How are Gulf businesses responding to the Israel-Iran conflict?
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Hello and welcome to Business Daily from the BBC World Service. I'm Samir Hashmi in Dubai in the UAE. Today, how have businesses in the Gulf responded to the Israel-Iran conflict?

Yes, we did have calls from the customers for alternative solutions. What are the other ports that we can move into? We were bracing for all this situation and we knew what we need to do. Dubai is a major global trading hub and home to the biggest port in the Middle East. It's also close to the Strait of Hormuz, the world's busiest oil shipping channel. And there were concerns earlier this week

that the strait might be closed by Iran. It may not be in Iran's interest to do that, but certainly it will be in Iran's interest to remind people that they can retaliate, they can exert pressure on these countries. Given the ongoing volatility in the region,

its reliance on the oil trade, we'll be hearing how some countries are looking for alternatives. Both Saudi Arabia and the UAE have built pipelines over the years to try to bypass the Strait of Hormuz, but other countries don't have such great backup options. And what could this mean for the future relationship between Gulf states like this one and Iran? That's all coming up in today's Business Daily. A bomb strikes Tehran.

For nearly two weeks, Iran and Israel were locked in their most intense conflict in decades. After the United States launched strikes on Iranian nuclear facilities, Iran retaliated, firing missiles at a US military base in Qatar. In Doha, residents were urged to take shelter. Airspaces shut down across the region. Qatar, Bahrain, the UAE and Kuwait. And for a few hours, it felt like the Gulf was on the brink.

The fighting finally ended after the United States and Qatar brokered a ceasefire, accepted by both Iran and Israel. A lot of planes going and they were going to do something and they didn't do it. We're happy about that. President Donald Trump made the announcement. So the ceasefire is very much in effect and I think we're going to keep it there for a long time. The 12-day conflict caused a deep uncertainty across the region. One of the biggest fears? That Iran might block the Strait of Hormuz.

one of the world's most important shipping routes and its most vital oil transit choke point. Bordered by Iran to the north and the UAE and Oman to the south, it connects the Gulf with the Arabian Sea. The strait corridor is narrow but critical, with nearly 20% of the world's oil passing through it.

Had it been closed, the global economy would have faced a shock. Oil prices would have surged. Supply chains would have been thrown into chaos. That didn't happen, but the threat did make businesses jittery.

Oil prices rose sharply during the conflict before easing again. Ben Cahill is an energy expert at the Center for Strategic and International Studies.

He says Iran closing the strait was never a likely scenario. The full closure of the strait would cut off Iran's critical source of export revenues, foreign currency revenues, and that's definitely not in the interest of the Iranian state or the oil sector. And no matter what happens in the months to come, I mean, Iran will be highly dependent on oil revenues. And I think it will probably think very deeply about actions that could harm its ability to keep exporting oil itself.

Now, Ben, we have seen in the past few years that even when there was no war, some vessels were attacked that were passing through the Strait of Hormuz. Many countries blamed Iran for those attacks, even though Tehran has denied any involvement. Could we see those kind of incidents again in the future, even if the ceasefire holds?

I wouldn't be surprised if Iran reverts back to those kinds of activities that we saw in years past, tanker sabotage. At the time, I think Iran was interested in having plausible deniability. It was never exactly clear that they were responsible for those attacks. They didn't claim credit, but there was a widespread assumption in the Gulf that Iran was responsible. And it's basically a way of reminding the oil market and governments that Iran can cause pain. It can cause a bit of economic chaos and havoc.

without going so far that it would invite massive retaliation. You know, a full scale closure of the Strait of Hormuz is obviously going to invite a huge response from the United States and Israel and other countries. It may not be in Iran's interest to do that, but certainly it will be in Iran's interest to remind people that they can retaliate.

Now, some of the biggest oil exporters, such as Saudi Arabia, the UAE and Kuwait, they rely entirely on the Strait of Hormuz to ship oil to customers, primarily in Asia.

Are there any alternative routes they can fall back on if the Strait is ever blocked or disrupted, or even if there's uncertainty like we witnessed over the last couple of weeks? There are some alternative options. Both Saudi Arabia and the UAE have built pipelines over the years to try to bypass the Strait of Hormuz. In the case of Saudi Arabia, it's an east-to-west pipeline to access the Red Sea. Abu Dhabi has built a crude oil pipeline that lands a little bit farther south than the Strait.

But other countries don't have such great backup options. But by and large, the straightforward most is so important that a sustained supply disruption is going to affect all countries in the region.

