Iran’s response to the American and Israeli assault has consisted principally of missile and drone strikes against the petrostates along the Persian Gulf and has already had an economic impact which goes beyond the surge in oil prices.

The five main targets, reading north to south are Kuwait, Bahrain, Qatar, Abu Dhabi and Dubai, the last two being constituent kingdoms of the United Arab Emirates.

Further south again lies Oman, targeted despite its efforts at mediation, while facilities in Saudi Arabia’s northeast have also been struck.

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The expectation that the spike in oil and gas prices would prove temporary has faded, even if US president Donald Trump chooses to declare victory and scale back the joint war with Israel on Iran.

Some of the damage already inflicted on oil and gas infrastructure by the Iranians will restrict exports from Gulf oil and gas terminals, even if safe passage through the Strait of Hormuz becomes possible soon.

The great gasfield which lies between Qatar and Iran lies partly in each state’s jurisdiction and has been a critical source of state revenue, especially for Qatar.

Both sections of the field have been attacked – the Iranian part by Israel and the Qatari part by Iran – and there has been damage to the refineries and natural gas liquefaction plants.

Until these have been repaired, there is no cargo for the tankers, even if they could move freely again. There appears to be no independent assessment of the damage or of how long it will take to fix – crews of inspection engineers in Qatar are endangered so long as drone strikes continue.

Additional capacity due to be constructed by Qatar later this year may be deferred, in addition to whatever repairs are possible. A prompt cessation of hostilities thus may not deliver an early end to the supply shortages for oil and liquefied natural gas.

Fertiliser supplies have also tightened since plants along the Gulf producing key inputs have been hit. Ireland is a net importer of fertiliser, and price rises have been reported.

Sovereign wealth

All of the Gulf monarchies have accumulated net sovereign wealth over the years, deployed in worldwide investment funds.

They have also, especially the two UAE cities and Qatar, diversified their economies into tourism, aviation and the tax-driven expat property business.

These three diversification bets have prospered, but the conflict threatens all three. Qatar Airways, Etihad in Abu Dhabi and most notably Emirates in Dubai have built successful airlines and major airports, exploiting geographical location for destination tourism and for connecting traffic from Europe and north America on to Asia and Oceania.

But the tourism attractions have been damaged and there are sunny alternatives in southern Europe and north Africa, while the tax-driven expat business has competitors too.

Aviation volumes also benefit from the large workforces in the construction and hospitality industries who travel regularly to their home countries in south Asia.

Aside from the problems of stranded passengers and emergency rescue flights, bookings for later this year and into the peak winter season have already collapsed and the three airlines, money-spinners for the monarchies (all three are state-owned) will struggle.

Emirates, the largest, has an additional problem – it is by far the largest operator of the twin-deck superjumbo the Airbus A380 and owns over 100, more than half the worldwide fleet still operating.

The aircraft type was not a commercial success, Airbus no longer builds the model, there is no supply-chain for spares and Emirates’ older A380s are already being cannibalised.

Moreover, the airport at Dubai has a costly terminal specially designed for A380s with double jetways, not suited to smaller alternatives.

The Dubai property market has already nosedived, and some expats who have exited may face tax domicile problems with maximum-day restrictions on time spent in their European first homes.

If the diversification bets in the aviation sector go down, the beneficiaries will include European carriers, for example Turkish Airlines, who can offer alternatives through their hubs in places like Istanbul.

An end to the Ukraine conflict, whenever it comes, would see European and north American carriers free to use Russian airspace again – some of the recent popularity of the Gulf hubs is explained by this factor.

In addition to tourism and aviation, the diversification strategies have included a concerted effort to become host locations for sporting fixtures, and there have been cancellations including two motor racing Formula 1 events.

The war is a potential disaster for the Gulf monarchies since their bets on economic diversification have come unstuck.

The conflict hits government revenue and the ability to sustain the sovereign wealth funds. These have been a steady source of international capital, and there are already fears that there will be partial liquidation, squeezing the supply of risk capital in Europe and around the world.