Gulf Capital Eyes Iraq, But War Costs Deter Investors

A potential expansion of Gulf capital and commercial engagement into Iraq is taking shape in Washington this week, though its scale remains uncertain, US Senator Chris Murphy told an audience there, framing the opportunity against the costs that the continuing regional war imposes on investors in stability across the Middle East.

Speaking at an event hosted by the Middle East Institute, after recent visits to Saudi Arabia and Qatar where he met Crown Prince Mohammed bin Salman and Qatar’s Emir Sheikh Tamim bin Hamad Al Thani, Murphy said conversations with Gulf officials had revealed a growing appetite for reviving ties with Baghdad, particularly in Riyadh. Their discussions covered the war with Iran’s impact on regional security and on Washington’s relations with its Gulf partners.

The shift in Saudi posture matters. The kingdom had earlier resisted engaging with Iraq while it believed Tehran wielded extensive influence over Iraq’s political institutions. With Iran preoccupied by the war and its regional position changing, Murphy argued, Riyadh and other Gulf capitals could find the economics of engagement more attractive than they have in years.

He pointed to precedent in Lebanon, where Saudi Arabia pared back its involvement during a period of growing Hezbollah influence before returning to engagement as political circumstances shifted. Still, he cautioned against reading the current signals as a guarantee of a major Gulf push into Iraq, citing security risks across the region and persistent tensions.

The potential opening aligns with the agenda of Iraqi Prime Minister Ali Falih al-Zaidi, who is working to strengthen Baghdad’s Arab ties and bring armed groups under greater state control, limiting their capacity to make military decisions outside government institutions. Zaidi has set the end of June 2027 as the deadline for placing weapons under state authority. That plan faces resistance from Iran-linked factions and will test the government’s ability to assert control over security decisions.

Riyadh has become central to Baghdad’s regional calculations. During a visit to the Saudi capital on October 14, Zaidi told the crown prince that Iraq would not allow its territory to be used to launch attacks against Saudi Arabia or other countries in the region. The pledge followed attacks on facilities and targets inside Saudi Arabia, some suspected of originating from Iraqi territory, raising questions about Baghdad’s ability to keep armed factions from drawing the country into regional confrontations.

Meanwhile, Baghdad has moved on another front with economic and security implications. On October 21, Iraqi authorities closed the al-Shaib border crossing with Iran, citing a review of security and technical arrangements and tighter checks for smuggled goods. An adviser to the prime minister tied the closure to efforts against drug trafficking and counterfeit currency smuggling; Iran’s embassy denied the allegations. The closure alone does not signal a policy shift toward Tehran, but it fits a broader effort to tighten border controls and reinforce state authority over crossing points.

The commercial stakes became clear in Tehran’s response. Iranian officials and activists called for sanctions on Iraqi oil exports in retaliation for the border closures, accusing Zaidi’s government of yielding to US and Gulf pressure. Such a move would directly threaten Iraq’s primary revenue stream.

Murphy’s warning underscored the broader financial calculus: the continuing war makes it harder for Gulf states to support fragile economies elsewhere in the region, leaving Iraq and Lebanon particularly exposed.

For Baghdad, the prospects of deeper Gulf investment will depend in part on delivering a stable security environment, preventing its territory from threatening neighbouring countries, and maintaining regional relationships without becoming an arena for settling scores between Tehran and its adversaries. Whether Riyadh’s renewed appetite translates into real capital flows may be the question that defines Iraq’s next few years.