The Unmaking of America’s Persian Gulf Order
537 ballistic missiles, 2,256 drones, and 26 cruise missiles rained down on the United Arab Emirates alone in the weeks following February 28. Thirteen people died. More than 200 were injured as debris tore into civilian buildings across the country. Dubai’s landmark structures took direct hits. Manama’s high-rises were damaged. Kuwait’s international airport was struck. Families in cities that had long considered themselves insulated from regional conflict suddenly found themselves living inside it.
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QatarEnergy halted liquefied natural gas production after Iran targeted Ras Laffan, one of the world’s largest LNG facilities. Kuwait and Bahrain cut back oil production as storage constraints and blocked export routes forced their hands. Industrial damage across the UAE alone would take a year to repair. The workers, port operators, and residents who depend on those facilities had no say in the conflict that brought the strikes, and no guarantee of when normal life would resume.
Iran deliberately targeted energy infrastructure, civilian airports, hotels, and residential buildings. The strikes were framed as punishment for states accused of facilitating American military operations, despite repeated assurances from several Gulf governments that their territory and airspace would not be used for offensive action against Iran.
The memorandum of understanding signed on June 17 between the United States and Iran now reshapes how those Gulf states understand their position in the regional order. The agreement concedes, defers, or omits nearly every strategic objective the administration cited in launching Operation Epic Fury. Iran’s nuclear program is not dismantled but deferred to further negotiation. Its ballistic missile arsenal goes unmentioned. Its proxy network is actively shielded by the inclusion of Lebanon in the ceasefire terms. The regime that the United States set out to disarm emerges from the war defiant, diplomatically engaged, and positioned to receive hundreds of billions of dollars in reconstruction capital and sanctions relief.
The MOU commits the United States to work with “regional partners” to develop a plan with at least 300 billion dollars for Iranian reconstruction and economic development. Vice President JD Vance told CBS that the fund would be backed by Gulf states if Iran complies. President Donald Trump denied before the deal was announced that the United States would pay Iran, calling such reports “fake news.” Secretary of State Marco Rubio, arriving in Abu Dhabi, said the fund “won’t be our investment. It won’t be our government money.”
Saudi Arabia’s response was direct. Foreign Minister Prince Faisal bin Farhan told the European Council on Foreign Relations in Vienna that he had “no details on this fund” and “no information or insight into the concept behind it.” He placed a precondition: “We’re going to have to have a conversation on how we rebuild that trust, how we rebuild that relationship before any concept of economic cooperation, mutual investment, or anything like that can rationally be addressed.” He added that Saudi investment commitments “have already committed their funding streams to areas that are targeted at our domestic economy.” The message was plain: the Kingdom is not willing to pay.
The UAE, which absorbed more than half of all Iranian projectiles targeting Gulf states, initially demanded Iranian reparations for infrastructure damage. Its foreign minister declared in March that the UAE would not be “blackmailed by terrorists.” By June, the country had moved toward pragmatic accommodation, reportedly agreeing to release between 10 billion and 20 billion dollars in frozen Iranian funds, with upwards of 3 billion dollars already transferred to Iranian channels, in exchange for a halt to attacks. The UAE issued a categorical denial of these reports. Whether the specific figures are accurate or not, the behavioral pattern is unmistakable: the UAE concluded that the American security guarantee is conditional, revocable, and ultimately subordinate to Washington’s domestic economic imperatives.
Some Gulf governments preferred paying for de-escalation to enduring further Iranian strikes, having concluded that the cost of continued hostilities exceeded what their economies and populations could absorb. But whether the Gulf states are resisting the MOU’s financial terms or quietly accepting them as preferable to renewed war, the underlying calculus is identical. The American security framework failed to protect them from the consequences of a war they did not seek, and the costs of that failure are being transferred to them regardless of the form the transfer takes.
When President Trump acknowledged at a press conference that he signed the MOU because he “didn’t want to see an economic catastrophe,” the Gulf states heard exactly what they feared: that the threshold at which the United States would seek accommodation with Iran was lower than the threshold at which the Gulf states would be made whole.
The MOU envisions the wholesale dismantlement of a sanctions regime constructed over more than four decades, beginning with the 1979 revolution and encompassing designations related to terrorism, missile proliferation, human rights abuses, and the Islamic Revolutionary Guard Corps’ status as a foreign terrorist organization. For the Gulf states, this matters as a question of strategic confidence. Saudi Arabia’s own accommodation with Iran, culminating in the Beijing-brokered rapprochement of 2023, and the financial channels that the UAE and Qatar maintained with Iranian counterparts throughout the sanctions period suggest that Gulf capitals never treated the sanctions architecture as an absolute barrier. They valued it as a systematic constraint on Iranian power projection, one that limited Iranian access to the formal financial system, restricted arms procurement, complicated the financing of proxy networks, and signaled American resolve to contain Iranian expansionism.
