Ziad Daoud Explains How War with Iran Will Reshape the Gulf

23:24Tracy Alloway:And they'll continue to, you know, you mentioned UAE may double down on its U.S. relationship, grit their teeth, continue. Does that create problems though domestically? And even beyond just this war, obviously the war in Gaza, et cetera, does that create domestic stability problems for these countries just in terms of like, why aren't our governments taking a more confrontational stance on this entire issue? I think there's a few things here. I think the first thing is, as you're right to point out, the flare up in the Middle East did not start on February 28th, 2026. The Middle East has been an almost constant state of war, at least since October 2023.

24:06It's just we're feeling it more in the global economy because you have the closure of the Strait of Hormuz and because energy facilities in the Gulf are being hit. Energy is being weaponized now, unlike what was happening before February 28th. I think you're also right that what happened in Gaza has definitely led to a level of anger and fury in the Arab world. That's probably unprecedented. And we've reported on this. My colleagues, Sam Dagger and others, have written about this for Bloomberg. I think the Gulf, though, is sort of different to other states. And the unique thing about the Gulf from the rest of the Middle East, which is why they were insulated from the volatility in the region, is that for the most part, maybe with the exception of Saudi Arabia, these are small countries with small populations.

24:56And at least three of them, Kuwait, the UAE, and Qatar, have enormous hydrocarbon wealth relative to the size of the population. Yeah. And if you have that, then that can lubricate a lot of things and that can calm a lot of things down.

25:13Tracy Alloway:That's a very different condition than, say, Jordan, right? Or Egypt or other places. Yes. That's exactly right. That's the unique thing about the Gulf is the level of wealth. And I think that's another motivation for why they want to diversify away from oil. If in the future, because oil, again, has not just created an economy and petrodollars and sovereign wealth funds and reinvestments into the global economy. It has created a political economy, a social contract and a political system. And a political system that remains calm and stable in the face of a volatile region. And what you want to do is to make sure that you maintain that calm, you have a source of income that maintains that calm and that cohesiveness when oil becomes worthless in the future versus now.

26:05And this is why you have this big push towards diversification. But I think the fact, yeah, the level of wealth versus the size of the population creates different dynamics and tradeoffs versus other bigger countries in the region. Wait, can we go back to the Rex Tillerson ship for a second? Because this is actually a serious question, but Qatar famously doesn't actually pipe anything through the ground. It sends all of its gas out on ships because it distrusts its only land border, which is with Saudi Arabia. When we're talking about physical changes to the Middle East and maybe physical changes in the way that oil actually flows out of the region, could we see a situation where Qatar starts to actually pipe stuff through the ground instead of just ship it out?

26:48Well, I mean, this war has exposed something. A couple of things that are very important. First, that the Middle East, despite the rise of renewables, despite the rise of shale oil in the US, despite the rise of alternative sources of energy, the Middle East is still super important for global energy supplies. And the second thing, most of the energy that comes from the Middle East goes through this small choke point that's called the Strait of Hormuz, which exposes the world because it can cut supply. But also, it's important for these countries to get their oil out and gas out and get their money in so they can sustain their economies and investments and so on.

27:27Now, I think this war has taught us a third thing. If you have a route out of the Strait of Hormuz, you're probably insulated and you are in a better position than otherwise. A route besides the Strait of Hormuz, right? Or an alternative. Yeah. Okay. Yeah. So I think, for example, I think now Saudi Arabia is probably making more money out of oil exports compared to the pre-war period simply because they have that pipeline that goes from the east of the country to the Red Sea. If you think about it, just simple maths, you know, Saudi Arabia exports 30 % less now, but oil prices are up by a lot more.

28:03So if you take sort of that back of the envelope calculation, that tells you Saudi is probably making more income out of its oil exports despite what is going on in the region. Obviously, like there are threats that this pipeline could be attacked and the port in the Red Sea could be attacked. But as things stand, it's probably making more money now than it did before the war. So if you're Saudi, if you're the UAE, and you have this alternative roost to Hormuz, it's probably one of the better investments that you've made over the past few decades, and it's paying off now. You know, geography is kind to you, because you can do this unilaterally.

