A New Middle East Is Emerging From the Iran War

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1:42Bloomberg Audio Studios, podcasts, radio, news. The Middle East has changed dramatically since Hamas attacked Israel on October 7th, 2023. And the war with Iran has brought about even more dramatic shifts across the region. There was so much at play. Bloomberg's Peter Martin, one of our Middle East correspondents, looked at how one day highlights those changes. March 31st, 2026. There was a Kuwaiti tanker who had been hit by an Iranian strike. It was sort of blazing in the Strait of Hormuz. Trump on that same day was berating European allies for refusing to help open the Strait of Hormuz. Israel was expanding its presence on the battlefield in Lebanon and beyond.

2:29Dubai was under direct attack from Iranian missiles and drones. And on that day, thousands of miles away from the United Arab Emirates in the UK, then Prime Minister Keir Starmer welcomed Syria's new president, Ahmed al-Shara, to 10 Downing Street. He's a former al-Qaeda commander. And together it felt like that day kind of encapsulated the global consequences of the war. You know, an impact on global shipping, higher energy prices, strained alliances, Israel's territorial expansion and subsequent diplomatic isolation. Peter says that single day represents how much the Middle East has been transformed.

3:09Alliances have shifted, battlefields have expanded, and countries have had to redraw trade routes. And that has left the public divided.

3:21I'm David Gura, and this is The Big Take from Bloomberg News. Today on the show, as a fragile ceasefire between the U.S. and Iran falls apart, and as technical talks are enveloped in uncertainty, a look at what war has meant for the wider region and the world.

3:42How much has the Middle East changed since Hamas attacked Israel on October 7th, 2023? I mean, the region has been through a pretty profound transformation. Conflict has spread from Israel into Gaza and then all across the region, Lebanon, Syria, Yemen, Iran, and now in this most recent round of fighting all across the Gulf states as well. During that period, Israel has emerged stronger militarily, but perhaps more isolated than ever politically. Iran's proxy network has been battered and weakened, but it has retained significant leverage over the global economy. And the Gulf, which for so long seemed insulated from turbulence in the Middle East has really lost a lot of that sense of insulation and feels much more at risk than ever before.

4:30When we talk about a place changing, what's changed exactly? One of the things that we've seen break down is any sense of Gulf unity. Saudi Arabia, before October 7th, was moving toward normalization with Israel, perhaps some kind of Abraham Accord style agreement. That really is, for the moment, off the table, given public perceptions in Saudi Arabia elite perceptions of what Israel has done in Gaza, with more than 70 ,000 Palestinians killed and, you know, strikes across the region, including an Israeli strike in Qatar, which was extremely controversial. And the UAE has taken a completely different path.

5:13It's aligned itself much more closely with the United States and with Israel. And we've really seen the region kind of fold into two different opposing camps. That's a profound and I think probably lasting shift. So our colleagues at Bloomberg Economics have kind of analyzed how attitudes and alliances have shifted over 10 countries in the Middle East. From that analysis, two countries emerged with the most strained ties. And I don't think that's going to surprise anybody. We're talking about Iran and Israel. So let's start with Israel. And I wonder, Peter, how you would characterize Israel's position in the Middle East today?

5:48Yeah. You know, I think that Israel has emerged as militarily stronger. It has dealt severe blows to Iran's proxy network across the region. And in the 12-day war and the most recent war with Iran has even been able to strike at Iran's own military capabilities on its home soil. And to do that in lockstep with the United States, which in many ways is the high point of Netanyahu's career, something he's been building toward for 30 years. But at the same time, that's come at a huge diplomatic cost for Israel. The country is arguably more isolated than it's ever been. Its conduct in its war in Gaza has damaged its relationship with Europe, countries across the global south, and much of the Arab world.

6:38regional partners also see Israel differently. So while the United Arab Emirates has kind of doubled down on its close relationship with Israel, Saudi Arabia, the largest player in the region, has really taken pause and found it much more difficult to get closer to the country. And, you know, perhaps most important of all, Israel's longstanding special relationship with Washington has come under strength. Public opinion in the US has shifted quite considerably, especially on the democratic side, but even inside Trump's base. And it's difficult to believe that that doesn't represent quite a profound weakening of Israel's position and its relationship with the U.S.

7:17long term. I want to get more into that contrast that you're laying out between the UAE's approach and Saudi Arabia's approach. So you've talked about sort of the approach that the UAE has taken. What has Saudi Arabia done in kind? How does its approach to Israel and the Middle East more broadly differ from what the UAE's has been? Yeah. You know, before October 7th, it looked like there was something of a unified approach toward Israel developing among the Gulf states. But October 7th really changed everything. For the Saudi public and for Saudi politicians, that approach became untenable as images of, you know, malnourished children, of strikes across Gaza, destruction and rubble across the enclave built up, and the kingdom has moved away from that.

8:08At the same time, the UAE has kind of made the opposite choice. It's deepened intelligence and military cooperation with Israel, and we've really seen the region realign with Saudi Arabia deepening its ties with Egypt, Turkey, Pakistan, and some of its other Gulf neighbors and the UAE really doubling down on its relationship with Israel. I'm reluctant, of course, to talk about Gulf nations as a monolith here. But my sense is there was widespread opposition to the most recent war that we've seen started, that being the US and Israel's attack on Iran. Could you talk a bit about what the direct consequences have been for those nations as a result of that war starting and continuing?

