RIYADH: Even as uncertainty over the Iran war’s endgame persists, Daniel Benaim, distinguished diplomatic fellow at the Middle East Institute, believes the Gulf Arab economic model, despite a significant setback, remains resilient and will bounce back after the Iran war — albeit at a slower pace than before Feb. 28.
At the same time, according to him, the conflict has strengthened the case for deeper US-Gulf ties, especially on defense and economic security.
While decrying “hyper-nationalism, extremism and exclusivism within the Israeli political structure,” he said the war has proved the destructive power of Israel’s air force is enough to set back an enemy but not enough to create “a new political reality” or “leave stability in its wake.”
Appearing on the Arab News current affairs program “Frankly Speaking,” Benaim said Gulf modernization has not gone off course so much as changed form. Before February, he said, it looked like a race car. Now, after months of war and disruption, it may look more like an armored car — slower, more heavily protected and built for a far riskier road. That adjustment, he said, reflects the extent of the shock the war has delivered to the region.
Benaim told ‘Frankly Speaking’ host Jensen the GCC economic model, despite a significant setback, remains resilient and will bounce back after the Iran war — albeit at a slower pace than before Feb. 28. (Arab News)
“It’s clear that this has in some ways been a setback for, if not the individual Gulf economies — some of which made money, some of which lost money — for the Gulf as a whole, as an idea of economic modernization and the destination for global business and investment,” he said, adding that it “put a cloud of risk (over the region) that was quite damaging.”
Even so, Benaim said he remains optimistic about the Gulf’s long-term prospects.
“I would not bet against the determination of Gulf leaders, of their citizenry, the attractiveness of what the Gulf has to offer in terms of cheap energy, available capital, land, and the kind of top-down approach to welcoming business that is improving all the time and I think already quite formidable and compelling,” he told “Frankly Speaking” host Katie Jensen.
“In the medium term, you’re going to see Gulf economies find ways to get creative and to bounce back.”
Still, he emphasized that any recovery will require major investment in resilience and security, including measures to reduce dependence on chokepoints such as the Strait of Hormuz.
Elaborating on an analogy he cited in a recent Time magazine article he co-authored with Elisa Ewers, a Council on Foreign Relations senior fellow, Benaim said: “If Gulf economic modernization before February was a race car, I think in the period ahead it may be something more like an armored car or an SUV, sacrificing a little bit of speed for safety but still getting to the same destination.
“You’re going to need redundant infrastructure, new pipelines to reduce dependency on the Strait of Hormuz,” he said. “You’re going to need railways, roads, other maritime routes, routes through the Levant. You’re going to need hardened data centers.
“Those upgrades will come at a price. Some projects will slow, and some investors may stay away, even as others are drawn to the opportunity.”
He further argued that the Gulf region will need a near-Manhattan Project pace to build layered air defenses against missiles and drones.
For Benaim, as a former senior adviser in the Biden administration, that challenge also opens a broader strategic window: the conflict has strengthened the case for deeper US-Gulf ties and closer defense coordination.
In his view, Washington and its Gulf partners now have a chance to expand the “defense industrial base,” develop “next-generation air defenses together” and work with other partners to counter Iranian tactics and those of allied militias.
He said that, despite the disillusionment caused by the conflict, “there is still a tremendous amount that the US and the Gulf can, should and must do together when we look ahead.”
The economic damage from the war has been substantial. Gulf states have been hit by attacks on energy infrastructure, shipping disruptions, and a sharp blow to confidence in the region as a safe place to invest and do business.
In late March, the UN estimated the military escalation could reduce the Middle East’s collective GDP by 3.7 percent to 6.0 percent, or about $120 billion to $194 billion — more than the region’s cumulative GDP growth in 2025.
The conflict began on Feb. 28, when the US and Israel launched joint strikes on Iran, killing senior Iranian leaders, including Supreme Leader Ali Khamenei. Iran retaliated with drones and ballistic missiles aimed at Israel and at Arab countries, particularly Gulf neighbors, and Iraqi Kurdistan.
The fallout has extended well beyond the battlefield. Iran has disrupted commercial shipping through the Strait of Hormuz, a vital maritime chokepoint, while a later US naval blockade of Iranian ports further strained trade flows.
