The US-Gulf oil-for-security deal is dead

In October 1973, when King Faisal ordered the halt of all Saudi oil exports to the US, American Secretary of State Henry Kissinger’s first instinct was to seize the Kingdom’s oil fields. He did not. Instead, what followed was a structural rearrangement of how the Gulf and the West organized their relationship around energy and security. Gulf states received US military protection, while Washington received stable energy flows. This has defined the last five decades.

What the closure of the Strait of Hormuz in the last few weeks has exposed is that this architecture has reached its limits and that the security costs it once externalized onto the US military presence must now be internalized by Gulf states themselves.

The effective closure of the strait following US-Israeli strikes on Iran beginning on Feb. 28 is the largest disruption to global energy supply since that 1973 embargo. About 27 percent of the world’s maritime trade in crude oil and petroleum products transits the strait, alongside significant volumes of aluminum, fertilizer and helium. Prior to the war, some 138 vessels transited the strait daily — by mid-March, that figure had effectively reached zero.

The ongoing two-week ceasefire provides an opportunity for reflection. War risk insurance premiums, which surged from about 0.125 percent of vessel value before hostilities to as high as 5 percent at their peak, have not moved since the announcement, as insurers have made it clear they need to see sustained successful transits before rates begin to adjust.

The reputational damage to Gulf states as stable commercial and logistics environments has also been significant. Sovereign credit pressure and foreign direct investment hesitation follow structural uncertainty of this kind. What the last six weeks have exposed is not a new threat but the inadequacy of the planning frameworks built to absorb it.

The case for treating maritime security costs as a permanent line item begins with geography. The Strait of Hormuz is not substitutable. Saudi Arabia’s East-West Pipeline and the UAE’s Habshan-Fujairah link together fall dramatically short of replacing the 20 million barrels per day that flowed through the strait in peacetime. And the Iranian drone strike on the Samref refinery at Yanbu last month demonstrated that bypass infrastructure is itself a target. 

Sovereign credit pressure and foreign direct investment hesitation follow structural uncertainty of this kind.

Zaid M. Belbagi

The threat environment has a previously unseen range and adaptability: Iranian strikes have targeted embassies and military installations across eight countries; energy and data infrastructure have come under critical threat; and second-order effects such as food and fertilizer shortages have propagated well beyond the region.

This is a systemic supply chain disruption in which oil is just one component. The insurance markets have already priced it in. Within days of Operation Epic Fury beginning, all 12 members of the International Group of P&I Clubs, covering 90 percent of the world’s ocean-going tonnage, cancelled parts of their Gulf war cover. At the conflict’s peak, Lloyd’s was quoting $10 million to $14 million for a single very large crude carrier voyage through the Strait of Hormuz.

Post-ceasefire, analysts expect premiums to stabilize at 1 percent to 2 percent of vessel value — still multiples of pre-war levels, reflecting the market’s revised view of the region as a longer-term liability. Premiums rise rapidly in response to attacks but reduce only when sustained incident-free transit restores underwriter confidence over a period of months. Domestic fiscal planners must apply the same discipline.

The structural limitations of state-led security have been equally exposed. The shipping industry made near-daily requests to the US navy for military escorts through the strait, all of which were declined. Even France’s commitment would restore, at most, 10 percent of pre-war traffic if fully deployed.

Electronic warfare, including GPS jamming and automatic identification system spoofing, made up more than half of the reported incidents in the Arabian Gulf. And a single frigate cannot escort every commercial vessel through drone-prone corridors or counter simultaneous swarms of unmanned surface vessels. The gap between what state security architecture was designed to provide and what commercial shipping now requires is a structural condition that has been building since the Houthis’ Red Sea campaign began in 2023. The oil-for-security bargain assumed that the US military presence would be the guarantor of last resort.

When Kissinger faced the 1973 embargo, he abandoned his plan to seize the oil fields in favor of building the institutional architecture that ended up governing energy security for half a century. President Donald Trump’s threats to seize Kharg Island and “take the oil” suggest that the 19th-century imperialist instinct remains. What has changed is that there is no longer a credible institutional alternative being constructed. A UN Security Council resolution on the Strait of Hormuz was last week vetoed by China and Russia. The US navy cannot escort all tankers. The architecture of the 1970s is not sufficient for the threats of 2026 and the Gulf states cannot afford to wait for a new one to be built around them. 

The architecture of the 1970s is not sufficient for the threats of 2026 and the Gulf states cannot afford to wait.

Zaid M. Belbagi

The private sector is stepping up to fill this gap. Radovan Opitz, founder and CEO of the UAE-based Falcon Shield Security Services, stated: “Today’s Gulf threats — drones, unmanned surface vehicles and electronic warfare — have outpaced what any single navy can cover alone. Private maritime security now provides the flexible, vessel-specific protection our tankers and ports need, complementing the Royal Saudi Navy with skilled teams, counterdrone technology and real-time intelligence. Embracing this public-private partnership is essential to keeping our shipping lanes secure and our economy resilient.”

Private maritime security providers address vulnerabilities that traditional naval forces were not built to handle. Vessel-level risk assessment, armed overwatch during transit, counterdrone capability deployable at commercial speed, and port and offshore infrastructure protection are capabilities that state resources cannot cover comprehensively. For the Gulf economies whose energy infrastructure sits at the center of their longer-term diversification strategies, this is existential.

Saudi Arabia’s Vision 2030 explicitly targets the localization of more than 50 percent of military equipment spending. The Kingdom is already modernizing its navy’s eastern fleet to guard vital shipping routes. A civilian fiscal architecture is needed to match it, with security spending embedded in infrastructure strategy rather than treated as a military budget question separate from economic planning.

The strategic upside of accepting this baseline is largely a planning one. Expenditure on the balance sheet can be designed, benchmarked and co-invested in, whereas expenditure treated as contingency cannot. Embedding security costs as a genuine line item opens options currently foreclosed — investment in alternative corridors becomes plannable as growth infrastructure, stockpile strategies can be calibrated to realistic disruption windows, and cyber and subsea cable resilience gets properly resourced.

After 1973, no serious Western government returned to the assumption that energy security could be taken for granted, though it took a second oil shock in 1979 for the lesson to be fully understood. Gulf states should not require a second Strait of Hormuz crisis to draw the equivalent conclusion. Their fiscal frameworks were not designed to absorb security costs at this scale on a recurring basis and closing that gap is not a counsel of pessimism about the region’s stability. It is the precondition for planning that remains coherent when the next disruption comes, while being credible enough to anchor the investor confidence that sustained development requires.

• Zaid M. Belbagi is a political commentator and an adviser to private clients between London and the Gulf Cooperation Council.

X: @Moulay_Zaid