8:50Yeah, I mean, for Gulf nations, it's really taking them to the front and center of Middle Eastern conflict for so long, it looked like they were insulated from the kind of instability that we've seen in the Middle East long term. The UAE has been hit by around 3 ,000 drones and ballistic missiles from Iran. It's seen at least 13 people killed, infrastructure badly damaged. Qatar has had, I think, something like 17 % of its LNG capacity taken offline. Saudi Arabia is a you know as a bigger economy has been a little bit more insulated but has has also been been roiled by the conflict as have Bahrain, Kuwait, Oman.

9:36So it's really been very widespread and very difficult for Gulf states which have long relied on this perception that they were something of an exception in the region as a way to attract investment, expat populations and all that kind of stuff. Coming up, assessing the economic changes and challenges in the Middle East.

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12:45Peter, you've charted the geopolitical fallout from these wars. What about the economic fallout? What have these wars meant to what was or has been a real bright spot in the global economy? Yeah, I mean, so I guess the most immediate impact was on energy inflation. Brent crude rose, I think, 60 plus percent in March to about$118 a barrel. U.S. gasoline prices surged above$4 a gallon. Costs for shipping increased. Costs for insurance of shipping increased significantly. And of course, all of these disruptions have had a global impact. They've hit prices for fuel in Africa, where we've seen protests.

13:31protests they've hit prices for consumers in in europe and the united states and of course they threaten to have an impact on the the midterms in the u.s as well with the potential that this conflict will come back to bite donald trump you've taken me where i want to go next and that is sort of how this is playing out not just in the middle east but but around the world it's had dramatic effect on the relationships between middle eastern nations and many other countries it strikes me in light of what you've just laid out there there has to be a great deal of introspection in Gulf capitals about sort of the relationships they have with other countries around the world, how they get energy out to other parts of the world?

14:07How are they thinking about the future when it comes to their relationship with the wider world? You know, Gulf countries are thinking about how they ensure that this never happens to them again. Saudi Arabia is talking about expanding its east-west pipeline to the Red Sea to try and sidestep its dependence on the of Hormuz. The UAE has said that it wants to completely eliminate its dependence on the strait. So, you know, long term, they're looking to ensure that they can build up that insulation that they want to have. That's not possible for everyone. You know, Qatar is still going to remain dependent on shipping to remove natural gas from the country.

14:43But as far as they can, they're trying to build up resilience. Exactly what the settlement around the Strait of Hormuz looks like at the end of this is still very much an open question. The Amanis have been talking to the Iranians directly about some kind of charge or toll on the strait, which is extraordinary when you think back to before this most recent Iran conflict began, where the status quo was free and open commerce through the strait. That looks like it's now gone forever, and something else will emerge in its place, just underlining really how profound some of these shifts have been since October 7th.

15:22I want to ask you too just about Israel's isolation. We have data about global attitudes towards Israel, how people are feeling about the Israeli government at this moment in time. We've seen more governments criticize the Israeli government. What does its path forward look like vis-a-vis the kind of broader global community? It's really hard to say. Like, that Netanyahu wants to continue strikes against Iran. He's doubled down on the kind of foreign policy approach that has heightened Israel's global sense of isolation, including inside the US. And as long as that is the trajectory of Israeli foreign policy, which emphasizes absolute security, the necessity of reaching far beyond Israel's borders to uphold its sense of security at home, as long as that is the direction that Israeli politicians, Israeli strategists want to take, I think it's super hard to see how it's going to recalibrate relationships with Europe, countries across the global south, and much of the Arab world.

16:26So Peter, this conflict continues, a ceasefire really hasn't held. And because Iran controls the Strait of Hormuz, as you write, it does seem to have the upper hand here over the US when it comes to these negotiations so much as they are continuing. It's fascinating because it's something that we've seen in protracted conflicts with the US again and again. You think back to Vietnam, a much, much weaker adversary managing to gain leverage by understanding what US pain points are. In the case of Vietnam, it was the death of US troops, which turned out to be the Achilles heel of the United States.

17:02And in the case of Iran in this most recent conflict, it's the dependence of the global economy on energy and the leverage that Iran has over the Strait of Hormuz. And Iran famously has a very high pain threshold. It's dealt with sanctions and its political system, even in this most recent conflict with massive American and Israeli strikes on the country, has proved capable of maintaining its position in charge and pushing forward. And it's difficult to see the U.S. matching now. Peter, let me ask you lastly, how permanently transformative have these last few years been? There's nothing more dangerous to ask someone to do than make long-term predictions about the Middle East, but you asked, so I will try.

17:49You know, I do think that there are some sort of themes that are likely to emerge as at least somewhat semi-permanent. So Iran's proxy network is much weaker in the short term, and I think it will be difficult for Iran to rebuild that network in the short term, even as it maintains leverage over the Strait of Hormuz. Israel's isolation, as we discussed, is going to take a long time to reverse and would require changes in Israeli foreign policy, I think, that don't look like they are on the horizon for now. Saudi-Israeli normalization has suffered a huge setback, in large part because of public opinion in the kingdom, that one, I think, could change, I think, in the short term.

18:36And, you know, probably the same with the rift in the Gulf that's emerged between Saudi Arabia and the UAE. Peter, thank you very much. Thank you.

19:02If you liked this episode, make sure to follow and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow.

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