Because roughly one-fifth of the world’s oil and gas passes through Hormuz, Gulf states have faced higher transport risk, delayed exports and broader market turmoil.
Even so, Benaim said the war has not affected every Gulf country in the same way, and governments are responding differently.
After a recent tour and meetings with Gulf officials, he said many leaders believe the US drew the region into a conflict it did not want. At the same time, he said, Washington still proved to be the defense partner of choice.
“My sense is that across the region, there’s a feeling that on the one hand, the US brought the region and the Gulf into this war, which it wasn’t seeking out,” he said.
“On the other hand, the US showed up as the defense partner of choice so that even though deterrence failed, defense largely succeeded in protecting Gulf cities and capitals and infrastructure from Iranian attacks.”
That mixed view, he said, has been accompanied by a “sense of apprehension that the United States doesn’t necessarily have a plan to take us from here to a kind of more sustainable security.”
He pointed to diverging responses within the Gulf, with Saudi Arabia reportedly favoring regional detente and dialogue with Iran, and the UAE — hit especially hard by Iranian strikes — doubling down on hard power and outside partnerships.
“I don’t get the sense that there’s a unified Gulf perspective on what comes next,” he said. “But you see a country like Saudi Arabia kind of leaning into the idea of a regional detente of dialogue with Iran and finding a way to lower the temperature.
“And a country next door, like the UAE, that I think is doubling down on the idea of hard power and partnerships outside the Gulf because they’ve been hit so terribly hard by the Iranians over these last three months.”
According to reports, the damage inflicted by Iran and Iran-backed Iraqi militias on the UAE was of four kinds: direct strikes on transport and energy infrastructure, disruptions to aviation and shipping, financial-market pressure and erosion of the country’s image as a safe regional hub.
Even so, Benaim said he does not expect the war to inflict lasting damage on long-term foreign investment. He pointed to strong interest from US businesses eager to return, and he praised the way Gulf states have quietly supported one another through the crisis.
“You’re already seeing US businesses that are really eager to get back to work in this region,” he said. “They see the value of this region, the long-term value. They want to partner with the leadership. They appreciate the pragmatism and vision of a lot of the individual leaders.”
Benaim described the Gulf’s collective response as an informal mutual-aid network, with each state stepping up in its own way.
He said: “Whether it’s the Bahrainis sending Gulf Air flights through Dammam, with the Saudis acting almost as a lymphatic system for the rest of the Gulf, becoming kind of the geographic depth as countries begin trucking and using the Red Sea instead of the strait, to the UAE going through Fujairah, and Oman exporting to the Indian Ocean.”
He added that Gulf states “will be watching closely” which businesses stayed through the crisis — and factor that (experience) into future partnerships.
Benaim believes that the pace of recovery will depend above all on security. “The fundamentals point to resilience, but the fact is we have a very dangerous and somewhat uncertain security situation at the moment,” he said.
That is why, in his view, the US, Gulf states and other mediators must move quickly to work with Iran to restore a basic level of economic stability. He said talks are already underway, though progress remains uneven.
Asked for his thoughts on Israeli Prime Minister Benjamin Netanyahu’s strategy on Iran and beyond, Benaim said the problem for Israel (and the US) is that the “awesome destructive power of the air force, combined with intelligence operations and other tools, is enough to seriously hobble an enemy, but it’s not enough to create a new political reality.”
“It’s enough to damage a militia group, but it’s not enough to leave stability in its wake,” he said. “That is going to be a problem that we will be dealing with across the Middle East.”
Benaim believes Israel has had important tactical successes that had strategic implications in places like Lebanon and Syria and in pulling Iran back from the nuclear threshold. “Unfortunately, what hasn’t happened, and what needs to happen, is finding a way to pivot from military action quickly into peace-building, stability-building, diplomacy, conflict resolution,” he said.
“These are the things that will allow Israel to have a kind of security that is shared beyond its borders. … There were opportunities that were missed to do just that over these last three years. And there’s an ongoing missed opportunity.”
