Gulf states have been rethinking U.S. security guarantees since the Trump administration failed to respond decisively to attacks on Saudi Arabia during his first term. The latest incident in Qatar is another blow to confidence in Washington. While near-term energy markets may not be affected, the political fallout highlights the transactional nature of U.S. engagement. Gulf states may paradoxically buy more U.S. arms, while also seeking to diversify security partnerships, though true alternatives remain scarce.
Economic Pivot Eastward
Economically, the Gulf has already pivoted eastward, while keeping US defense ties and exploring cooperation with Turkey and Russia. China is the Gulf’s largest trading partner, with India also rising. The structural shift is one of long-term diversification, not short-term reaction.
US Tariffs and Growth Outlook
Tariffs will likely remain at elevated levels through year-end, with a Supreme Court ruling looming on their legality. Despite generating politically convenient revenue, tariffs hurt small businesses and consumers more than they help. Multinationals have flexibility to adapt, but higher costs are weighing on hiring and growth. Additional shipping fees will also compound pressures.
Debt Challenges Beyond Inflation
Inflating US debt away, is harder today given political interference with data, with the Fed independence under strain, and higher long-term rates tied to widening deficits. Traditional buyers like China and Gulf states are no longer reliable sources of Treasury demand.