When the Israel-Iran conflict started, oil prices surged by about 10 to 15%, but they remained below the $80 mark. Now, if you compare that to the Russia-Ukraine war in 2022, at that point of time, oil prices had surged by almost 60%, at one point touching the $140 mark. We didn't see that kind of panic this time. So what was different?

And I think there's a couple of reasons for this. We have much better real-time data, thanks to tanker trackers and satellite surveillance. And basically, I think this is a prove-it approach to supply risk. If the market doesn't see physical disruptions, it's not overreacting. I mean, it's just amazing that the price hasn't spiked much more. I think this is kind of a new era in terms of the so-called geopolitical risk premium in oil prices. We're just not seeing that premium rise as much as many people would have anticipated.

After the Russia-Ukraine war, what was really affected was gas flows, not oil flows. You know, with the benefit of a couple of weeks, we could see that there really wasn't a big disruption to crude oil supplies or petroleum product supplies coming from Russia. Natural gas supplies from Russia to Europe were deeply affected. And of course, there's been a big rise in natural gas prices in Europe since the middle of 2021. You're listening to Business Daily from the BBC World Service.

I'm Samir Hashmi in Dubai in the UAE, looking at business reaction to the Iran-Israel conflict and the threat to the vital oil shipping route, the Strait of Hormuz. I'm standing right now at Dubai Creek, the heart of all Dubai's trading routes. This place is buzzing with tourists and is a very popular spot for anyone visiting the city.

But now this place has become more symbolic than strategic. But just a few kilometers away from here sits Jabal Ali, the largest port in the Middle East and one of the busiest in the world. Over the last few decades, Dubai has emerged as a major global trade hub, connecting Asia, Africa and Europe. But the recent Israel-Iran conflict threatened to disrupt that rhythm. Freight rates surged.

After Israel's June strike on Iran, average container shipping rates jumped by 55%. In the following days, spot rates spiked even higher, in some cases by 150%. Spot rates are the going market prices to move cargo at short notice, usually for one-off shipments, not part of long-term contracts. I visited one of Dubai's largest freight companies, which handles thousands of containers every month.

Their operations rely on smooth traffic through the strait and on Jabal Ali's efficient logistics network. Roshman Manoli is the Vice President of Freight Forwarding at Consolidated Shipping Services.

Yes, we did have calls from the customers for alternative solutions. What are the other ports that we can move into? We were bracing for all this situation and we knew what we need to do in terms of providing alternate method of transportation, multi-modal moving containers from the Corfocan or Fujairah port into UAE and outbound as well moving through Jeddah. So obviously this was not expected that it will happen too soon.

But when it happens, everything gets jammed. Everybody is trying to find solutions. And we just have to make sure that, you know, we're prepared.

So how did the last few days or let's say two weeks since this conflict began, did that have any sort of impact on shipping trade and the vessels from this region? There were vessels waiting. Every ship owners had to take their own call, but the trade was still flowing. A couple of ships were on anchorage, some turned, especially the crude oil, etc. They made a U-turn and they didn't want to enter into the Strait of Hormuz, but they

We've never seen a big impact. Everybody was waiting and watching what exactly is going to happen in that trade. But trade was playing. But the pricing, the spot market increased. When the attack happened, the spot market of the container prices increased because there was a question of what will happen next. But now we have not heard any kind of other issues yet.

So you said there was an increase in the container price. Roughly by how much did that go up? Typically, when you talk about spot pricing, as an example, from Shanghai into Jebel Ali, it went up to 20-25% up on the spot pricing compared to the previous before the attack. So carriers were waiting to understand how the dynamics of the region will change. It may further go up, but now it's subsided. We will wait and watch as things unfold, how things are going to be in the coming days.

We did see the attacks on vessels that were passing through the Red Sea. They were attacked by the Houthis not too long ago. How did that impact trade in this region and everything else? The Red Sea, the vessels are still moving through Cape of Good Hope. There's no change. All the main land carriers are moving through Cape of Good Hope. They're avoiding the Red Sea. So the prices, there's a fluctuation. Initially when it was, it was very skyrocketing because the carriers are looking at options of deploying their vessels there.

So obviously the initial rates were high, then it subsided depending upon the traffic and the business, the amount of volume that was moving. So with the current situation, with the straight of hormones, it would definitely have a big impact in terms of the prices escalating, skyrocketing. And how does it impact consumers in the end?

