Uncertainty reigns as ceasefire’s fate hangs in the balance

We’re entering yet another period of uncertainty these next two weeks, where one of two scenarios could follow: negotiations could result in a permanent end to the conflict, or we’ll see a much darker outcome where the US/Israel and Iran don’t see eye to eye.

Political analysts and economists the world over are putting their thinking hats on and debating how things might unfold. On one hand, the ceasefire was great news for the GCC, and the short reprieve could allow governments to — at the very least — strategize and prepare for what’s ahead. On the other hand, question marks over the differences between the two sides linger.

Even the announcement itself signaled miscommunication among the different parties involved, with Pakistan’s Prime Minister Shehbaz Sharif saying the agreement applied everywhere “including Lebanon,” while Israel denied.

Both sides have maximalist demands, and it’s unclear whether either of them are willing to sway on them. While the US demands an end to Iran’s nuclear program, no further enrichment of uranium, the dismantlement of ballistic missile and drone capacity, and the full reopening of the Strait of Hormuz, Iran is set on “coordinating” traffic in the Strait and keeping its nuclear program, as well as full sanctions relief.

The wild card in all of this could be Israel: “Israel has very different interests from the US and could be a spoiler, particularly if it continues the war in Lebanon,” director of Khalij Economics and GCC analyst for GlobalSource Partners Justin Alexander told EnterpriseAM. Confluence Consultants’ Head of Research Amandeep Ahuja agrees: “One of the biggest obstacles in my view is the lack of coherence between US and Israeli policy,” Ahuja said, noting that alignment could be difficult, even as peace is more in sight than it was before.

It has already launched its worst attack on Lebanon since the war started, killing 254 people, prompting Iran to shut the Strait of Hormuz and threaten to withdraw from the ceasefire agreement.

What can the Gulf do now?

Hardening defense systems in the two-week period is likely: “It is possible that GCC states diversify and deepen defense cooperation arrangements with the likes of Australia, Italy, and France,” Ahuja said. “In the meantime, they may also seek to enhance security in the key infrastructure spots that could be targeted, including ports, data centers, etc,” she added.

Gulf states including Saudi Arabia and the UAE are already exploring new defense systems, including USD 2.5k Ukrainian-designed interceptor drones, Japan-based Terra Drone ’s CEO Toru Tokushige told Reuters.

Middle East expansion: Terra Drone, which has recently partnered with Ukraine startup Amazing Drones to develop the Terra A1 interceptor, plans to market the drones overseas and potentially establish production in the Gulf, Tokushige said. The interceptor has yet to be battle-tested and is expected to undergo trials with Ukraine’s military in the coming months.

REMEMBER- The outbreak of war triggered a defense rethink for the GCC, pushing countries to look for alternative air and missile defense systems that don’t cost USD 3-12 mn per shot to take down a USD 20-100k Iranian drone. In a meeting between the UAE’s and Ukraine’s leaders last month, Ukrainian President Volodymyr Zelenskiy said his country was offering its defense systems to partners.

What about building up its offensive defenses? “The stance so far has been defensive instead of offensive, and that is likely to continue, but we can expect the states to be ready for an offensive stance, despite not being particularly inclined to lean towards it,” Ahuja said.

Longer-term investments in repair and recovery will take more time

“Hard-hit sectors’ revival may be a longer term project,” Ahuja added. That includes damage to oil and gas facilities damaged during the conflict. It will take a year to fully restore production.

Analysts estimate around 3 mn tonnes per annum of aluminum capacity are currently offline — roughly half of Middle East production, between disruptions at EGA and Aluminum Bahrain, as well as the shutdowns at Qatar’s Qatalum due to natural gas shortages, aluminum industry expert and PerenniAL CEO Brian Hesse told EnterpriseAM. This has widened the pre-existing global market deficit, previously forecast around 360k tonnes for 2026, to an estimated 2–2.5 mn tonnes if the outage persists, he added.

Downstream sectors including aerospace, automotive, packaging, and construction face tighter supply, higher costs, and potential allocation issues, he noted. Hesse also sees the likelihood of London Metal Exchange reaching USD 4k in the near future, echoing what analysts told us earlier.

The more important feat will be restoring the “safe haven” image

“Reviving [the safe haven reputation] will likely take time, but these two weeks are definitely the beginning of that recovery — provided the ceasefire holds,” Ahuja said. “For investors seeking to expand partnerships in the region, the two weeks may provide a slight push into them reconsidering a return to the region, but a full return will require a permanent resolution,” she added.

Two weeks might not be enough to bring back those who have left, though: “It may be a bit early for [those who left] to make a decision whether to come back or not because we don't know yet whether this is a lasting agreement or something temporary,” former US ambassador to Oman and Middle East policy analyst Marc Sievers told EnterpriseAM.

Disruptions are likely to continue, at least in the near term

The Strait of Hormuz will be key, if it does stay open. “I think everyone will in their own way take advantage of this opportunity and I'm hopeful that there is some arrangement that keeps the Strait of Hormuz open,” Sievers said. This has yet to materialize after the events that unfolded yesterday, but even if it does, there’s the matter of derisking.

“Shipping is going to be reluctant to test that until it's entirely clear that it's safe to pass through, and that may also involve some kind of ad hoc coalition to escort shipping,” he added. Bahrain and the UAE have already signaled they’re open to joining a coalition of that kind, and the US has spearheaded similar initiatives before.