28:34You can just have a pipeline from Abu Dhabi to Fujairah. You don't need to go through other countries. You can have a pipeline from the east of Saudi Arabia to the west of Saudi Arabia. It doesn't have to go through other countries. Other nations don't have that sort of geographical dividend. If you're Kuwait, if you're Bahrain, if you're Qatar, you have to do it through other countries Qatar has only one land border which is Saudi Arabia so if they want to have an alternative to having a Ritz-Ellerson LNG tanker or other tankers then have to do a pipeline and the pipeline will probably go through Saudi Arabia I'm not an expert enough I don't know if they could go an underground pipeline to Iran or all the way I don't know to Kuwait via Iraq but I think the most feasible thing is via Saudi Arabia is that going to happen?

29:19I don't know. Let's see. I don't know. I'm 50-50 on that.

29:23Tracy Alloway:Globalization is so beautiful because I'm just sorry. I'm reading about the Rex Tillerson more. So first of all, it's the first conventional size LNG carrier, the first sort of mod that the country had. The naming ceremony, though, was held at the Hudong Zhonghua shipyard in China, which, of course, is where it was built. It's just so beautiful. Was Rex Tillerson there? I don't know. I hope he got to smash the glass or smash the champagne glass. Is that still an active tanker? Yeah, it is because I'm looking at marinetraffic.com. It's kind of near the Gulf of Mexico right now, it looks like. I don't know what it's doing there.

30:01Tracy Alloway:But yeah, maybe it's leaving the port of Houston or something like that. Better than being stuck in the Gulf. Yeah, yeah. It's not stuck. Actually, that was one of the interesting things that we talked about in our episode with Bob Brackett, which is that actually a lot of the Qatar's LNG revenue right now is from exports from the port of Houston because it's involved in the investment there, etc. So let's talk about, so we mentioned one of the topics that we've discussed is just like the phenomenon, the global phenomenon known as Dubai. Oh, I'm so sorry. I'm Googling the Rex Tillerson stuff. And I just learned that Rex Tillerson is not the only American official to have an energy carrier named after them.

30:46Guess what the other one is? Okay, Chevron once named an oil tanker the Condoleezza Rice. That's great.

30:53Tracy Alloway:I love that. But let's talk about the phenomenon known as Dubai and all around the world. If you're an influencer and you're good looking and you like to post selfies or you made a bunch of money in crypto and you don't really have anything to do. It's like, OK, like I know there's more of the Dubai economy than that. I'm being a little bit facetious, etc. But does this change the trajectory at all? Or from your view, given the relative, I don't know, that basically the trends of people who are looking for a very stable place with low taxes and wonderful weather, etc. Will that trend continue in the same way that it had been?

31:34So let me just tell you something about the Dubai attractiveness. Yeah. Every time I came to London, and obviously our Bloomberg offices in the city, and I saw old friends. Seriously, every time people ask me, how can we move to the Middle East and how can we move to Dubai? And these people have no links to the Middle East.

31:50Tracy Alloway:That's incredible. I think it's... And let me just give you another example, actually. In late 2024, I took a sabbatical from Bloomberg and I was teaching at Harvard. And 20 % of my office hour was people asking me how to get jobs in the Middle East. That's incredible. Wait, were these Americans asking you? Mixed, yeah. So it's not just influencers and pretty people. It's like a lot of brainy people also wanted to move there. I feel like for as much as we know about everyone who has moved to Dubai, it actually remains perhaps an even underreported story of this sort of exit loyalty and voice. The exit part, people wanting to get out of what they see as crumbling, high-tech, unsafe Western world where democracy.

32:28Yeah, I think what it offers you, and this is why, so I think there's two sides to this. I think there are people who live there. I haven't heard a single person saying, I want to move out of Dubai permanently as a result of this war. Some people have relocated temporarily. I think some people on the margin might decide to leave, but I haven't heard that yet. And I think what it offers you is obviously like incredible safety. It's well connected. The weather is good, six months of the year. and obviously for a lot of people taxes is just like zero taxes is appealing and if you're on the right i wouldn't say you right extreme of the income distribution but if you're on the right of the right half of the income distribution yeah it's actually a nice life so i think people who live there i think they're going to prove to be stickier than we think yeah i think where there will be probably challenge is that the questions i've been getting about can you know how can i and move to Dubai and how can I get there?

