any meaningful de-escalation can take place, a new frame of reference will need to be established. Yesterday’s red lines have now been crossed and the region needs a collective vision of security that is not based on political consensus, but on overlapping national interests.

Without this, any de-escalation or diplomatic resolution of the conflict will merely delay the resurgence of tensions or war, without resolving the problems that have now resurfaced.

Deterrence will not be solely military in nature. It must be based on a network of interests that constitute lifelines for the region and on the realization that these — like the Strait of Hormuz — are also vital arteries for the entire world.

Amidst the barrage of missiles and drones, it was difficult to see these discussions making progress today. But ultimately, the means matter little: only the ends should guide our path towards the future.

Mehran Haghirian is the Director of Research and Programs at the Bourse & Bazaar Foundation. His upcoming book, Differentiating Foreign Policy Strategies in the Persian Gulf: The Decision-Making Calculus towards Iran, will be published by Springer in 2027.

Mohammed Baharoon is the director general of Dubai Public Policy Research Center (b’huth) in Dubai. He is also a founding member of the board of the Bussola Institute, a think tank in Brussels that focuses on the changing and emerging aspects of the partnership between the European Union and the Gulf Cooperation Council member states.

Section: (integrated-futures-initiative) Photo: Canva

By Mehran Haghirian and Abdullah Baabood

The Strait of Hormuz has always mattered, but rarely has that been as visible as it is today. For centuries, it has linked the Gulf to wider trading routes across Asia, Africa, and Europe. Today, a significant share of the world’s energy supplies and other commodities pass through this narrow stretch of water. When Hormuz is disrupted, the effects are not regional, but global, and they are felt quickly. It is for this reason that U.S. President Donald Trump has threatened to send Iran back to “stone ages” if it does not reopen the Strait.

What began as a military escalation between the United States, Israel, and Iran on February 28 is now spilling into the infrastructure that sustains global connectivity. Shipping routes are under pressure, insurance costs are rising, and commercial operators are hesitating. The Strait has not been formally closed, but it is no longer functioning normally. That distinction matters less than it once did. In practical terms, constraint can be as disruptive as closure.

Against this backdrop, recent talks between Iran and Oman are significant. As the Strait falls in shared Iranian and Omani waters, officials from both sides have met to discuss how to ensure the continued passage of vessels under current conditions. On the surface, this may appear as crisis management and an attempt to keep traffic moving and prevent further escalation. But it also raises a more fundamental question of who gets to shape the rules of access to one of the world’s most important waterways?

The talks with Iran are consistent with that approach. Oman is trying to reduce risk, keep communications open, and prevent escalation from spiraling further. But there are limits to what it can or will support. Oman’s interests are tied to the uninterrupted functioning of the Strait. Its economy depends on it. Its regional relationships depend on it. Its diplomatic credibility depends on it. Any arrangement that conditions or politicizes passage would put all of that at risk. Engagement, in this context, should not be mistaken for endorsement.

Tehran is exploring ways to exert greater control over transit, whether through coordination mechanisms, selective passage, or other forms of informal regulation. Even if presented as technical or temporary measures, such ideas carry wider implications. They suggest an Iranian attempt, however tentative, to redefine how the Strait operates for seven other countries who depend on it as well as the entire international community who relies on it.

But that is where the problem lies. The Strait of Hormuz is not something that can be reorganized through bilateral understandings, even between actors as central as Iran and Oman. It is, in every meaningful sense, an international waterway. Its openness is not just a legal principle; it is a practical necessity for the functioning of the global economy. Energy flows, supply chains, shipping networks, and financial systems all converge at this narrow point.

That reality places clear limits on what any one country, or even a small group of countries, can do. Efforts to impose new conditions on passage, whether formal or informal, are unlikely to hold. The number of stakeholders is simply too large, and their interests too deeply embedded. From Asian energy importers to European industries, the costs of disruption extend far beyond the Gulf. This is not a regional issue that can be managed quietly. It is a systemic one that inevitably draws in wider attention.

Diplomatic activity is picking up at the United Nations and by global leaders as conversations about maritime security are expanding beyond the region. Bahrain’s resolution demanding an end to Iranian actions in the Strait was co-sponsored by 135 countries. While another resolution was vetoed by China and Russia at the Security Council, there is a growing, if still cautious, recognition that freedom of navigation in the Strait cannot be left exposed to prolonged uncertainty or unilateral pressure.

Iran itself seemed to acknowledge this logic not long ago. In 2019, it proposed the Hormuz Peace Endeavor (HOPE), which rested on the idea that stability in the Strait requires collective responsibility. Its current actions are moving in the opposite direction.

This kind of ambiguity can be useful in the short term. It creates leverage without forcing a decisive confrontation. But it is not stable. Markets do not adapt well to prolonged uncertainty, and neither do supply chains. Over time, pressure builds-for clarity, for predictability, and ultimately for intervention.

The Strait of Hormuz is not something that can be reorganized through bilateral understandings, even between actors as central as Iran and Oman. It is, in every meaningful sense, an international waterway.

