Sanctions or missiles? Why the Gulf treads carefully on Trump's new Iran strategy

Nearly six months after the US and Israel launched military operations against Iran, Washington is shifting toward economic sanctions and isolation to pressure Tehran into accepting terms for a peace deal.

On August 24, US Treasury Secretary Scott Bessent announced "Operation Economic Outcast," targeting Iran's remaining revenue streams and threatening sanctions against any parties that continue doing business with the country. He called the new measures the "largest financial strike ever" against Iran, warning that banks and companies that do not comply would face collective isolation.

"No one is beyond the reach of US sanctions," Bessent told reporters.

Gulf states have repeatedly found themselves caught in the crosshairs as Iran targets US military bases and infrastructure on the territory of neighboring countries. Economic pressure may seem a less bloody option than another round of US-Israeli missile strikes. Yet analysts warn the strategy carries inherent risks, as Iran could respond by attacking more US assets and energy facilities in the region.

Mohsen Rezaei, secretary of Iran's Supreme National Security Council, said on August 22: "If any country surrounding Iran joins the Americans in the economic war, not a single drop of oil will leave the Persian Gulf and the Strait of Hormuz." Iran has effectively blockaded that sea lane since the war began.

America's Gulf allies face a paradox: Washington's military presence protects them from Iranian missiles and drones, but it also makes their territory a potential target. Now, due to their security ties with the US, they are being pushed to sever economic relations with Iran—a move that could anger Tehran and drag them deeper into the conflict.

The United Arab Emirates (UAE) formally cut trade ties with Iran last week. Meanwhile, Saudi Arabia, Qatar, and Oman are weighing their own strategic calculus, with strong incentives to keep diplomatic channels open with Tehran and push for reopening the Strait of Hormuz.

From military campaign to 'economic landing'

The US Treasury chief described the new sanctions aimed at isolating Iran as an "economic landing." The ninth round of sanctions since the war began targets 60 entities, ships, and individuals in the UAE, Hong Kong, China, Singapore, and Switzerland for allegedly supporting Iranian trade. Key sectors include digital assets, technology, gold, aviation, and shipping.

Iranian political analyst Mostafa Khoshcheschm dismissed the announcement as a "political show" meant to intimidate neighboring countries. He compared the campaign to Trump's "maximum pressure" policy during his first term, which failed and ended with the US withdrawal from the JCPOA nuclear deal in 2018. The analyst said the latest measures are "even weaker than that."

The pivot to economic pressure comes as months of war have not delivered a decisive outcome for the US, contrary to Trump's early claim that the campaign would last only a few weeks. US media reports of depleted missile stocks and interceptor systems in the Middle East—though denied by the administration—have also pushed Washington to seek alternative pressure points.

Disruptions to energy exports through the Strait of Hormuz have driven up US gas prices, making the war less popular at home. Still, Washington believes the economic balance is tipping in its favor. Trita Parsi, executive vice president of the Quincy Institute, argues that the US calculates that rerouting shipping via Oman and the shift away from Gulf oil have reduced the effectiveness of Iran's Hormuz blockade, while the US Navy has tightened Tehran's ability to sell oil.

"The result, from Washington's perspective, is a status quo where Iran bears greater costs than the US," Parsi told Al Jazeera. Trump believes Washington can outlast Tehran, and "for the first time since the war began, time is on America's side."

But the strategy's effectiveness depends on whether major economies like China, India, and Russia believe Washington is willing to sanction them for continuing trade with Iran. For Gulf allies, Washington's persistence in economic warfare means accepting a prolonged closure of the Strait of Hormuz—a far heavier toll on economies reliant on energy exports through that route.

UAE takes the lead, Saudi and the Gulf stay cautious

The UAE has gone further than its neighbors, with Abu Dhabi announcing an end to trade with Iran. Analyst Miad Maleki of the Foundation for Defense of Democracies described the move as "potentially the most consequential economic act of this war for Iran," given Dubai's long-standing role in providing foreign currency to Iran and the UAE's position as Iran's largest import source even during the conflict.

According to Simon Mabon, professor of international relations at Lancaster University, the UAE's stance reflects both its repeated targeting by Iran during the conflict and its deepening security ties with Washington and Israel. However, he called the UAE an "outlier" in the Gulf, not expecting Saudi Arabia, Qatar, or Oman to follow suit.

Iran's 'formidable escalation options'

Analysts suggest additional economic pressure may not yield the results Washington seeks. "The pattern we see is that when faced with surrender or escalation, the Iranians escalate," Parsi said. If sanctions cause severe damage, Iran—which has "formidable escalation options"—is likely to retaliate.

This worries Qatar, which has suffered losses from attacks on its LNG facilities and the Hormuz disruption. While crude oil can be rerouted through alternative pipelines, liquefied natural gas and many petrochemical products are harder to redirect. Qatar also shares a massive gas field with Iran, giving it another reason to maintain ties with Tehran.

Oman has its own reasons to resist isolating Iran, as its long-standing mediator role between Tehran and Washington depends on keeping diplomatic channels open with both sides. The sultanate is in direct talks with Iran over the future management of the Strait of Hormuz. A recent visit by Oman's foreign minister to Tehran showed "intermediaries ready to pull both the US and Iran back to the diplomatic channel," according to Rashid al-Mohannad, vice president of the Doha International Center for Policy Research.

Saudi Arabia has chosen to stay on the sidelines of recent mediation efforts and shows little enthusiasm for ramping up economic pressure on Tehran. Mabon noted that a decade ago, Riyadh might have followed Washington and Abu Dhabi in taking a harder line against Iran. But now, Saudi Arabia is conditioning the establishment of a Palestinian state on signing the Abraham Accords—a demand Israel rejects. Riyadh also signed the Mecca Pact on mutual defense with Pakistan and Turkey in early August, signaling its desire to diversify its security away from dependence on the US.

Crown Prince Mohammed bin Salman has in recent years adopted a more pragmatic approach toward Tehran, culminating in the restoration of diplomatic ties under a China-brokered deal in 2023. While Riyadh might want a weakened Iran, Mabon argues it fears instability if the Iranian government collapses. Joining the US economic campaign also makes Saudi Arabia more vulnerable to attacks from Iran or the Houthi forces, which have been targeting Saudi-linked ships in the Red Sea.

An intractable dilemma

Restoring diplomacy between Tehran and Washington—something neither side seems able to do alone—has become increasingly vital for regional security. Gulf capitals find themselves in a bind with no easy way out.

Following Washington's economic pressure plan may seem preferable to another round of missile strikes, but it risks provoking Iran and sparking renewed attacks across the Gulf. Gulf states are likely to continue pushing for "dialogue and diplomacy" rather than new conflict or harsher sanctions, even if that ultimately proves to be "a door leading to more instability from Iran."