The deal America signed to end the war with Iran may do more to entrench Chinese power in the Middle East than any agreement Beijing could have negotiated for itself.
The Limits of American Power
The war that the United States and Israel prosecuted against Iran beginning in late February 2026 was, whatever else it achieved, a brutal audit of American credibility in the Gulf. For decades, the region’s security architecture rested on a foundational bargain: oil for protection. The Gulf states hosted American military infrastructure — including the US Navy’s Fifth Fleet in Bahrain — and deferred to Washington’s strategic preferences. In exchange, they expected a guarantee against existential threats. The Iran war exposed the limits of that guarantee in ways that no diplomatic visit can undo.
Iran retaliated against its adversaries not by striking at American assets alone, but by directing roughly 83 percent of its total missile and drone strikes at GCC countries, with the UAE absorbing the heaviest bombardment of any country in the conflict, including Israel. Oil facilities were struck. Bahrain’s aluminum and energy exports — which account for over two-thirds of its government revenue — were disrupted. The perception of Gulf Arab states as safe havens, assiduously cultivated over years of economic diversification, was shattered.
All of this unfolded while American troops and hardware were present in the region. The lesson Gulf capitals drew was not that they needed to distance themselves from Washington, but something more unsettling: that proximity to American power does not equal immunity from Iranian retaliation. That is a structural limitation that no amount of weapons sales or joint military exercises can resolve. The US could not provide an absolute security guarantee during the war. There is no credible basis to believe it can provide one in any future confrontation either.
Gulf’s Eastward Turn
The war accelerated a reorientation in Gulf strategic thinking that was already quietly underway. By 2024, Gulf-China bilateral trade had overtaken Gulf-West bilateral trade, making Beijing the primary economic partner for most GCC states — a structural fact that now shapes every strategic calculation in the region. The Iran war did not create this dynamic, but it gave it political legitimacy and urgency.
In the aftermath of the conflict, Gulf sovereign wealth funds significantly increased their exposure to Chinese and emerging markets. Since the start of the war, Saudi Arabia’s Public Investment Fund deployed $6.1 billion into emerging markets, more than double what it invested in developed market assets over the same period. The Abu Dhabi Investment Authority similarly tilted its post-war allocation toward emerging markets. These are not panic moves; they reflect a deliberate and durable reassessment of where economic gravity is shifting.
The post-war environment is also pushing the Gulf toward deeper structural integration with China beyond the energy sector and port projects that historically defined the relationship. Multilateral trade between China and the GCC reached approximately $300 billion last year, and the post-war period is generating pressure — and political cover — to move into technology, infrastructure, digital networks, and financial systems. Gulf states are also exploring how investments in China’s flagship China-Pakistan Economic Corridor (CPEC) can integrate their own maritime routes with Central Asian land corridors, positioning themselves as nodes in a new multipolar trade map.
This matters directly for how the US-Iran MOU plays out. The MOU, signed on June 17, immediately waives sanctions on Iranian oil exports and includes a 60-day ceasefire framework, with negotiations on nuclear issues, sanctions relief, and the possible release of up to $25 billion in frozen Iranian assets to follow. The draft also envisions a $300 billion reconstruction fund for Iran, which Vance suggested would be financed by Gulf Arab nations — a proposition that strains credulity given that Iranian strikes destroyed oil facilities and infrastructure across those same states.
More consequentially, the lifting of sanctions will unlock the latent potential of the Iran-China 25-year Comprehensive Cooperation Agreement — a $400 billion strategic framework signed in 2021 that has moved slowly precisely because sanctions made Chinese investors wary of exposure. US sanctions were the primary obstacle to the agreement’s implementation; remove them, and the economics of deep China-Iran integration become far more compelling. China already buys roughly 90 percent of Iran’s exported oil; a sanctions-free Iran allows Beijing to formalize and dramatically expand that relationship across energy, infrastructure, banking, and technology, with no shadow fleet required. The MOU that Washington hopes will bring Iran closer to a Western-aligned order may, in practice, be the instrument that fully activates Iran’s eastern pivot.
A Region That Has Already Moved On
Rubio’s visit was premised on the assumption that Gulf governments need reassurance, that with the right diplomatic messaging, the alliance architecture of the past can be refurbished for the future. The assumption is understandable but increasingly out of step with how Gulf capitals are actually thinking. The visit’s symbolism has made it clear.
The Gulf states are not abandoning Washington. They will continue to seek access to American military technology and AI chips, and they have no interest in allowing China to build military bases on their soil or in crossing American red lines that would cost them that access. The relationship will persist. But the terms have changed. Gulf governments have concluded — quietly, without drama, and with considerable strategic clarity — that no single power can be their exclusive guarantor. They will hedge, diversify, and transact across multiple great powers simultaneously. One crucial change the existing terms of the relationship include is that the new Middle East will be much more open to using trade—rather than war—as a mechanism for managing regional tensions. And, when it comes to trade, China is far better poised than Washington was or can possibly be. The total absence of the issue and prospects of the US economic presence in the region from the agenda of Rubio’s visit makes the pattern visible.
What this means is that the post-war Middle East is not a problem that American diplomacy can manage back into its previous configuration. The region’s security architecture has been stress-tested and found wanting; its economic centre of gravity has shifted eastward; and Iran, far from being isolated by the war, may emerge from it with its China partnership finally able to operate at full capacity. Rubio may have returned from the Gulf with agreements-in-the-making, communiqués, and pledges of partnership. But the deeper question — whether Washington can shape a Middle East that serves its strategic interests the way it once did — has likely already been answered, and not in its favour. The visits are real. The leverage is diminished.
Salman Rafi Sheikh, research analyst of international relations and Pakistan’s foreign and domestic affairs
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