A commentator at bne IntelliNews writes:

There is an old saying, attributed to the British Foreign Office in colonial days: “Keep the Persians hungry, and the Arabs fat.” Washington appears to have taken that advice to heart. The trouble is, when the hungry finally have nothing left to lose, it is the fat who pay the price.

There is something darkly rational about Iran’s approach to this war. The Islamic Republic entered the conflict already ruined. Inflation was running above 48% in December 2025. The rial had crossed one million to the dollar in March 2025 and hit 1.75mn by December, making it the least valuable currency on earth. The IMF projected real GDP growth of just 0.3% for 2025, revised down from 3% only two years earlier. The government’s own budget commission put the deficit at 1,800 trillion toman. Seven million Iranians were going hungry. Meat had become a luxury. Half the country’s industry had stopped because of rolling blackouts.

You cannot bankrupt a country that is already bankrupt. That is the perverse advantage Tehran holds.

US sanctions had already severed Iran from the global financial system long before the first cruise missile hit. Oil exports, which the budget assumed at 1.85mn barrels per day at $67 a barrel, were running closer to 1.1mn bpd according to IMF estimates. Capital flight reached $14bn in the last nine months of 2024 alone, on top of $20bn the year before. The central bank reported a net capital account of negative $21.7bn for the last fiscal year – the worst on record. The IMF calculated that Iran would need oil at $163 a barrel just to balance its 2025 budget. That figure belongs in the realm of fantasy.

So when US-Israeli strikes hit on February 28, Iran’s economy was already in what the Clingendael Institute called a position approaching the precipice. The war made things worse, but not in the way wars normally do. Iran was not knocked off a ledge. It was already at the bottom. The country’s nominal GDP had dropped below $400bn. Sanctions, corruption, energy shortages and decades of mismanagement had already done the damage. Analysts at Eye for Iran noted that Tehran exited 2025 “battered yet still standing”, interpreting survival as grounds for taking greater risks in 2026.

The Persian Gulf Arab states, by contrast, entered this war from a position of apparent strength – and that is precisely their vulnerability.

Saudi Arabia’s Public Investment Fund held $941bn in assets. The UAE’s sovereign wealth funds collectively managed over $1.5 trillion. Qatar had spent decades building itself into the world’s largest LNG exporter. Dubai International Airport handled 95.2mn passengers in 2025. These economies were wired into every artery of global finance: US Treasury bonds, Silicon Valley venture capital, London real estate, European football clubs. Gulf sovereign wealth funds collectively held over $2 trillion in US assets alone.

That connectivity is now their Achilles heel. [Continue reading…]