33:24They might become fewer as this war develops and it depends on how long this war lasts. I think there's something else that happened in Dubai why its attractiveness increased after the pandemic is that you have the network effect. People have their friends moved to Dubai. Sure, yeah. They thought, oh, you know what? The weather is good. Taxes are really, really zero and life is nice and you get all the support that's on the XREN. Things are convenient. And then people had a network of friends that are already there and they're willing to move there and live there. So I think that's the element of it.

33:56I think, yeah. So I think in terms of the long-term aspect of it, I think people who live there are probably going to prove stickier than we think. The attraction of new people is probably going to ease on the margin. But again, there was a whole long queue of people who wanted to move there and probably, yeah, that might slow a bit, but probably not significant. I think the other thing with Dubai is, I know this war is different because it's hitting it directly, but it did benefit from previous wars. Money did tend to move to Dubai as a result of conflicts, whether it's in the Middle East or even in the case, for example, of Russia, Ukraine, where we saw a lot of money going into Dubai.

34:36We saw the pandemic was beneficial to Dubai. A lot of Brits moved to Dubai as a result of that. And, you know, that's one of the reasons why the real estate market has taken off since 2020.

34:45Tracy Alloway:Just one related question on this. how can I move to Dubai? Ask Tracy. She was there for a few years. What do I have to do? No, but for real, what are the basics? First of all, you'll still be paying taxes, Joe, as an American citizen. Oh, yeah, right. So forget about that.

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37:40Do that. Do that. Do that with Acrobat. Learn more at adobe.com slash do that with Acrobat. Can we do like local economics in Dubai for a second? Because if I go on some of the message boards, and again, I think like one important thing to recognize here is that social media in the UAE can be fairly controlled. I see a lot of posts right now about like, I just lost my job. I need to leave the country. I'm taking out a new credit card in order to buy my flight out of Dubai, which might be a little bit extreme. But just from an economic perspective, like how many jobs do we expect to be available locally in Dubai, given some of the pressures that we're seeing?

38:21On your questions, Tracy, I think it depends on the duration of war. If the war ends tomorrow, or if even it continues at a lower intensity where you have some ships going through the Strait of Hormuz, where the attacks on Dubai ease a bit and the UAE in general and the Gulf in general, that is a very different world from if the war continues until, I don't know, June or July or August for six months. So I think the economic impact depends on the duration of war. And that is a big uncertain aspect. On your question, Joe, who's moving to Dubai? A lot of hedge funds and asset managers are actually moving to the UAE.

39:03A lot. So the people that move are there. And then you have the sort of the supporting environment that supports these companies. Every company that, where we are in Dubai, for example, we're in the Dubai International Financial Center. And that has grown significantly since the pandemic. They're doing a new expansion and offices are full. And even our Bloomberg office, we expanded into a new floor in Dubai. Actually, that reminds me, since we're talking about the DIFC, you know, I mentioned in the intro, there is this huge capital component in the Gulf region. There's a lot of money there and it tends to flow outward into other things.

39:39Talk to us about how you anticipate changes to some of those capital flows as perhaps some of the oil money is reduced, although I take your point that Saudi Arabia might be making more than ever. Would you still expect that outward flow? Or would you maybe expect some of the Gulf countries to have to start directing it more inward to maybe rebuild the infrastructure that they've lost? So a few things. I think society is not making more money than ever. It's just making more money than when oil was at$65 per barrel. Sure, sure. Oh, yes, of course. Yes. Yeah. In terms of the direction of capital, and you're right, I think the way I think about the Gulf is that the Gulf supplies the world with three inputs.

40:16It supplies it with energy. It supplies it with capital and supplies it with trade routes, and all three are being hit by the current war. And it gets from the world three prices. It gets the price of interest rates because they have pecs to the dollar. It gets the price of the dollar, exchange rate, and it gets the price of oil. It doesn't determine the price of oil. That comes from the global economy. In terms of direction of capital, I think the answer for me is fairly clear. The direction is going to go down. And it's going to go down because you're having the interruptions to oil exports because that source of capital is that you export oil and gas, you get the income, you spend some of it domestically, and then the surplus you invest abroad.

