In March 2026, when the joint US-Israeli operation codenamed “Epic Fury” had already led to the death of Iran’s Supreme Leader Ayatollah Ali Khamenei and struck key facilities of the Islamic Republic, Tehran responded with an escalation of unprecedented scale. For the first time in the region’s history, all six countries of the Cooperation Council for the Arab States of the Gulf were subjected to such massive attacks. As expected, Iran did not limit itself to shelling American military bases, because numerous civilian objects and energy infrastructure came under fire. Tehran’s actions caused civilian casualties, the temporary closure of a significant part of oil and gas enterprises, the suspension of operations in key ports and, most importantly, an almost complete halt to shipping through the Strait of Hormuz.

In this new reality, the financial channels that for decades had allowed Iran to circumvent Western sanctions turned out to be not merely restricted, but profoundly undermined. Banking assets faced the risk of freezing, cross-border settlements were paralyzed, and any remaining trade flows encountered the threat of secondary sanctions and direct military destruction.

Historical Context: From Ideological Rift to Attempts at Pragmatic Coexistence

Relations between Iran and the Persian Gulf monarchies since the Islamic Revolution of 1979 have invariably been accompanied by profound duality. On the one hand, geographical proximity and shared oil interests created the ground for inevitable cooperation. On the other - ideological confrontation between the Shiite theocracy and Sunni dynasties, which is exacerbated by territorial disputes and the struggle for regional leadership.

Analytical materials as early as 2016 already emphasized that after the conclusion of the Joint Comprehensive Plan of Action, trade with Oman quickly grew to one billion dollars, while the United Arab Emirates became the main hub for thousands of Iranian companies and re-export operations. Nevertheless, the military component never receded into the background. The Islamic Revolutionary Guard Corps preferred to act through proxy forces, avoiding direct confrontation with the Gulf states.

It seemed that a certain breakthrough had occurred in 2023, when, with Chinese mediation, normalization of relations between Iran and Saudi Arabia was achieved, while Oman continued to act as a neutral mediator. Diplomatic efforts by Muscat to de-escalate and the development of trade ties created the impression of a gradual transition to pragmatic, almost peaceful coexistence. However, the resumption of the “maximum pressure” policy by the US administration after Trump’s return, Israeli preemptive strikes on Iranian facilities in 2025, and finally the current escalation returned the situation to open confrontation, demonstrating the fragility of any diplomatic achievements.

Financial Mechanisms: From Joint Banks to Shadow Schemes

Until the 2026 escalation, Iran’s financial ties with the Gulf countries, although remaining strictly limited by international sanctions, still retained a certain level of activity, especially in Oman and Bahrain. In Bahrain, the key element was the joint Future Bank, a venture of Iranian Bank Melli and Bank Saderat with the local Ahli United Bank, which before its forced closure in 2016 processed at least 7 billion dollars in transactions, including lending to structures linked to the IRGC. After the bank’s liquidation, Bahraini authorities confiscated assets worth about 1.3 billion dollars, while subsequent Iranian lawsuits in The Hague brought only symbolic compensation. Oman, by contrast, demonstrated a more flexible approach. Bank Muscat for many years held billions of dollars of Iranian oil revenues in rials, and in 2025 the creation of a joint bank was actively discussed. Iranian companies openly registered in Omani free economic zones, bilateral trade volumes grew, and IRGC front companies such as Nimr International actively used the ports of Sohar, Duqm and Salalah for oil transshipment.

A special and decisive role in these mechanisms belongs to the Islamic Revolutionary Guard Corps, which long ago turned into a powerful parallel financial organism capable not only of waging war but also of circumventing the harshest sanctions. Through the Khatam al-Anbiya holding under its control, the IRGC oversees a huge sector of the Iranian economy, from oil production and construction to port infrastructure and telecommunications, turning restrictions into a source of enrichment for its own resources. It is the IRGC and its Qods Force that built a multi-layered shadow banking system that allows laundering billions of dollars annually from the sale of oil and petrochemicals. According to FinCEN data for 2025, the volume of such operations through American correspondent accounts alone exceeded 9 billion dollars, with the main network nodes located in the free zones of the UAE, Hong Kong and Singapore.

