The Middle East’s New Geopolitical Risk Paradigm

There is an unfortunate familiarity to the region’s heightened geopolitical risk picture, though the Iran conflict has raised the stakes for investors, governments, and globally mobile individuals.

The Iran conflict that began on 28 February 2026 is proving to be a consequential crisis. Initial assessments of the associated regional and global shock transmission and the overall risk picture focused on the expected duration of the conflict as well as the scope and scale of damage. These factors remain crucial for determining the trajectory of energy markets, capital flows, and policy initiatives. However, early hopes that the conflict would be short-lived and that an historically resilient region could avoid major exposure have been dashed.

Persistent and Complex Geopolitical Risks

The ongoing conflict, which has included a fragile ceasefire and sporadic flaring of tensions, reveals additional dynamics that will be priced into regional risk moving forward. First, a substantial geopolitical risk premium — not just in energy prices but across strategic non-oil industries too — is unlikely to dissipate, even if the USA and Iran reach a negotiated outcome that ends hostilities. The Strait of Hormuz is poised to remain a contested waterway and strategic global chokepoint for the foreseeable future.

Second, the widening of regional conflict has created longer-term complications. The motivations of Hezbollah in Lebanon, the Houthis in Yemen, and Iran-aligned militias in Iraq are interrelated with the Iran conflict but also driven by other, independent factors. Meanwhile, Israel is both shaping and impacted by developments unfolding in Lebanon, Yemen, and Syria. The risk of spillover remains elevated: The US-Iran ceasefire did not prevent the targeting of two northern border posts in Kuwait with explosive-laden drones launched from Iraq on 24 April.

Third, this latest US-Israel confrontation with Iran and the unprecedented nature of Iranian retaliation further reinforces the view that Middle Eastern conflicts defy neat and durable resolutions. Indeed, the Israel-Hamas war that began on 7 October 2023 is an unresolved conflict bounded by an ineffective ceasefire. Israel and Hezbollah have continued trading strikes despite a new ceasefire agreement. Increasingly, the base care scenario for regional conflict has been an evolution into prolonged ceasefires with intermittent violations and episodic flaring of heightened tensions.

It is therefore unsurprising that Henley & Partners’ enquiry and application data revealed surging demand for alternate/additional residence and citizenship options from Lebanese and Israeli nationals in the first quarter of 2026. Demand for UAE programs dipped amid rising regional tensions, while Türkiye’s investment program witnessed increased demand. Certain Middle Eastern markets — like Türkiye and Morocco — may capitalize on degrees of geographic distance from active conflict zones but are not completely insulated from negative spillovers.

A Potential Silver Lining

There is some good news amid the region’s challenging times. Gulf countries on the frontline of Iranian aggression have demonstrated that their defensive capabilities are able to protect residents and critical infrastructure. Beyond those regional officials facilitating negotiations with Iran, many Gulf governments had eased tensions with Tehran and adopted de-escalation strategies over recent years. This past positioning enables the region’s officials to better navigate the post-conflict environment, though trust in Iran by Gulf Arab neighbors will remain low for a long time.

Elevated oil prices are likely to support government finances, albeit in an uneven fashion, with some oil- and gas-exporters realizing a greater net fiscal benefit than others. Short-term energy outlooks expect Brent crude oil to average USD 96 per barrel in 2026, before edging downward into the USD 70s/bbl. for 2027, which is still higher than 2025 prices. Any improvement in fiscal positions will be useful for addressing new economic headwinds and supporting affected industries.

Gulf governments are leaning into resilience building. In addition to a flurry of Iran conflict-related financial resilience packages from the region’s central banks, other support measures are being rolled out. The United Arab Emirates (UAE) announced a USD 273 million economic support package for businesses and a USD 273 million National Industrial Resilience Fund, while Dubai’s financial center announced plans to become an ‘AI-Native’ jurisdiction. Saudi policymakers have largely refrained from emergency support packages, but some form of recovery and resilience measures are likely to come down the policy pipeline. Indeed, measures to increase the Gulf’s self-sufficiency began decades ago around food and water security, while more recent regional rifts and the coronavirus pandemic accelerated self-sufficiency efforts.

Growing regional expectations for in-country value are not going to disappear. In late April, the UAE mandated its National In-Country Value Program for all government entities and national companies — part of efforts to ensure that government-related procurement expenditures generate domestic economic benefits and fully localize 5,000 critical products. Meanwhile, Saudi Arabia's Ministry of Human Resources and Social Development continues to expand workforce nationalization across more industries and with higher Saudization targets.

Greater Diversification, Higher Risk Tolerance

The Iran conflict has accelerated the need for, and emergence of, new trade and investment corridors, alternative energy export routes, and other connectivity initiatives. Not all of these reconfigured forms of economic cooperation will live beyond the conflict, but they have helped to strengthen the foundation for regional integration and may help distribute economic activity beyond the wealthy Gulf countries. At the same time, there will be an intensifying focus on national interests. The UAE’s decision to leave OPEC in May to allow greater flexibility to respond to energy market dynamics is one such example.

Risk tolerance will matter going forward. Some investors will see a prime opportunity to demonstrate their long-term commitment to the region’s growth. This trust will be welcomed by regional governments. Other business actors and high-net-worth individuals will price recent developments into dealmaking or decisions to move family offices, set up regional headquarters, or pursue longer-term residence options. This crisis does not make for good marketing material, but it does present a moment to refine the existing and new opportunities in the region and to see who the key players in that journey will be moving forward.