The promise of its complete removal, absent any Iranian commitment to dismantle proxy networks or curtail its ballistic missile program, communicates to Gulf governments that even the imperfect constraint they relied upon is being traded away in exchange for the reopening of a waterway that Iran closed in the first place. Regional analysts have warned that the release of frozen Iranian funds and the lifting of sanctions could “empower Tehran’s regional networks of militias and proxies, reinforcing the very threats the MOU was meant to contain.” The concern is that resources flowing to Tehran will be redirected toward the very instruments of coercion that the Gulf states have spent decades trying to neutralize.
The Strait of Hormuz presents the most immediate illustration of this threat. The MOU provides for the toll-free reopening of the strait, but does not require the dissolution of the Persian Gulf Strait Authority (PGSA), the formal regulatory body established by the IRGC in May 2026 that requires vessels to submit ownership, insurance, crew, and cargo information and receive a permit before transiting. The PGSA continues to register ships for passage even during the toll-free period, consolidating its institutional presence while the ceasefire nominally suspends its revenue function.
Meanwhile, the future governance of the strait is being negotiated on a track that excludes most of the Gulf states whose economies depend on it. Iran’s Parliament Speaker Mohammad Bagher Qalibaf and Foreign Minister Abbas Araghchi traveled to Oman to discuss “new arrangements to manage” the strait bilaterally. Qatar’s Prime Minister separately visited Muscat for talks with Oman on initiating negotiations involving Iran, Iraq, and Gulf states on Hormuz. The Council on Foreign Relations has noted that Oman may benefit from joining Iran in collecting a toll, creating a bilateral Iranian-Omani governance structure over a waterway on which Saudi Arabia, Kuwait, Bahrain, and Qatar depend for their economic survival.
When Saudi Foreign Minister Prince Faisal was asked about the new arrangements at Hormuz, he rejected the premise outright: “The management of the strait was working fine before the conflict. There were no issues. Ships were navigating freely. Why should we now, as a result of a conflict, accept some novel arrangement that is going to be imposed on it?” Secretary Rubio reaffirmed that “no country is allowed to charge tolls or fees on an international waterway” under existing international law. The declaratory position is clear. The institutional reality on the ground is moving in the opposite direction.
If this institutional fact survives the negotiating period, Iran will have acquired through the war a permanent lever of economic coercion over every major Gulf energy exporter whose access to global markets remains exposed to Hormuz. The port workers, tanker crews, and energy sector employees whose livelihoods run through that strait would be the first to feel any future tightening of that lever.
The Lebanon addition to the MOU compounds all previous concerns. The agreement promises the “immediate and permanent termination of military operations on all fronts, including in Lebanon.” Iran’s foreign minister has declared that any continued Israeli military presence in Lebanon constitutes a violation of the MOU, a claim that goes beyond the ceasefire language in the agreement’s text, which does not address territorial withdrawal. Israel has stated that it does not consider itself bound by this provision.
Secretary Rubio, when asked about Lebanon during his Gulf tour, described the Lebanon track as “separate” from the Iran deal, to be negotiated directly with the Lebanese government, a framing that is difficult to reconcile with the MOU’s explicit inclusion of Lebanon in its ceasefire terms. Iran’s inclusion of Lebanon in the MOU, and Washington’s acceptance of that linkage, signals that Iran’s proxy architecture survived the war intact as a negotiating asset. If Tehran can compel American pressure on Israel to cease operations against Hezbollah as a condition of a ceasefire with the United States, then the proxy network that directly threatens Gulf security has been validated as a going concern.
Before the war, the Gulf security framework rested on a set of interlocking assumptions: that American forward presence constituted a credible deterrent against Iranian aggression, that the sanctions regime constrained Iranian power projection, that freedom of navigation through Hormuz was an international right guaranteed by American naval power, and that the Abraham Accords alignment with Israel provided the Gulf states with an additional source of deterrence and technological cooperation. The MOU has weakened every one of these assumptions simultaneously. American presence in the Gulf did not prevent Iranian strikes on GCC territory. The sanctions regime is slated for dissolution. Hormuz now operates under an Iranian institutional claim that the MOU leaves intact.