Iran War Deepens Gulf Arab Distrust of Israel Amid Failed Peace Talks and Ceasefire

A tentative ceasefire between the United States and Iran has mostly held despite the collapse of peace talks held in Islamabad, Pakistan, over the weekend. The talks, which began on Saturday morning and continued nearly all day, stalled due to significant differences between the two sides.

The Iran war, launched nearly six weeks ago against the advice of Gulf Arab states, has not prompted them to align closer with Israel.

Instead, the conflict has deepened distrust in Gulf capitals toward Israel, perceived as instigating the war and expanding its military reach at the expense of Arab states' security and economies. Gulf officials report that Iranian missiles and drones have targeted their infrastructure in retaliation for Israeli strikes on Iranian assets.

This has driven Gulf states to strengthen alliances with partners like Pakistan, Turkey, and Ukraine to bolster their military capabilities.

Saudi Arabia and the United Arab Emirates have set aside differences to coordinate defenses and enhance domestic military industries. The war has not led Gulf states to abandon their security partnership with the United States, but it has highlighted frustrations over the decision to engage Iran. Early hopes for a broader anti-Iran coalition including Gulf states did not materialize.

Regional Alliances and Infrastructure Damage In one reported exchange, Israeli forces struck Iranian gas fields, prompting Iran to attack Qatar's gas fields and take offline 18% of its production, potentially for the next five years.

Smoke was observed in the Fujairah oil industry zone of the United Arab Emirates after air defenses intercepted a drone on March 14, 2026. These incidents have fueled perceptions that Israel is gambling with Arab lives, prosperity, and infrastructure. Gulf states view both Israel and Iran as threats to regional cooperation and stability.

Officials express readiness for integration but see Israel as offering only instability through its actions. The conflict has cemented views of Israel as a potential hegemon seeking control over Arab lands, similar to Iran. Pre-war sentiment toward Israel was already souring due to its policies in Gaza and the West Bank.

The ongoing Israeli occupation in southern Syria and refusal to agree with the new Syrian government, despite Gulf mediation, added to frustrations. Distrust has now evolved into a perceived national security threat for Gulf states.

Market Reactions and Economic Pressures Last week, markets rallied as plans for peace talks emerged, with the S&P 500 rising almost 4%, oil prices falling under $100 per barrel, and gains in gold, bonds, and bitcoin.

Bitcoin outperformed other assets, rallying nearly 10% and holding stronger than traditional safe havens like gold during geopolitical stress. The S&P 500 has now surpassed its level from February 27, 2026, the last trading day before the US and Israel initiated the war against Iran.

The energy crisis, described in some reports as the worst in history, had threatened a global recession but appeared to ease temporarily with talk prospects.

However, the implosion of talks has renewed concerns, coinciding with reports of a US blockade. Peace efforts failed to bridge gaps, leading to stalled progress. Foreign ministers from Egypt, Saudi Arabia, Pakistan, and Turkey met in Islamabad on March 29, 2026, to discuss the war.

The gathering underscored Gulf states' push for stronger regional ties excluding Israel.

Broader Implications for Stability The war's launch, persuaded by Israeli prodding despite Gulf warnings of consequences, has strengthened Iran's position according to some Gulf analysts.

Resentment hardened over Israel's conduct, including strikes that provoked responses affecting Arab infrastructure. Gulf states now prioritize alliances that enhance air defenses and military self-reliance. A senior Saudi official stated that both Israel and Iran hinder regional cooperation.

“Both Israel and Iran are not acting in a way that supports a region of cooperation, stability, and shared prosperity.”