US Allies in Persian Gulf Exasperated as Iran War Escalates

**SPEAKER_1** (0:02)
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This is Bloomberg Businessweek Daily, reporting from the magazine that helps global leaders stay ahead, with insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Businessweek Daily podcast with Carol Massar and Tim Stenovec. On Bloomberg Radio.

**Carol Massar** (0:32)
All right. Another geopolitical event still ongoing, and that is the US war with Iran. Most read story on the Bloomberg today. Washington's Gulf Arab allies are increasingly frustrated as hostilities between the US and Iran intensified, jeopardizing their national security and economies. It doesn't sound like this war is scaling down at all. It just feels like it's scaling up.

**Tim Stenovec** (0:54)
Yeah. Some officials believe President Trump should escalate military operations. Others though, such as Qatar, want to see immediate de-escalation and prevent the fighting from worsening. It's thrown uncertainty in the near-term business future of the region. The main economic powers, UAE, Saudi Arabia, Qatar, as I mentioned, seeing regional stability is crucial to their goal of diversifying into sectors such as AI and tourism.

**Carol Massar** (1:15)
Then there are the dire straits. Our team writing about this as the war in the Strait of Hormuz, shots fired in the English Channel and super-powered tussles over the Panama Canal underscore how exposed key maritime channels are to geopolitical disruption, which is kind of where we wanted to go. It's not great. Back with us with an update. We head to our Bloomberg News, Washington, DC. Bureau to our own Jennifer Welch. She is Bloomberg Economics Chief Geoeconomics Analyst.
Jenny, it feels like things are getting worse, not better. How would you characterize it?

**Jennifer Welch** (1:48)
I think that's absolutely the case. And in fact, we may be seeing an even worsening of the situation beyond the early days of Epic Fury with the Houthis now threatening to shut down shipping in the Red Sea, which had been a source of diversion, especially for Saudi oil that was otherwise stuck in the Strait of Hormuz. So I think the situation certainly looks dire and like it could get much worse in the days ahead.

**Tim Stenovec** (2:10)
Jenny, we had a guest on last week who made me think differently about the power that Iran has over the Strait of Hormuz. The guest argued in the short term, the country absolutely has power. But in the medium to long term, we're talking five years here, the other countries that rely on the Strait are going to start making big changes, like new pipelines, new ports in other places, and like literal infrastructure changes to lessen the entire globe's reliance on the Strait. I'm curious about your view there and to what extent you think Iran's power is over the Strait in the medium to longer term.

**Jennifer Welch** (2:46)
I think that's absolutely right. And I think Tehran is very cognizant of that. And that's part of the reason why it's really holding on to this current leverage over the Strait of Hormuz. They recognize that to a certain extent, it's perishable.
I do think that other countries, and we've already seen this in recent weeks and months, are investing in those alternative pathways. The challenge is that those aren't without risk as well. And in particular, when we think about other actors like the Houthis and their ability to pose physical risk to, for example, pipelines, that doesn't mean that those alternative pathways are going to be always reliable. And then looking beyond the region, when you think about how other economies are responding to the situation, how they are going to be divesting and investing in alternative energy supplies, they're also balancing risks there as well. Because yes, they might be over reliant on the Middle East for traditional energy supplies, but there are other countries like China that are heavily dominant in, you could say, exercise a chokehold over renewable energy supplies. And that's going to be a balance that a lot of countries are working through at the moment.

**Carol Massar** (3:51)
We have a chart up and unfortunately for those folks on radio can't see it, but it's about the Bab-El-Mandeb. It's a straight major global choke point between Yemen on the Arabian Peninsula. And so it connects the Red Sea to the Gulf of Aden and the Indian Ocean. What's interesting is we're seeing traffic easing if we look at all of these lines. That's the basic point. But Jenny, initially we had said, okay, straight of Hormuz, people are figuring workarounds. But those workarounds are now becoming targeted.
You know, so Iran understands this. And so I just wonder kind of where this is all going. Is that a sign of escalation? Is it a sign of Iran just looking to put more pressure so that they can kind of bring this to an end? I mean, how do we read the tea leaves on this? Because I just feel like I certainly keep getting them wrong. It just feels like it goes on longer and longer.