Tracy Alloway and Joe Weisenthal speak with Ziad Daoud, Chief Emerging Markets Economist at Bloomberg Economics, about how the recent Iran-Israel conflict has fundamentally altered the Gulf region's trajectory.

The conversation explores how Gulf states that built their modern economies around energy exports, capital flows, luxury living standards, and trade routes now face an existential challenge to this model.

Daoud, who lives in Dubai and witnessed the attacks firsthand, discusses the disappointment of Gulf leaders who courted Trump extensively but still got drawn into regional war, the economic implications of reduced petrodollar flows, and unexpected consequences like changes to urban architecture.

The discussion covers intra-Gulf competition as countries pursue identical diversification strategies, the strategic importance of alternative pipeline routes bypassing the Strait of Hormuz, and how Iran's demonstration of economic warfare tactics will reshape regional security calculations for decades.

Gulf Leaders' Trump Strategy Backfires Spectacularly

Gulf states hosted Trump on his first foreign trip, increased oil output against their economic interests to lower prices, and pledged trillions in investments, all hoping to avoid regional war - "they gave all of this, and I think they wanted one thing, which is basically no regional war" - Ziad

OPEC Plus raised oil output in April 2025, shortly after Trump's inauguration, "far bigger than markets were expecting" and "against probably their economic interests" to please Trump who liked lower oil prices

"When it became a choice between what the Gulf wanted and what Israel wanted, Trump had the clear basically choice which he chose Israel over the Gulf" - Ziad

Iran's Economic Warfare Playbook Reshapes Regional Power

Iran discovered it can "punch above its weight" by having "clear and achievable goals" - system survival and deterrence - achieved by "imposing costs on the neighbors, by hitting the Gulf on the global economy"

"Iran is controlling the Strait of Hormuz" and has learned "the way to pressure the US and Israel is by imposing costs on the global economy via attacking the Gulf" - Ziad

Even if Iran's current system doesn't survive, "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"

Alternative Pipeline Routes Prove Their Strategic Value

Saudi Arabia is "probably making more money out of oil exports compared to the pre-war periods" because it has a pipeline from east to Red Sea, exporting 30% less volume but at much higher prices

Countries with geographical advantages can build unilateral pipeline alternatives - "You can have a pipeline from Abu Dhabi to Fujairah. You don't need to go through other countries"

Qatar faces constraints as it "has only one land border, which is Saudi Arabia" making any pipeline alternative dependent on Saudi cooperation

Identical Diversification Strategies Create Gulf Competition

All Gulf states "went to consultants and asked them, you know, what sectors should we target, and they got the same answer. You should move to petrochemicals, you move up the hydrocarbon value chain. You should be a financial center, a tourism hub, a logistical hub"

"Do you really need multiple mega airports with multiple global airlines? Probably not. Do you need multiple megaports, probably not. You probably need one or two" - Ziad

Tourism cannibalization occurs as "people are not going to come and spend you know, six weeks instead of ten days there. They're going to split that ten days between different countries"

Petrodollar Flows Face Historic Reduction

The Price of Money by Tom Orlik and Jamie Rush documented how "petrodollars actually suppressed long-term interest rates in the US" by "twenty-five basis points" worth "tens of billions of dollars every year"

Capital outflows "are going to go down" because of "interruptions to oil exports" and increased defense spending as Gulf states "need to replenish the defense systems that they've been using over the past six weeks"

"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" affecting global markets including US Treasuries

War's Unexpected Consequences: Architecture and Infrastructure

Dubai's glass towers proved vulnerable when residents received alerts to "stay away from windows" during attacks, forcing people "down into the car park where there's no air conditioning"

Kuwait's current electricity shortages trace to the 1990 Iraqi invasion when "they started investing less at home and sending most of their wealth abroad, and over decades that means deteriorated infrastructure"

"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 shows how war reshapes priorities for decades