He added: “So far, they’ve done a much better job of knocking down their opponents and threats than they have of building any kind of durable peace or stability in the wake of that.”
Benaim was particularly critical of recent developments in Israel, namely after a video posted by Israeli National Security Minister Itamar Ben-Gvir triggered widespread outrage.
The video, published on May 20, showed Ben-Gvir taunting detained flotilla activists who had tried to challenge Israel’s siege of Gaza, prompting condemnation from Netanyahu and US Ambassador to Israel Mike Huckabee, who called it “despicable.”
Asked whether the condemnation reflected rising discomfort in Washington with figures inside Netanyahu’s government, Benaim said the episode exposed an entrenched current of extremism in Israel’s political system.
“I was glad to see that even the Trump administration and Ambassador Huckabee came out and really rightfully, strongly condemned this incident,” Benaim said.
The incident, he added, “showed a face of Israel to the world that I think was not one that the world found palatable or attractive.”
He said the episode reflected a current of “hyper-nationalism, extremism, exclusivism within the Israeli political structure and spectrum.” He warned that “this is not a particularly good path for Israel or for the US-Israel relationship to go down that road of hyper-aggression.”
While stressing that Israel “faces real threats and real challenges and has every right to advocate for itself and defend itself,” he said this form of self-defense and self-advocacy “does a lot more harm than good.”
“It doesn’t paint a picture of Israel as a country that’s going in a direction where anyone else would want to follow,” he said. “And so, I think that it contributes to a sense of diplomatic isolation there.
“So, I was glad to see the wave of condemnation, and I hope the Israeli government beyond these ministers takes it to heart, and that Israel finds a way to deal with these currents within its society to be a much better participant in the larger region.”
Going back to the Iran war and the potential for reopening the Strait of Hormuz, Benaim described the restoration of maritime traffic through the waterway as a “pass-fail test for American leadership.”
“This is part of our commitment to free and open global commerce and open sea lanes that goes back 80 years ... and certainly back to the Carter Doctrine in this region,” he said.
He argued that the disruption is not just a regional problem; it affects energy supplies in South Asia, housing costs in the US, allied economies from Asia to Europe and Gulf states whose export routes remain constrained.
In that sense, he said, “the idea that because America is not consuming imported oil through the strait, we can afford to walk away is a dangerous delusion, not least because our partnerships with the Gulf and guarantees over this area are part of what underpins the petrodollar.”
For that reason, Benaim said, the US has a “vital national interest” in restoring international shipping through the strait. But doing so, he added, will require concessions from all sides.
“Iran is going to need money,” he said. “They’re going to look for deterrence, and they’re going to want to save face. Now all of that requires concessions by the US.
“If you want to create an alternative source of revenue, perhaps you can reach a large nuclear agreement that includes sanctions relief and access to frozen funds in exchange for addressing the loose nuclear material and the ongoing enrichment challenge and reopening the strait. That would solve Iran’s revenue challenge.”
Even then, Benaim cautioned, the world has now seen that Iran retains the capacity to disrupt the strait. That reality cannot simply be reversed. What can change, he said, is the conduct itself.
“Iran would maintain the right in some ways or the ability, let’s say, and capability to disrupt transit through the strait. Unfortunately, they’ve shown what they can do, and it’s very hard to ‘unring’ that bell now that the world has seen they have that capacity,” Benaim said.
“You can’t really remove the capacity. You can only remove the conduct.”
On Saturday, officials from the US, Iran and Pakistan had all expressed optimism that a deal to end the war may be nearing completion.
According to a Reuters report, the proposed framework has three phases: formally ending the war, resolving the Strait of Hormuz dispute and opening a 30-day window to negotiate a broader agreement.
Even so, concerns remain that such a deal may not address Iranian-backed militias, including Iraq’s Popular Mobilization Forces, which reportedly continues to threaten Gulf stability.
That concern has only sharpened since a recent drone attack targeted the UAE’s Barakah nuclear plant. UAE officials condemned the May 17 strike as a “terrorist” act and blamed “Iranian militias in Iraq.”
Asked about the threat from pro-Iran militias in Iraq, Benaim called the attack on Barakah “a really grave and serious matter.” He said attacks on nuclear facilities should be treated as an “absolute red line” and dismissed any attempt to portray the strike as merely symbolic.