This is where Oman’s role becomes particularly important. Muscat has long positioned itself as a mediator with open channels to Iran while remaining closely connected to its GCC partners and the broader international community. Its approach is often described as neutral, but that can be misleading. It is not neutrality for its own sake; it is a strategy aimed at preserving stability in a difficult and unstable environment.

There is also a longer historical thread here. During the Iran-Iraq War, when tanker routes in the Gulf were under direct threat, Oman resisted efforts to frame regional security in purely confrontational terms. Sultan Qaboos understood that stability required coexistence, even among adversaries. During the Iran-Iraq War in 1984, Sultan Qaboos argued that “here in Muscat we do not believe it to be in the interest of security in the Gulf that Iran feels we intend to establish an Arab military pact that will always be hostile to it, or that we are about to form a joint force, whose main task is to fight Iran.” He further added that “there is no alternative to peaceful coexistence between Arabs and Persians in the end, and there is no alternative to a minimum of accord in the region.” That insight still holds.

Yet the current trajectory risks moving in a different direction. By raising the cost and risk of passage through Hormuz, Iran may be seeking to deter external involvement. In practice, it could have the opposite effect. The more the Strait becomes a source of sustained disruption, the more likely it is to attract broader international engagement and intervention. What begins as a regional pressure tactic can quickly become a global concern.

For the Gulf states, the implications are equally significant. Their preference for de-escalation and economic transformation is harder to sustain if their primary economic lifeline is directly threatened. At some point, restraint stops looking like prudence and starts looking like exposure.

That is the strategic paradox. Iran’s approach is designed to increase leverage but it risks triggering the internationalization of the conflict beyond control. Efforts to change the status quo and access to the Strait may ultimately lead to greater external involvement, be it through maritime coordination, naval presence, or more direct measures.

The Strait of Hormuz is too central to the global system to remain in prolonged uncertainty. It will remain an international waterway not simply because of legal norms, but because the world cannot function without it. The real question is how far the current disruption is allowed to go before that reality is enforced, and what the region looks like by the time that point is reached.

Mehran Haghirian is the Director of Research and Programs at the Bourse & Bazaar Foundation. His upcoming book, Differentiating Foreign Policy Strategies in the Persian Gulf: The Decision-Making Calculus towards Iran, will be published by Springer in 2027.

Abdullah Baabood is an Omani academic currently serving as the Chair of the State of Qatar for Islamic Area Studies at Waseda University, Tokyo, Japan.

Section: (integrated-futures-initiative) Photo: Canva

By Esfandyar Batmanghelidj

Few aspects of the ongoing war have rankled the international community more than the fact that Iran is charging vessels a fee for safe passage through the Strait of Hormuz. Now, Iran has insisted that it will retain “control” of the strait even after the end of the war.

Understanding this demand requires precision about what is meant by “control.” After this war ends, Iran will still be able to threaten to commercial vessels passing through the Persian Gulf. The asymmetric capabilities it has used to project this threat—ballistic missiles, cruise missiles, naval mines, and aerial and naval drones—will remain. There is no credible military solution to eliminate these capabilities, especially considering that even sporadic success striking ships can shift the risk appetite of vessel owners and charterers.

But even if Iran retains the capacity to strike vessels in the Persian Gulf after the war ends, it will not be able to unilaterally impose a toll on maritime traffic passing through the Strait of Hormuz. This is because Iran can only credibly threaten vessels while a war is ongoing. Once a ceasefire is agreed, any decision to strike vessels would constitute a violation of the ceasefire, triggering renewed conflict. In this sense, Iran’s present control of the strait does not reflect its latent capability to strike vessels, but rather its willingness to absorb the costs associated with the retaliation for those strikes. Those costs remain enormous—it is precisely because of the destructive nature of this war that Iran continues to signal an openness to diplomacy.

The notion that Iran will continue to control physically the Strait of Hormuz after the war can be rejected on face. But as governments around the world seek a diplomatic solution to end this war, they should be careful not to reject the Iranian demand for a “Hormuz toll” outright. Iran’s insistence on continued control of the strait is a political condition for a ceasefire, one advanced in light of the bruising reality that Iran failed to deter unprecedented attacks and has at best managed to draw the United States and Israeli into an attritional war. If a ceasefire requires that both Iran and the United States find a way to claim victory in a war with no winners, accommodating political demands in creative ways is tremendously important. Here, the creation of a toll represents a possible technical provision for a deal, one that can help create political buy-in for a ceasefire and follow-on agreement among leaders in Tehran.

To understand the potential utility of a formal toll mechanism, it is important to note the existing precedent for such fees and the possibility that Iranian control of the strait could be non-exclusive, meaning the toll mechanism could include other regional countries.

Turkish Precedent

The Strait of Hormuz is just over 30 kilometers wide at its narrowest point, meaning that it straddles Iranian and Omani territorial waters. Under the United Nations Convention on the Law of the Sea (UNCLOS), the strait must remain open for international shipping. Specifically, Article 26 of the convention specifies that “no charge may be levied upon foreign ships by reason only of their passage through the territorial sea.” In this sense, an Iranian “tollbooth” on the Strait of Hormuz would be inconsistent with international law.

