‘They have been exposed’: The Iran war upends Gulf states’ security and business model

The Gulf Arab states are geographically close to the sites of some of the world’s most devastating recent conflicts, including Syria, Gaza, Lebanon, and Yemen. Though some of them have faced attacks from the Houthis, they were largely spared significant, persistent spillover attacks from Iran inside their borders. All that changed on February 28, with the launch of the US-Israeli conflict with Iran.

Iran retaliated by targeting Gulf Cooperation Council (GCC) countries with 83 percent of its total missile and drone strikes during the war, with the United Arab Emirates (UAE) receiving the most attacks out of any country, including Israel. The shock from the war and worries over future strikes threaten the sense of security, prosperity, and opportunity that Saudi Arabia and the UAE in particular have spent years and billions of dollars cultivating as they seek to diversify their economies away from oil. As a longtime investor in the region told me: “The perception of the Gulf Arab states as safe havens in a tough region is shattered and will be challenging to reverse for some time. They likely will have a higher risk premium in the eyes of most investors and companies. I cannot see an outcome of the war that completely eliminates this reality—they have been exposed.”

Gulf states must now confront a paradox: They are reliant on the United States for security, and there is no good alternative. At the same time, the actions the United States and Israel have taken in this war introduce new security issues for Gulf states. There are two main scenarios going forward:

No matter which scenario occurs, Gulf Arab states now face a vast landscape of new security and economic challenges.

The UAE may adopt the most significant policy changes due to this war. Geographic proximity probably played a role in why it sustained the most Iranian attacks, but a more likely explanation is the UAE’s dominance in the region as a global financial, business, transit, and tourism hub, as well as its participation in the Abraham Accords with Israel. Iran likely wanted to shatter the sense of safety in the UAE to chill foreign investment and tourism.

After seeking to improve diplomatic relations over the past few years, the UAE has hit a new low point of mistrust with Iran. UAE President Sheikh Mohamed bin Zayed Al Nahyan, known as MBZ, called Iran an “enemy” in March. The UAE closed its embassy in Iran and withdrew all diplomatic staff the day after the war began and has also closed Iranian institutions inside the UAE, such as schools and cultural centers. The UAE also said it would contribute to military efforts to reopen the Strait of Hormuz.

Following the cease-fire, a slight thaw took place: The UAE’s deputy prime minister and the Iranian speaker of parliament held a call. Anwar Gargash, a top advisor to the UAE’s president, explained : “The UAE does not close the doors of diplomatic communication, but we judge by actions, not words.”

The attacks on the UAE have been so significant and so publicized that it may have to work the hardest out of all the GCC states to rebuild investor trust and attract tourism. This will likely need to be done through a combination of military spending, enhanced defensive missile and drone capabilities, investments in new defensive technologies, and the hardening of business and civilian targets, including perhaps placing data centers underground.

If an enduring and comprehensive cease-fire is achieved or if Iran eventually embarks on a different, more positive path in the future, that could speed up the timeline for the UAE’s—and the whole region’s—much hoped-for economic recovery.

Stefanie Hausheer Ali is an Atlantic Council nonresident fellow and a senior director at international affairs consulting firm Rice, Hadley, Gates & Manuel LLC. The information in this article represents the views and opinions of the author and does not necessarily represent the views or opinions of Rice, Hadley, Gates & Manuel LLC.

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Image: A person stands to a motorcycle as smoke rises in the Fujairah oil industry zone following a fire caused by debris after interception of a drone by air defenses, according to the Fujairah media office, amid the U.S.-Israel conflict with Iran, in Fujairah, United Arab Emirates, March 3, 2026. (REUTERS/Amr Alfiky)