He argued that Gulf states, the US and other partners must press Ali Al-Zaidi, the Iraqi prime minister, to “make clear to him that he needs to assert control over his territory, and make sure that these militias cannot use Iraqi territory for attacks.”
“And that if they do,” he continued, “they should expect that they will be retaliated against on Iraqi territory in response to defend against these attacks against the Gulf.”
He added that Tehran must understand that attacks from Iraq “will be treated as attacks from Iran in the sense that this is a violation of the ceasefire.”
“Nobody is buying the deniability that Iraqi militias are acting alone without coordination with the Iranian government,” Benaim said.
“I do think that clear messages need to be sent in all directions. And where messaging fails, force will be needed to address this issue because these militias are a threat to Iraqis. They’re a threat to the United States.
“We want Iraq to be able to maintain its own stability and find its own solutions. But when forces inside Iraq are threatening countries in the region and threatening the US, then that’s going to damage the stability of Iraq, unfortunately, and the sovereignty of Iraq.”
For now, he does not believe either side is fully ready for the kind of compromise that would make a lasting deal possible. “I do think that there’s a big deal to be had that reopens the strait, but I’m not at all confident that the two sides are ready to do it,” he said.
Instead, he added, Washington and Tehran “are both holding their breath to see if the other one will pass out first, applying economic pressure on the other party.”
“I think they both may think that they’re still winning,” he said. “We may be in for a situation of choppiness, of instability, rather than either a return to war or an immediate diplomatic breakthrough.”
That helps explain why Benaim sees the near-term outlook as unstable. He said there is “a lot of uncertainty on both sides about the timeframe here.”
And while he believes a “big diplomatic solution” is possible, the two sides are also divided by a basic mismatch in negotiating style and political culture.
“On the one hand, you have real-estate developers who are very used to quick transactions, pressure moves, high leverage, and trying to get something done or just walk away who don’t really envision themselves camped out for months and months in a long negotiation,” Benaim said.
“I think of the US side as kind of fast-food eaters and the Iranian side as engaged in a kind of more traditional slow cooking. In Iran, you could take an hour and a half to cook white rice, and it might be the best white rice in the world, but that’s not the culture and pace and tempo of the Trump administration’s businessmen negotiators.”
As a result, Benaim said the most likely near-term outcome is not peace, but a middle ground between war and diplomacy — a period of limited escalation, de-escalation and sustained uncertainty.
“I still think that the likely outcome in the near term is a kind of unstable uncertainty between war and peace, where the two sides apply pressure on each other, engage in limited escalation and de-escalation, and that’s kind of a risky place to be,” he said.
A return to full-scale war remains possible, he added, though he doubts it would achieve much beyond more damage to both Iran and the Gulf.
“It’s very possible you could have a return to war,” he said. “I don’t think it will accomplish much beyond further damaging Gulf infrastructure and causing more damage in Iran, which is unlikely to capitulate in the face of additional military pressure although it’s certainly possible.”
Over time, however, he said he still hopes all sides will recognize that they are not truly winning and that a negotiated settlement, however imperfect, remains the least bad option.
That, Benaim said, means accepting what he called “a little bit of pain for everybody.”
For the US, according to him, it means “recognizing that we couldn’t convince Iran to capitulate and we had to make real concessions on difficult issues.”
“For the region,” Benaim said, “it probably means that missiles and proxies are dealt with outside of the four corners of an agreement like this, maybe through some kind of additional regional diplomacy, maybe not.”
For Iran, he said: “I think it means agreeing to deal-making that requires real concessions, serious concessions on the nuclear deal, letting go of their power over the Strait of Hormuz, and also, frankly, working with the people who killed the Supreme Leader and who were part of this military campaign that has ravaged Iran without getting financial reparations or an apology.”
Benaim added: “So, nobody is going to enjoy it, but I think it’s better than the alternatives, and that’s why I continue to hope that all sides are able to take that psychological and strategic journey from maximalist attempts to impose victory on the other side to something that has a little bit of something for everybody that leaves the region in a better place to move forward.”