40:56I think the second thing, the defense spending will go up. One, because they need to replenish on the defense systems that they've been using over the past six weeks. And second, because they're realizing that the world is a far more dangerous place than it was six weeks ago. Iran is more dangerous. Israel is more expansionist. And then you have these non-state actors, Iraqi militant groups, Houthis in Yemen. I think this conflict would probably create new groups that we haven't heard about before, and they are a threat. So I think they'll be spending more on defense. and that if you spend more on defense and if your income is lower, that necessarily means that what you send to the world in terms of capital exports will come down.

41:39And that is important. That is important not just for English football clubs and, I don't know, real estate in London or in Egypt or Turkish bank deposits or tech companies. You guys hosted my colleagues, Tom Olick and Jamie Rush, on the book that Bloomberg Economics wrote on the price of money. We had a chapter on that, on petrodollars and how petrodollars actually suppressed long-term interest rates in the U.S. Okay, it was 25 basis points, but given the size of the U.S. economy and the size of its debt, that's still tens of billions of dollars every year. If there's less flow into there, that will affect not just these smaller markets, but also the deepest market in the world, which is the U.S.

42:23treasuries.

42:23Tracy Alloway:So you mentioned something there that I thought was important. Okay, one effect is going to be likely an increase in military spending for obvious reasons. Setting aside the fact that we don't know how or when this war is going to end, that's something we haven't really talked about yet, but setting aside that we don't know how this is going to end, it may emerge, and right now many people probably say this is likely, that at the end of this war, our estimation of Iran as a major power will have increased. It may be a toll collector for the Strait of Hormuz going forward. It is established that the government is actually quite strong.

43:02Tracy Alloway:Several months ago, maybe people thought it was teetering on the edge. It may turn out that actually this strengthens the IRGC and the stability of the existing regime. It's established that it has a military that can, to some extent, withstand the full might or at least the partial might of the United States. How does that change the region that, okay, everyone's view of Iran as a sovereign security state has to rise or seems very likely to rise as a result of this war? I think there's a couple of things to mention here. The first thing is, as far as Iran is concerned, I think this last past six weeks have taught us something.

43:43And I keep saying things taught us something, but we keep learning from what is happening now. And that's basically, if you have clear and achievable goals, you can punch above your weight. Iran had just basically two simple goals because they were completely cornered, which is basically survival of the system and deterrence so that they don't get attacked again in a few months. And they thought they could achieve this. So it's very, very clear goals, very existential. They thought they could achieve this by imposing costs on their neighbors by hitting the Gulf, on the global economy by hitting the Gulf and closing the Strait of Hormuz and hitting energy facilities.

44:21Israel had a clear goal, but it probably wasn't achievable, which is regime change in Iran. And the U.S. is just confusing what they're doing in terms of this war. There's no clear or well-articulated goal for this current war. And I think that's why Iran is punching above its weight. What does that mean? I don't know if Iran is going to emerge as a power, but given that it's punching above its weight, given that it's controlling the Strait of Hormuz, given that it actually has discovered that the way to pressure the US and Israel is by imposing costs on the global economy via attacking the Gulf, that's not a safe world that the Gulf want to be in.

45:01And I think for the Gulf, they're thinking now about, you know, given that, because even if this current system in Iran does not survive and we have a new system, you know, they've learned the same lesson, which is basically if you get attacked, if you're cornered, this is how you get out of it. By closing the Strait of Hormuz and by attacking the Gulf. For the Gulf, that's a challenge and that's a challenge that they need to address and think about because they haven't faced that sort of threat before. Can I ask one more question, which is you mentioned the expansion of the Dubai Financial Center, DIFC 2.0.

45:37And I'm looking at some of the mockups for it. It's supposed to be completed in 2040. But all of the mockups, very beautiful, lots of shiny glass buildings. And when I'm thinking about potential changes from the Iran war, one very visible one would be, well, maybe there aren't as many very tall glass buildings in places like Dubai that can end up getting damaged by drones. Like, would you expect an actual physical change to the city's architecture as a result of this? So this is where I think also the war would hit like unexpected corners beyond, you know, defense and relationship with the US and the Strait of Hormuz.

46:16It's also architecture. You know, there's a lot of building that's taking place and all these cities in the Gulf are growing. The problem is that when you were in Dubai, you know, living on the 20th floor and you get the alert saying, you know, it's under attack. Stay away. Don't go out and stay away from windows. You know, your place is floor to ceiling of windows. It's all windows. You have to go down into the car park where there's no air conditioning. Some people did. Some people did. And it's also, I don't know if it's safe to be next to cars or inside cars. So they might be rethinking about this.

