Oman and the political economy of the Strait of Hormuz

Gulf states have answered Iranian pressure in two very different ways. Saudi Arabia and the United Arab Emirates bought protection: air defence systems, advanced fighter jets, protected air bases. Oman bought access instead. It refused to join the Saudi-led war in Yemen, refused to join the 2017 blockade of Qatar, and kept an open line to Tehran throughout. Commentators sum this up with one label: Oman as the Switzerland of the Gulf.

The label is wrong in one important way. Switzerland was never bombed by a country it was mediating with. Oman has been. Even so, Oman has come out of the worst year in modern Gulf history with stronger public finances, an intact diplomatic role, and a legal position that means the Strait of Hormuz cannot be settled without its agreement. This is design, not luck. It rests on three supports, and all three are under more pressure now than at any time since 1970.

The numbers set out the first support. The International Monetary Fund has raised its 2026 growth forecast for Oman to 3.7 per cent, up from 2.4 per cent in 2025. It expects a budget surplus of 4.5 per cent of GDP, and it put government debt at 34.7 per cent at the end of 2025. The reason matters more than the figures. Omani oil and gas facilities came through the war largely undamaged, so Muscat could raise production and exports at the very moment supply elsewhere collapsed.

The Emirates show the contrast. The chief executive of ADNOC has estimated that the closure has cost more than one billion barrels, with roughly 100 million more lost every week, and that flows will not be normal until 2027.

Abu Dhabi has answered with construction rather than diplomacy. The West-East pipeline to Fujairah is about half built, and it is meant to push total Emirati bypass capacity past 5.5 million barrels a day.

Oman’s ports sit somewhere different. Duqm, roughly 500 kilometres beyond the strait, has drawn about $30 billion in committed investment, and Iraq has revived plans for a Basra-Duqm pipeline able to carry 2.5 million barrels a day.

The common claim that Duqm has taken business from Emirati ports does not hold up, however. Jebel Ali sits inside the Gulf and is no bypass at all, and Fujairah, the real bypass, remains far larger. Duqm gives Oman an option, not an edge over its neighbours, and that option grows more valuable every time the strait looks unsafe.

Oman’s second support is its near-monopoly on talking to both sides. Muscat hosted the secret American-Iranian meetings of 2013 that led to the 2015 nuclear deal. It arranged the 2023 swap of five American detainees for Iranian access to $6 billion in frozen funds. It did much of the preparatory work before Saudi Arabia and Iran restored relations, and it ran the main channel to the Houthi leadership during the Yemen war. Five rounds of American-Iranian nuclear talks were held in Oman from April 2025, with further rounds in Muscat in February 2026.

Oman’s dealings with Israel are the least understood part of this, and the most exaggerated. Benjamin Netanyahu did visit Sultan Qaboos in October 2018, travelling with Mossad director Yossi Cohen, and Oman did open its airspace to Israeli airlines in February 2023.

Neither step was normalisation, and neither was meant to be. Muscat told the Palestinian Authority at the same time that formal ties would not follow, and academic work on Omani policy treats that refusal as permanent rather than tactical. The Israeli channel is kept deliberately below the level of recognition. It buys American patience without costing Oman Iranian trust. Leaving it unfinished is the whole point.

Geography and maritime law supply the third support. At its narrowest, the Strait of Hormuz is 21 nautical miles wide, between the Iranian island of Qeshm and Oman’s Musandam exclave. The shipping scheme set by the International Maritime Organization has two lanes, each two nautical miles wide, with a two-mile buffer between them. All of it lies inside Omani waters, because the 1968 Iran-Oman seabed agreement drew the boundary so that the deep-water channels fall on Oman’s side.

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This explains the current talks. Tehran and Muscat have agreed coordinates for a system in which ships enter through Iranian waters and leave through Omani waters, with Oman managing the outbound traffic. Neither an American blockade nor an Iranian closure can be resolved without Oman.

Security works the same way. The Strategic Framework Agreement of March 2019 gave American forces access to Duqm and Salalah. Oman signed a military memorandum with Iran within weeks.

There is a cost to this arrangement. Iranian drones hit Duqm on 1 and 3 March 2026, damaging a fuel tank and a workers’ housing unit, and the Revolutionary Guard said it was aiming at American logistics facilities. Salalah was hit too, and a projectile later struck a house at Bukha in Musandam. The same asset that buys American goodwill is what exposes Oman to Iranian fire. Chatham House drew the right lesson from Oman’s position in eastern Yemen. Staying neutral does not keep a country safe; it only limits the damage.

Two things limit this strategy in the short term. American patience is running out: President Trump warned on 27 May 2026 that Oman would fall into line over the strait or be attacked, and the Treasury Secretary threatened heavy sanctions the next day. The model also depends on trouble. Calling Oman a conflict profiteer would be unfair, given the effort it has spent trying to end the war, but Duqm’s value and Muscat’s diplomatic weight both rise when the region is unstable and fall when it calms.

Neither limit is as serious as it looks, for three reasons.

The first is the record of the war itself. ACLED counted more than 660 Iranian retaliatory attacks across the Gulf, killing at least 41 people. The Emirates were hit hardest, Kuwait lost the most lives, and Oman was hit least, which ACLED puts down to its channels to Tehran. The financial damage followed the physical damage. Fitch placed Qatar’s AA rating on negative watch after the strikes on Ras Laffan, and marine war-risk premiums for Gulf voyages roughly tripled. IMF figures from April show Oman growing alongside Saudi Arabia and the Emirates, while Bahrain, Kuwait and Qatar contract. Insurers and investors are now pricing the next decade of Gulf risk, and the war has just shown them which Gulf state is least worth attacking. Oman is not safe because it is well defended. It is safe because hitting it serves nobody. No amount of Emirati spending on air defence buys that.

The second is American posture. The United States had already started shifting towards more dispersed basing along the Red Sea and the Mediterranean, because fixed Gulf bases sit inside Iranian missile range. Kuwait is reportedly under review, and the President has declined to say whether American forces will stay there or in Bahrain. A thinner American presence leaves Israel and the Emirates as the region’s preferred instruments, backed from a distance rather than garrisoned. Oman has never sought that role and could not take it. Its position is simpler and more permanent. Iran will still be 21 nautical miles away long after the last carrier leaves.

The third is the nature of the channel. Muscat answers a structural problem rather than a political one: every American government eventually needs to talk to Tehran without appearing to talk to Tehran. Obama used Oman in 2013, Biden in 2023, and the present administration in 2025, before deciding to bomb instead. It leaves office in January 2029. Its successor will inherit the same problem and the same very short list of capitals able to help with it.

Oman’s difficulty is therefore one of timing, not of design. It has to survive an administration that has lost patience with it, and it has to manage a neighbour it can neither deter nor escape.

But the two assets underneath the strategy are not in anyone’s gift to remove: a coastline without which the strait cannot be settled, and a working relationship with Tehran that neither side has reason to break. Muscat’s problem is the next two years. Its position after that is stronger than that of any other capital in the Gulf.

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