The mechanism, as far as can be understood from the limited data available, works as follows: Iranian exchange houses inside the country create a network of shell companies abroad that open fictitious accounts and conduct multi-layered transactions. Oil is sold through the “shadow fleet” of tankers with AIS switched off, often with ship-to-ship transfers in the waters of Oman or the UAE. Revenue flows to front-company accounts in Dubai or Hong Kong and is then returned to Iran through cryptocurrency, primarily USDT on the TRON blockchain, or internal accounting entries. Or it is directed toward arms purchases and the financing of proxy groups.

The IRGC-Qods Force directly controls such networks. For example, companies like Nimr International in Oman and Orbit Petrochemicals Trading were used to organize oil supplies to China, while the Zarringhalam brothers, through their exchange houses GCM and Berelian, laundered billions of dollars specifically for the IRGC-Qods Force and the Ministry of Defense. In 2025, American sanctions also exposed the crypto channels. A single network linked to IRGC-QF processed more than 600 million dollars in digital assets for the purchase of components for ballistic missiles and UAVs.

In the conditions of the 2026 war, this model underwent radical changes. Direct strikes on the ports of Duqm and Salalah in Oman, on infrastructure in Manama in Bahrain and on energy facilities throughout the Gulf led to an almost complete halt in traditional banking and trade operations. IRGC structures, including Khatam al-Anbiya and the associated “oligarchic” networks, continue to operate through digital assets and the sanctioned “shadow fleet” tankers, but the volumes of these operations have sharply decreased due to physical damage to port infrastructure. From the Iranian point of view, such mechanisms remain a forced measure of economic survival under blockade conditions. The Gulf countries, on the contrary, now view any remaining financial links as direct financing of aggression, which further increases pressure on the region’s banking sector and underscores how deeply the IRGC is integrated into Iran’s economy.

Iran’s Military Trajectory: From Proxy Wars to Direct Strikes Across the Entire Gulf

Iran’s military strategy toward the Persian Gulf has gone through several clearly defined stages. Until 2026, Tehran consistently preferred actions through its Houthi allies in Yemen, who struck Saudi and Emirati territory in 2019–2022, threatened to close the Strait of Hormuz and carried out pinpoint attacks on tankers. Direct strikes on the sovereign territory of the monarchies were avoided, limiting themselves to accusations against the United States and its allies. Naturally, all of that now belongs to the past.

The strikes on the UAE, Saudi Arabia, Bahrain, as well as on Kuwait, Qatar and even traditionally neutral Oman were particularly intense. Tehran openly stated its intention to “spread pain” to everyone who provides territory for American bases, including civilian objects, in order to force the Gulf countries to pressure Washington. Although the monarchies’ air defense systems demonstrated high effectiveness, the drones and missiles that broke through led to the shutdown of oil and gas production, a surge in global energy prices and serious humanitarian risks.

Various Sides and Regional Consequences

From the Iranian perspective, the strikes represent legitimate self-defense and an attempt to impose an unacceptable price on the aggressor, although in practice they mainly affected civilian objects. The Gulf countries, especially Bahrain and the UAE, view Iran’s actions as a gross crossing of the “red line.” Their joint statement with US participation condemns the “reckless and indiscriminate aggression” and considers the possibility of retaliatory measures. For Oman, the strikes on Duqm and Salalah became a heavy blow to its policy of neutrality, and for Bahrain - confirmation of long-standing fears regarding “Shiite influence.”

For Azerbaijan, as Iran’s immediate neighbor and a key player in the Caspian region, these events have multifaceted consequences. On the one hand, the rise in global oil and gas prices may bring short-term budget benefits and strengthen Baku’s position on energy markets. On the other, risks of destabilization of sea routes, possible refugee inflows and disruptions in supply chains. Moreover, on March 5, several drones fell on the territory of Nakhchivan in southern Azerbaijan, causing destruction to the local airport and affecting a nearby school.

Prospects

Under the conditions of the ongoing war, the restoration of financial channels through Oman and Bahrain in the coming months appears highly unlikely. The long-term trajectory will depend on the outcome of the conflict: if Iran is weakened, the Gulf countries will be able to move to a tougher containment policy. If the war drags on, proxy mechanisms and shadow financial schemes will inevitably return in a new form. In any case, the events of March 2026 have finally destroyed the illusion of the Persian Gulf’s isolation from the Iranian threat, forcing the region to reconsider its entire security architecture and economic partnership. This complex balance between financial pragmatism and military reality will determine the stability of the entire Middle East for many years to come, requiring all actors, including Azerbaijan, to exercise the utmost caution, diplomatic flexibility and strategic thinking.