46:49They might be rethinking. You know, this is what wars do. They change a lot of things and a lot of perspectives on things. And that goes into corners that we didn't think about before, including architecture. I always think the example of Kuwait is a clear one. Kuwait in 1990 or before 1990, relative to its neighbors, it was fairly advanced. You know, it had culture. It was an open society. It had a participatory political system, at times a parliament that was quite loud and vocal. Infrastructure was modern. And all of a sudden, Iraqi tanks roll in. There was an Iraqi invasion of Kuwait in 1990, and things changed in Kuwait.

47:27And the big thing that happened there is that they started investing less at home and sending most of their wealth abroad. And over decades, that means deteriorated infrastructure. If you think about Kuwait, there's a couple of news items recently that Kuwait might have power cuts, which for an oil powerhouse, one of the most richest countries in the region, and one of the hottest countries in the world, to have power cuts is strange. But you can trace what is happening there in terms of the electricity shortages. in Kuwait in 2026 to an event that happened in 1990. Wow. So, yeah, it may not be the same lesson everywhere else, but I think the lessons will be deep and broad, and they'll go to unexpected corners, including architecture trees.

48:14All right, Zia Daud, thank you so much for coming back on All Thoughts. Truly the perfect guest to walk us through all of this. Really appreciate it. Thank you for having me.

48:34Joe, that was a great conversation. Yeah. As always, truly the perfect guest. There's so many things that stuck out at me, but I think his last comment about how war, you know, kind of unfolds and changes things in unexpected ways was very interesting. And the Kuwait example he cited was very compelling.

48:53Tracy Alloway:No, that's fascinating. I would have had no idea. And I'm reading this right now. Kuwait here is this energy powerhouse and Kuwait schedules electricity cuts to do maintenance and that the lack of maintenance that had happened due to domestic infrastructure can be traced to fiscal priorities in the wake of a war that happened over 35 years ago. It's really, wow. Yeah. I mean, like, yeah, I wouldn't have thought about that, but it's obvious. And so this is going to reshape the region, obviously, in ways we can't anticipate. I thought it was very ominous that when he was talking about various non-state actors, he mentioned including non-state actors we've never heard of that will now get stronger or that will emerge out of this.

49:36Tracy Alloway:So again, even if, you know, we look at our screens and the market's back and maybe hopefully, you know, maybe the ceasefire will hold longer or the ceasefire will turn into the end of the war, et cetera. It seems obvious there's going to be major ramification. Yeah. The other thing that stood out to me was the short comment about petrodollars, which is really what we mean when we're talking about capital emanating from the Gulf. And I think like to some extent that hasn't really been appreciated yet. If you think that these Gulf economies are maybe going to have to rebuild infrastructure that was damaged, if you think they're going to have to build new infrastructure as a result of nervousness around what happens with the Strait of Hormuz in the future, if you think that maybe they have to do stimulus for their local economies because of job losses, it just feels like there's going to be potentially a lot less money circulating in the global economy.

50:27Yeah.

50:28Tracy Alloway:And then another way to think about it, too, is that we're already in a period of resource constraints. And so just like the rebuilding of various infrastructure. In fact, and I don't know that, you know, one of the facilities that was hit, I think there was a basic issue, which is that they need natural gas turbines. And we know that natural gas turbines are among the scarcest thing in the world right now due to the AI data center build out. And so here you have even further strain and demand being placed on the sort of physical building blocks of the modern world at a time when they were already very tight.

51:04Yeah, it feels very inflationary. Yeah, exactly. All right. Shall we leave it there?

51:09Tracy Alloway:Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracey Alloway. You can follow me at Tracey Alloway. And I'm Joe Weisenthal. You can follow me at The Stalwart. Follow our guest Ziad Dawood. He's at Ziad M. Dawood. Follow our producers, Carmen Rodriguez at CarmenArmandDashelBennett at Dashbot and KaleBrooks at KaleBrooks. And for more OddLots content, go to Bloomberg.com slash OddLots with the daily newsletter and all of our episodes. And you can chat about all of these topics 24-7 in our Discord, discord.gg slash OddLots. And if you enjoy OddLots, if you like it when we talk about the Gulf region, then please leave us a positive review on your favorite podcast platform.

51:47And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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