Made in the USA

Contra Krugman on Gulf culpability for the war on Iran

Normally, one criticizes a Paul Krugman argument at some risk to oneself. Given that I earned one of my lowest college grades in macroeconomics—Krugman's specialty—I rarely have occasion to do anything but nod along when he writes on his core topics. But his most recent column is so off-base that it deserves a response.

Krugman argues that the countries of the Gulf Cooperation Council (Saudi Arabia, Oman, Qatar, the UAE, Kuwait, and Bahrain) leveraged their immense oil wealth, and concomitant potential to invest in the U.S. economy and the Trump family dynasty, to persuade Trump to attack Iran.

This is not a serious argument—or, as we say, a reality-based one. It ignores the many pieces of contrary evidence and ends up weakening the case against Trump’s culpability for the war.

On the investment point, Krugman argues that GCC countries’ pledges to invest in the United States have bucked up Trump’s vaporware claims about trillions of investment pledges in the United States. That part is accurate—many of these deals are so far paper commitments, rather than actual movements of funds. (It’s also not clear how far into the future they stretch, making it harder to value them.) To be sure, GCC countries do invest a lot overseas, and one does hear that lower-level commitments, in the billions or tens of billions annually, were actually being made with earnest money. I also wonder whether many of those commitments involve investments in U.S. firms, particularly AI and data centers, which would be more explicable. But this is quibbling: yes, Trump inflated the GCC's investment commitments, and he clearly coveted the opportunities to announce DEALS with superlatives and dollar figures attached.

Now, let’s look at the tape. What’s the current status of those investment pledges? Does it look like GCC countries are thrilled with a war Krugman asserts they used their influence to bring about? Publicly, there’s no change to sovereign wealth fund activities—but privately, as Reuters reports, you can bet that the guys in green eyeshades are taking tough looks at their spreadsheets.

That should be unsurprising. Economically, the war has been a heavy blow for Gulf states. Cutting off the flow of oil and gas is obviously a major setback to Gulf economies; for Qatar and the Emirates, losing transportation flows via Qatar Airways, Etihad, and Emirates is another hit. And those aluminum, sulfur, and fertilizer plants weren’t being run as charities, either. In all, the conflict might shave up to 14 percent of GDP from Kuwait and Qatar this year (and multiple percentage points off the UAE and Saudi). Not that any of this was a surprise to anyone around here: cutting off the Strait of Hormuz is one of the scenarios that anyone with a map expected in a conflict like this one.

Militarily, of course, it’s also been a blow. The Emirates, Kuwait, Bahrain, and Qatar have taken some knocks in the war (especially, the UAE, a particular focus of Iranian ire). Now, it’s possible governments might advocate for wars that turn out to be trickier than expected—that seems to have been the case for the United States, for instance! But if there's one thing Gulf countries have been united on recently, it's been opposition to a war with Iran—and especially not wanting the United States and/or Israel to start one. (This was a particular goal for Qatar, which now finds itself on the front lines of a bombing campaign for the third time in less than a year.)

The second pillar of Krugman’s argument fares little better. He quotes a Washington Post article as stating that the Saudi crown prince lobbied Trump to bring the war about—but this is reporting that, to put it mildly, many people are skeptical about. More persuasive is the Financial Times assessment that the Iran war is a knock (gift link) to MBS, who wanted regional stability to buy time to execute his Vision 2030 economic diversification plans. Over the past several years, Riyadh has tried hard to lower the temperature in its relations with Iran precisely because the Kingdom would prefer to work on domestic ventures in relative peace.

And it's especially odd that Krugman attributes MBS's influence over Washington partly to things like the Qatari gift of a new Air Force One—Qatar and Saudi Arabia, you may have heard, are different countries, which cooperate in some spheres and compete in others. In fact, it makes a lot more sense if you view those gifts, those pledges, and the general red-carpet treatment that the Gulf has rolled out for Trump since even before the second term began as constituting in larger part a strategic campaign against the sort of reckless, heedless campaign that Trump has begun.

The search for “who lost Iran?” is already beginning. From the right, the charge is that Netanyahu made Trump do it—and there’s no shortage of audiences for that charge on the left, as well. But it’s best to keep accountability for Trump’s war where it belongs. This war wasn’t manufactured in the Gulf: it was made in the USA.