Consumers, probably yes, maybe a marginal 5-10% increase would have been there. But trade, the amount of volume still moving out is still, in fact, if you look at the volumes compared to last 2023 and 2024, Chabalari handled close to about 2.4 million TU's additional. Dubai remains a very important hub for maritime trade. So what's the situation now, Roshman? Is it going to be business as usual?

Or will there be some concerns, given that the conflict has just ended and companies would still be worried about the volatile situation in the region? At the moment, it's still fluid. Everybody's waiting and watching how things unfold. Companies are bracing themselves for any impactful situation and how they come out of it. UAE being very resilient, the economy itself has a

good fund that can support a long-term situation like this. And the prices that go up, which you were mentioning earlier, that the prices go up, do they immediately come down or does it take some time then for the prices to gradually settle down after something like this happens?

It gradually settles down. Initial impact is when you have a choke point and when you have a situation of backlogs, obviously the vessels will need to be diverted to other ports. They can't be on anchorage for long term, so they have to discharge and they need to utilise the ship for other regions.

So that creates a backlog in other ports as well. And then moving those containers from those transshipment ports back into UAE, that's additional cost. So yes, if there is a long term, then the prices will continue to be long term. The effect will be long term. Throughout the conflict, Gulf states tried desperately to avoid being dragged in. Saudi Arabia, Qatar and Oman all engaged in urgent back channel diplomacy. They urged President Trump to hold Israel back.

But once the US hit Iranian nuclear sites, the gloves were off. And when Iran responded by attacking the Al Udeid base in Qatar, Gulf leaders feared the worst. Tensions ran high. There are nearly 50,000 US troops stationed across the Gulf.

The region also houses some of the world's largest oil and gas facilities, infrastructure that has been targeted in the past attacks. Back in 2019 and again in 2022, Saudi and Emirati oil sites were hit. Both times, Iran and its allies were blamed, even though Tehran denied any involvement. Since then, Saudi Arabia and the UAE have worked to thaw relations with the Iranian regime, even as they have deepened security ties with the United States.

Badr Al-Saaf, a Gulf-based geopolitical analyst and a professor at the Kuwait University, believes that the recent conflict will push Gulf states to double down on improving ties with Tehran. Look, the Gulf states have been pursuing a nimble foreign policy.

that caters to fast-changing dynamics, that advances their security, their national interests, that also advances their domestic needs. And by domestic needs, I'm thinking of those ambitious transformation plans that have been underway for a couple of years now.

And those plans, Samir, require peace and stability. I mean, you can't arrive at a prosperous region when there is the risk of war looming. So that has driven the region towards rapprochement with Iran. Iran is a neighbor. It's a difficult neighbor. And they probably also see the Gulf states as difficult neighbors. So it's a mutual feeling. But those difficulties and differences need to be patiently managed through dialogue. Violence will not get us anywhere.

Now, Saudi Arabia and the UAE are the two largest economies in the Gulf region, and both of them have had a bitter relationship with Iran for a large part of the last decade. It's only in the last two years that the relationship has improved. What kind of role do you see these two countries playing going ahead after what has happened in the last two weeks? I see them as firefighters. They're going to come in full force, try to resolve issues.

They've been the site of various mediations, whether the U.S.-Russia talks in Saudi Arabia, the U.S.-Ukrainian talks that took place as well in Saudi Arabia, the exchange of prisoners, children that was orchestrated by the UAE between Russia and Ukraine. So I see them working on this because, look,

Business and economic interests don't jive well with conflict and tension. So you cannot be able to juggle two hats at the same time, the one of confrontation and violence and conflict and the other one of advancing economic opportunities. And the latter is what the Gulf states want to focus on. There are hanging files in the region, the nuclear file, and Iran's regional behavior in general is one open question. But so is Israel's occupation of Palestine.

And that's also another file that the Gulf states have been very actively involved in, trying to promote some kind of pressure on Israel to try and recognize that this needs to be addressed. Because if it's not addressed, it's going to come back to us again and haunt us and invite further conflict. For the Gulf economies, war is not just a matter of geopolitics. It's about survival. A single missile strike can rattle oil markets.

A rumour of a straight closure can send freight rates soaring. In a region trying to chart a new course away from oil towards innovation and growth, stability is currency. And the last two weeks were a reminder of how just fragile that can be. Thanks for listening to this episode of Business Daily, produced and presented by me, Samir Hashmi. To hear more episodes, just search for Business Daily wherever you get your BBC podcasts.