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Iran-Israel war reshapes Middle East, leaves Gulf economies and regional security under strain

In Lebanon, Israel has inflicted heavy losses on Hezbollah and carved out a buffer zone in Lebanese territory - a strategy it believes vital to protect its borders but that may lead to an indefinite occupation with little prospect of long-term peace

Smoke rises following an Israeli strike in Kfar Tebnit, Lebanon, May 12, 2026. Reuters

Reuters
Published 13.05.26, 09:59 PM

The war that began on February 28 with a massive Israeli-U.S. bombing campaign against Iran has rocked the entire Middle East, wreaking damage to infrastructure and economies and overturning settled assumptions about regional security.

On a second major front, Israel launched a ground invasion and bombing campaign of Lebanon in March in pursuit of Hezbollah fighters after the armed group fired across the border in solidarity with Iran.

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This is how some countries have been impacted:

Iran

The strikes killed Supreme Leader Ayatollah Ali Khamenei and a host of top officials and generals but the ruling system looks as entrenched as ever, with Khamenei's son replacing him and the Revolutionary Guards more powerful than before.

Thousands of Iranians were killed in six weeks of relentless U.S.-Israeli airstrikes, including scores of children in a school hit on the war's first day.

Though the war began only weeks after the authorities killed thousands of demonstrators to put down a popular uprising, there has been little sign since of organised domestic opposition.

Iran's closure of the Strait of Hormuz has proven effective and a potential deterrent to more attacks. Iran is still believed to possess more than 400 kg (900 pounds) of highly enriched uranium that the United States has demanded it relinquish.

However, U.S.-Israeli strikes and the blockade of Iranian ports have caused massive damage, risking disaster for Iran's economy and the prospect of further internal unrest.

Iran's attacks on Gulf states and Israel's continued assault on Lebanon's Hezbollah may also leave Tehran more isolated in the wider region.

Israel

Israel's military scored repeated successes in targeting top Iranian commanders and military facilities, and in shooting down most incoming Iranian missiles, though some did get through.

However, the original war aims are far from complete, with the Islamic Republic still standing, its long-range ballistic missile and drone arsenals still a threat to Israel and its nuclear programme salvageable.

In Lebanon, Israel has inflicted heavy losses on Hezbollah and carved out a buffer zone in Lebanese territory - a strategy it believes vital to protect its borders but that may lead to an indefinite occupation with little prospect of long-term peace.

Coming after international criticism of the devastating Gaza conflict, Israel's decision to launch a war that has hit the global economy may risk damaging ties with key allies in the West.

Lebanon

With thousands killed, Lebanon has suffered more damage and greater losses than any other country. Israel's assault initially drove a quarter of the population from their homes, and although some have been able to return, swathes of the south remain depopulated and in Israeli hands.

Despite a ceasefire agreed in April, Israel continues to conduct airstrikes across Lebanon. Whole villages in the south have been demolished by Israeli invaders.

The United States and Israel have applied increasing pressure on the government to disarm the Iran-backed Hezbollah - a move that could exacerbate sectarian rifts in a country still deeply scarred by the 1975-90 civil war. The group has deep roots among Lebanon's Shi'ite Muslims, while some members of other communities resent it for drawing the country back into war.

United Arab Emirates

Iran's strikes on Gulf states in response to the U.S.-Israeli attacks have targeted the UAE more than its neighbours, hitting civilian infrastructure and energy facilities.

The UAE has responded by doubling down on its ties with the United States and with Israel, with which it normalised relations in the 2020 Abraham Accords. It has pushed for a tough line in any peace negotiations with Iran.

Unlike several Gulf peers, the UAE has a pipeline that allows it to divert some oil exports around the blockaded Strait of Hormuz, making it more able to withstand prolonged disruption. But the war risks severely damaging its role as a global economic center that offers security and ease in the region.

Saudi Arabia

The largest, richest and most powerful of the Gulf monarchies, Saudi Arabia has a pipeline that lets it export much of its oil from the Red Sea, allowing it to benefit from high prices and offset the loss of shipments blocked in the Strait of Hormuz.

Still, the long-term economic damage from the war could further undermine the ultra-ambitious Vision 2030 economic plans that represent Crown Prince Mohammed bin Salman's biggest priority, but which have increasingly been scaled back.

In the longer term, the war has raised questions over Riyadh's entire approach to foreign and security policy, including its decades of reliance on its top military ally the United States, and a 2023 detente with Iran.

Qatar

Despite having built bridges with Tehran, Qatar has no export route around the strait and has had to shut down production of the liquefied natural gas that is its main source of wealth. After Israel struck Iranian energy targets, Qatar suffered one of the most damaging Iranian attacks in response, hitting its North Field gas facilities, which will require years of work to repair.

Like other Gulf states, the country that hosts the biggest U.S. air base in the Middle East will face a quandary over regional security policy once the dust settles, especially if Iran seeks to prolong its control over the Strait of Hormuz.

Yemen

The Iran-aligned Houthi group that controls Yemen's capital and most populous areas almost entirely stayed out of the conflict, despite fears that it could amplify Iran's closure of the Strait of Hormuz by firing on shipping in the mouth of the Red Sea - the region's other maritime chokepoint.

The reason for the Houthis' comparative restraint has not been spelled out, and its stance could change. However, it is less close to Iran than Lebanon's Hezbollah, and it appears focused on a ceasefire in Yemen's long civil war with factions supported by former arch foe Saudi Arabia.

Iraq

While physical damage has been limited, despite attacks on Iraqi oil projects, the economic impact will be grim - with most oil exports that represent nearly all government income cut off by the closure of the Strait of Hormuz.

Since its Shi'ite-dominated government was installed after a U.S.-led invasion in 2003, Iraq has trod a tricky path as the only country in the region that is so closely aligned with both the United States and Iran.

The war has made managing these relationships far more difficult, with Baghdad increasingly under pressure from Washington to clamp down on powerful Iran-backed militia groups that have grown more assertive.

Kuwait

Another rich energy producer with no route out of the Gulf apart from the Strait of Hormuz, Kuwait has seen its export revenues reduced to near zero. Though it has not historically been as assertive in geopolitics as Saudi Arabia, the UAE or Qatar, it has as much to lose as any country from prolonged disruption.

West Asia At War Hezbollah Iran War
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