By Jamal Ibrahim Haidar & Adeel Malik
For decades, the Gulf Cooperation Council (GCC) countries have exported oil and recycled petrodollars through Western markets and received military protection from the United States. This arrangement has often been described as a strategic alliance.
The US-Israeli war with Iran has exposed the inherent fragility of this model and called into question the credibility of the entire deterrence architecture. Despite the massive US military presence in the region, Iran’s ability to close the Strait of Hormuz and unleash a barrage of strikes across the GCC has demonstrated that the US cannot guarantee the security of its own installations, let alone that of the Gulf countries.
The reason for this asymmetry is clear: missile and drone warfare have fundamentally changed the cost structure of conflict. Low-cost drones, in particular, have enabled Iran to pose a credible threat to extremely expensive assets such as airbases, ports, and oil facilities. The marginal cost of disruption is now far lower than the marginal cost of defence.
This shift erodes the economic logic behind the longstanding GCC-US security contract. GCC countries allocate a significant share of public spending toward purchasing advanced weapons systems from the US. But the Iran war has demonstrated that technological superiority alone cannot guarantee safety. A $30,000 drone can disable infrastructure protected by billions of dollars’ worth of military equipment.
The Gulf’s arms race, among the most expensive in the world, generates massive profits for external suppliers but has failed to produce stability at home.
But there is a way to reduce the probability of conflict by raising the opportunity cost of war: economic interdependence. When countries are deeply integrated through trade, infrastructure, and financial networks, the economic losses from confrontation become too large to ignore. Mutual gains from cooperation begin to outweigh the perceived benefits of coercion.
For the GCC and Iran, the potential for such integration is substantial. While it may appear unrealistic in the short term, economic integration is ultimately the most viable path to reducing conflict in the long run. Iran has a large domestic market, significant industrial capacity, and vast energy resources. GCC economies, meanwhile, possess financial capital, logistics infrastructure, and global trade connectivity. Instead of living in a permanent state of suspicion, the two sides could form the backbone of a regional economic bloc spanning energy, transportation, and finance.
Attacking a trade partner’s infrastructure is economically irrational because it means disrupting one’s own supply chains, investment returns, and energy flows. This is the same logic that underpinned Europe’s reconstruction and long-term stability after World War II: economic interdependence transformed former rivals into mutually dependent partners.
By contrast, the current Gulf security architecture outsources the task of protection to a distant power whose strategic priorities do not always align with those of GCC countries. We now see the limits of this arrangement. Even the strongest external military actor cannot fully shield geographically exposed partners from the realities of modern warfare.
Moreover, reliance on foreign protection can produce what economists call moral hazard. When governments believe that a powerful ally will ultimately guarantee their safety, they may have less incentive to pursue diplomatic negotiations with regional rivals – a dynamic that sustains, rather than mitigates or resolves, conflict.
The GCC faces a strategic choice. It can either continue to rely on external military guarantees that leave it structurally vulnerable, or it can pursue a shift toward security rooted in regional economic integration. Of course, such a shift does not imply abandoning defence capabilities or strategic partnerships. Instead, it means recognising that durable peace cannot be imported; it must be produced locally through shared economic interests.
The Iran 2026 war may prove a turning point, exposing the limits of the “protection for sale” system that has defined Gulf geopolitics for decades. No amount of foreign weaponry can substitute for a stable regional order built on cooperation, interdependence, and rational economic incentives. Security purchased from abroad will always remain conditional and incomplete. Security built through economic integration, however, has the potential to become self-sustaining.
Jamal Ibrahim Haidar is Chairperson of the Department of Economics at the Lebanese American University. Adeel Malik is Associate Professor of Development Economics at the University of Oxford.