But Article 26 does note that “charges may be levied upon a foreign ship passing through the territorial sea as payment only for specific services rendered to the ship.” This clause has generally been interpreted to mean that countries can charge fees on vessels passing through its territorial waters for services related to navigational safety.

The notion that Iran will continue to control the Strait of Hormuz can be rejected on face. But as governments around the world seek a diplomatic solution to end this war, they should be careful not to reject the Iranian demand for a “Hormuz toll” outright.

Turkiye is one such country. Turkish authorities impose a fee, adjusted every July, for vessels passing between the Black Sea and the Mediterranean. Currently, the fee is just under $6 per net ton of cargo, meaning that a major container ship transiting the Bosporus is likely paying around $200,000 in fees. Turkiye earns around $200 million in such fees annually. The recent increase in fees was justified “in terms of supporting the sustainability of the public services” provided by Turkiye’s Directorate General for Maritime Affairs.

Notably, if an equivalent fee were applied to the much larger VLCC tankers that pass through the Strait of Hormuz, the revenue would total more than $500,000 per vessel. This charge is not orders of magnitude beyond what Iran is currently charging vessels for safe passage through the strait, indicating that commercial operators can reasonably absorb the cost of the proposed toll, even in peacetime.

Turkiye’s original imposition of fees was contested and if either Iran and Oman were to try to unilaterally adopt a similar model there would be significant pushback, especially from the other littoral states of the Persian Gulf. But the international community does accept Iran’s right to charge fees in a context broadly similar to maritime trade—global aviation.

Aviation Parallel

Iran has not ratified UNCLOS, but it is a party to a similar piece of international law, the Convention on International Civil Aviation, also known as the Chicago Convention. In line with this convention, Iran charges overflight fees from global airlines that use its airspace.

Importantly, much like UNCLOS, the Chicago Convention makes clear that charges cannot be levied on aircraft “in respect solely of the right of transit.” However, Article 15 of the convention does allow fees to offset to costs of critical services related to aviation safety, such as maintaining civilian radars to monitor weather, providing air traffic control to manage flight paths, and ensuring adequate emergency response services at airports.

Given the precedent set by the fees Turkiye charges for vessels passing through the Turkish Straits, and the precedent represented by the overflight fees Iran already charges in line with its provision of air traffic control, navigation and safety services, the Iranian demand to formalize a transit surcharge is neither inherently unreasonable or nefarious. The international community has long accepted Iran’s imposition of such fees for use of its airspace and has understood the need to maintain the safety and openness of Iranian airspace for the benefit of international travel and air freight.

Of course, the fact that Iran is able to charge overflight fees does not mean that it is in a position to impose such fees on vessels transiting the Strait of Hormuz. No regional country will agree to exclusive Iranian control over the strait, even if that control takes the bureaucratic form of a payment. To overcome resistance to their political demand, Iranian authorities must accept that the technical implementation of the toll mechanism will only be viable if it reflects a shared control over the strait.

Regional Diplomacy

The formalization of a kind of toll could contribute to the rehabilitation of regional diplomacy after the war. If Iran is to benefit financially from the passage of vessels through the strait, so too should Oman, whose territorial waters encompass the passage. Moreover, the other six countries who shores bound the Persian Gulf should also benefit—it is their trade that underpins the vessel traffic. In this respect, regionalization of a “Hormuz toll” is consistent with the creation of a more integrated region which shares responsibility for the security and safety of maritime trade.

Importantly, there already exists a body that could be repurposed to receive and use the toll revenue in a regional format. Established in 1978, the Regional Organization for the Protection of the Marine Environment (ROPME) is the only active regional body that includes all eight littoral states of the Persian Gulf. While mainly focused on environmental issues, rather than maritime safety, the organization has successfully coordinated regional responses to maritime emergencies, such as oil spills.

ROPME is long overdue revitalization, especially as climate pressures accelerate degradation of the Persian Gulf’s fragile ecosystems. In an analysis for the Bourse & Bazaar Foundation published last year, Javad Amin-Mansour and Mohammad Al-Saidi noted that “ROPME requires stronger technical capacity, enhanced decision-making structures, and sustained political and financial backing from its members.” The financial boost from a modest fee could revitalize this body, allow it to expand its remit to providing a wider range of environmental and safety-related services in the Persian Gulf and Gulf of Oman. Given the environmental impact of American attacks on Iranian naval ships and Iranian attacks on commercial vessels, the use of toll revenues to remediate the damage of war represents a genuine need.

Establishing a durable peace after this war will require creative thinking. All of the parties involved in the conflict will make political demands. Those demands should be viewed as openings, not dealbreakers, especially when they can be connected to potential technical provisions for a diplomatic agreement.

If the Iranian demand to maintain control of the Strait of Hormuz can be translated into a specific toll mechanism, which can in turn be regionalized and connected to the shared task of rebuilding in the wake of the war, it may prove a valuable opening to create a more integrated and equitable region.

Esfandyar Batmanghelidj is the Founder and CEO of the Bourse & Bazaar Foundation.

Section: (integrated-futures-initiative) Photo: Canva