As is the case with any American conflict that lasts longer than planned, an increasing number of commentators are comparing the Iran war with Vietnam.
The scale of the wars is vastly different in terms of deaths, time, and military costs, not to mention political ramifications as Vietnam consumed two presidencies, while the Iran war’s impact on this year’s midterm elections is still unknown. What the analogy does underscore is the question of cost and duration: who ends up paying for the war, and for how long after the intensive missiles and strikes stop.
But the war does not need to become “another Vietnam” politically to leave behind a quagmire. The quagmire is economic, and it lands at the doorstep of Gulf countries—a group of states that did not necessarily choose this war, will not vote on it, and will carry its costs on their balance sheets long after the war ends.
Five costs are compounding across the Gulf and its trading partners, and none will be eliminated on the timeline that policymakers have in mind.
1. Energy
The closure of the Strait of Hormuz pushed the Brent oil price to nearly $120 per barrel in April, with many Asian importing economies rationing fuel by the second week of the conflict. Sri Lanka and Pakistan introduced a four-day work week, while Bangladesh brought forward university and Ramadan holidays. Those are pass-through costs to consumers, felt through prices and will ease over time. The Gulf’s costs are capitalized as the region has to pay to rebuild damaged energy assets and invest in both refurbishing existing logistics (in the short term) alongside investing in alternative export routes (over the long term) to ensure long-term security.
Today, the strait exists somewhere in between open and closed: the United States says the waterway is open, Iran says it is shut, and traffic is a fraction of pre-conflict levels. Only five commodity vessels transited the strait on August 25. Houthi threats and attacks in the Bab el-Mandeb strait suggest the region’s second chokepoint is now in play.
Disruption in the Strait of Hormuz has forced Gulf countries to fall back on secondary transport options, including pipelines such as Saudi Arabia’s East-West pipeline and, in some cases, trucks, to maintain energy flows. Having two of the world’s critical maritime corridors squeezed at the same time will force Gulf countries and their trading partners to treat the situation less as a temporary shock than as a feature of the new operating environment—and to invest accordingly. That means capital committed to pipeline capacity, storage, and export terminals sitting outside the strait. The Gulf’s constraint today is not producing energy; it is moving it. Until the capital is invested, direct energy costs, along with indirect ones such as transport and insurance, will not return to pre-conflict levels.
2. Reconstruction
Iranian strikes and proxy attacks have simultaneously damaged energy and water infrastructure across the region, creating a multiyear capital expenditure overhang that will have to be addressed immediately after any peace agreement, or even during a sustained ceasefire.
The situation bears no resemblance to the post-conflict reconstruction the region has managed before, when damage in one country could be absorbed in the short term by a neighbor’s capacity or resources. This time, simultaneous reconstruction will create competing demand for the same pool of private capital.
Gulf sovereigns will accordingly have to fund a substantial share directly. They have a large pool of sovereign assets—estimated at about six trillion dollars—to draw from. Those assets, however, are not all cash, meaning private and institutional investors will be called upon precisely as they are repricing their exposure to the region. Views on cost of capital, investment timelines, and geopolitical risk are becoming more reactive to events on the ground, with investors reading the news and the political tweets and checking air traffic for missiles and drones on a daily basis.
3. Tourism
This cost is the least visible in capital markets but perhaps the easiest to see when boarding a weekend flight or leaving the region’s more popular hotspots at night: Tourism and business traffic have slowed materially. For example, Dubai hotel occupancy fell from 84.7 percent in February to roughly 22.8 percent by mid-March. It rebounded to 82.2 percent during Eid, and then settled into the high forties through June. Riyadh occupancy fell 17.9 percent, to 49.3 percent. Saudi Arabia’s Vision 2030, the UAE’s positioning as a regional financial headquarters and tourism hub, and Qatar’s post-World Cup strategy all rest on the assumption that people will keep arriving. Yet it is impossible to assess how growth forecasts should change while the conflict continues to fluctuate between military strikes and temporary ceasefires—though it does seem the US has pivoted to mostly economic pressure, for now. The test comes now, at the end of the summer, when residents normally return and the schools refill.
With the conflict still ongoing, that lull could drag well into the fall, with some residents remaining abroad where their jobs and family circumstances allow. Visitor confidence is harder to rebuild than any damaged airport terminal. If it does not recover, the Gulf will have less revenue to help cover the reconstruction bill above.
4. Capital
This cost is worth assessing in three ways. First, it has moved, though not where you would look first. Gulf governments have kept borrowing through the conflict, their spreads have not significantly widened, and access to international markets remains intact. For example, Bahrain raised one billion dollars of ten-year notes on June 4 at a yield of 7.125 percent, slightly above the yield of 7.1 percent paid on twelve-year notes raised a month before the war. The cost has landed instead on issuers without a sovereign balance sheet behind them. Corporate sukuk and initial public offering issuances have largely paused. There were forty-four new offerings last year on the Saudi exchange, and just eight so far this year. Private placements are still happening for the strongest corporates as an alternative to public issuances, but at nowhere near the levels projected before the conflict. For second-tier corporates, the capital window has narrowed sharply.
Second, private investors are repricing regional risk daily amid the sporadic opening and closing of the Strait of Hormuz and continuing missile and drone attacks. Many investment committees still refuse to consider equity and debt opportunities in the region at all. For those still open for business, term sheet approvals are taking longer and generally demand higher interest rates and tighter covenant terms to compensate for greater downside risk. In my own advisory work in the region, the shift shows up with an uplift in pricing, potential covenants, and a decrease in the number of lenders willing to participate in Gulf deals.
Third, insurance premiums remain elevated, particularly for transit through the Strait of Hormuz, while air travel by carriers outside the region is largely at a standstill. This is, in part, an external shock being absorbed into market pricing globally in the short term. While the world pays the “risk” tax once, the Gulf arguably pays twice—first on everything it ships out of the region, then on everything it imports. If geopolitical disruption becomes a permanent feature of how the region is price, the risk-adjusted cost of capital could remain elevated for far longer, particularly if new transport routes for energy and other resources have to be bought, built, or expanded.
5. The “uncertainty” premium
The lack of a timeline for a “return to normal,” coupled with an inability to define the “new normal,” has created an environment of uncertainty, which comes with its own cost. Markets can price risk—capital, operational, or otherwise—because risk carries probabilities. Markets cannot price uncertainty, because the probabilities are unknown, or even unbounded, depending on whom you ask. That is itself a cost, which is observable in two ways, with either an “uncertainty” premium applied to pricing or delays due to indecision because the range of outcomes appear unbounded. In transport, for example, the direction of travel is clearly away from dependence on the Strait of Hormuz, but the destination remains only partially defined, especially if the Bab el-Mandeb strait stays at risk.
Gulf states are already rewriting plans and have demonstrated an ability to move quickly during the conflict. Even so, they will have to grapple with the practical challenge of showing markets what the region’s new economic future looks like, where opportunities for foreign investment lie, and how investors can again deploy financial and operational resources at speed.
Military conflicts end on political timelines. Economies, and capital, move at a different pace. The question for the Gulf is how quickly the region can define and adjust to a new normal before the economic aftermath becomes its own kind of Vietnam: the defining legacy of a conflict that ran too long.
Kurt Davis Jr. is a nonresident senior fellow at the Atlantic Council’s Scowcroft Middle East Security Initiative.
Further reading
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Image: A firefighter works in the aftermath of Iranian drone attacks, according to Bahrain's Interior Ministry, at a location given as Bahrain, in this handout image released on June 11, 2026. Ministry of Interior of the Kingdom of Bahrain/Handout via REUTERS