The Gulf’s Strategic Paradox: Lost Confidence in the US Security Umbrella, Enduring Trust in the Dollar

Ferid Belhaj

No 2607, Policy briefs on Trade Dynamics and Policies from Policy Center for the New South

Abstract: This essay argues that the current debate about the future of the international monetary system is not really about Gulf currencies, oil pricing, or de-dollarization in the narrow technical sense. It is about something deeper and more important: whether institutional trust can survive when geopolitical certainty is eroding. The Gulf monarchies—Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Bahrain, and Oman—increasingly exist in a world where the United States no longer looks like the unquestioned guarantor of regional stability. Repeated tensions with Iran, the vulnerability of the Strait of Hormuz, attacks on Gulf infrastructure, and Washington’s cautious and calculated responses have all raised serious doubts about how far the United States would actually go to protect its Gulf partners. And yet, despite these growing doubts, the Gulf states continue to anchor their currencies overwhelmingly to the US dollar and keep the vast majority of their sovereign wealth inside American-centered financial markets. This apparent contradiction is not a puzzle. It reflects a profound transformation in how power works in the modern world. Military dominance and institutional dominance are no longer perfectly synchronized. American geopolitical supremacy may look increasingly uncertain, selective, and constrained—but the institutional architecture built around the dollar continues to command extraordinary global confidence. This essay develops four central arguments. First, reserve-currency systems do not rest on economic size alone; they rest on institutional credibility. Second, the Gulf crisis reveals that institutional power can outlast partial geopolitical decline. Third, China’s rise has not yet produced a genuine reserve-currency alternative, because the renminbi remains limited by capital controls, legal opacity, and uncertainty about how the Chinese system would behave in a serious crisis. Fourth, and most fundamentally, institutions are not alternatives to power. They are organized expressions of power. The enduring strength of the dollar reflects the way American power has been institutionalized through law, liquidity, operational continuity, and financial depth. The essay concludes that the Gulf’s continued attachment to the dollar is not primarily an expression of loyalty to Washington. It is a rational response to systemic uncertainty. In a fragmented world, increasingly shaped by sanctions, maritime vulnerability, and geopolitical volatility, the rule of law itself becomes a strategic asset. The central question of the coming decades may therefore not be whether America remains geopolitically dominant—but whether any rival system can generate comparable institutional trust at a time when uncertainty has become truly existential.

Date: 2026-06
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