Gulf Currents Newsletter-Iran Tensions Highlight Gulf Faults

Jan 15 (Reuters) - Andrew Mills

Deputy Bureau Chief, Gulf

Even with Iran tensions cooling, the Gulf's vulnerabilities were hard to miss this week.

Meanwhile, Saudi Arabia deepened its influence in southern Yemen, Qatar moved on the first foreign bank deals in Syria in a decade, and Marriott doubled down on Saudi tourism. Plus an excerpt from Reuters Global Foreign Policy Editor Samia Nakhoul’s piece on why Iran’s clerical establishment remains unshaken.

NEWS BRIEFING

- Saudi Arabia has launched roughly $500 million in development projects across southern Yemen — including hospitals, schools, roads and fuel aid — asserting influence in areas long dominated by the UAE-backed Southern Transitional Council, which Riyadh helped push out in a recent offensive. The moves underline a widening Saudi-UAE rift that now spans the region.

- Marriott International and Al Qimmah Hospitality will add more than 2,700 hotel rooms in Saudi Arabia across five new properties in Jeddah, Makkah and Madinah, as the kingdom pivots from luxury megaprojects toward expanding mid and upper midrange options for its surging tourism and pilgrimage market.

- Qatar’s Estithmar Holding — part of a Doha based conglomerate run by Syrian Qatari brothers Moutaz and Ramez AlKhayat — is set to take control of Syria’s Shahba Bank and acquire 30% of Syrian International Islamic Bank, marking the first foreign banking deals since sanctions were lifted late last year. The move dovetails with Damascus’ push to recapitalize its war damaged banking sector.

ANALYSIS: As Iran tensions ease, Gulf’s fragile stability is laid bare

This week’s spectre of a U.S. strike on Iran — and potential Iranian retaliation on American bases across the Gulf — jolted not only regional governments but also the businesses whose fortunes hinge on Gulf stability.

By Thursday, the temperature had begun to ease. Washington said killings in Iran’s crackdown were subsiding and Tehran stressed it had no plans for mass executions — easing concerns over military action against Iran.

Nevertheless, the scare underscored how exposed Gulf states and companies remain to geopolitical shocks. Even as they push diversification, supply chain expansion and investment strategies, the neighbourhood keeps dragging them back into cycles of tension.

Most at stake is the success of the region's ambitious development agendas, which are vulnerable to a Gulf that remains conflict prone — and increasingly fractured.

The public rift between Saudi Arabia and the UAE over Yemen complicates any coordinated Gulf response to Tehran. Notably, this week’s crisis management diplomacy by Saudi Arabia, Qatar and Oman did not include the UAE.

Abu Dhabi is also weighing the fallout from President Trump’s order of 25% tariffs on countries doing business with Iran — a significant issue for the UAE, which is a major trade conduit for Tehran. But would Washington really slap tariffs on an ally that, less than a year ago, pledged investments worth $1.4 trillion into the U.S. economy?

Beyond politics, any flare-up that disrupts the Strait of Hormuz or Bab alMandab risks pushing up freight and insurance costs. Gulf states rely heavily on food imports; while strategic reserves and diversified sourcing offer buffers, a sustained disruption would be felt. Energy markets are even more exposed: any blockage of oil and LNG flows would amplify global price volatility.

Markets, for now, are shrugging. Bankers say demand for Gulf bonds should hold unless the conflict escalates directly; issuance trends remain steady.

But even if a Gulf crisis is contained, for now, uncertainty remains.

CHART OF THE WEEK:

U.S. President Donald Trump's response to protests in Iran have thus far been limited to a potential 25% tariff on U.S. imports from countries maintaining trade links with Iran. In 2024 China, the UAE, India and Turkey collectively bought more than two-thirds of Tehran’s exports, at a cost of $72 billion.

EXCERPT: Why Iran's clerical establishment still holds

By Samia Nakhoul, Reuters Global Foreign Policy Editor

Despite Iran's nationwide protests and years of external pressure, there are as yet no signs of fracture in the Islamic Republic's security elite that could bring an end to one of the world's most resilient governments.

But unless the street unrest and foreign pressure can prompt defections at the top, the establishment, though weakened, will likely hold, two diplomats, two government sources in the Middle East and two analysts told Reuters.

Iran's layered security architecture, anchored by the Revolutionary Guards and Basij paramilitary force, which together number close to one million people, makes external coercion without internal rupture exceedingly difficult, said Vali Nasr, an Iranian-American academic and expert on regional conflicts and U.S. foreign policy.

“For this sort of thing to succeed, you have to have crowds in the streets for a much longer period of time. And you have to have a breakup of the state. Some segments of the state, and particularly the security forces, have to defect," he said.

Supreme Leader Ayatollah Ali Khamenei, 86, has survived several past waves of unrest. This is the fifth major uprising since 2009, evidence of resilience and cohesion even as the government confronts a deep, unresolved internal crisis, said Paul Salem of the Middle East Institute.

Read the entire story here.

(Editing by Alexander Smith)