• U.S. Treasury Secretary Bessent announced that any damage to Gulf allies from Iran-related attacks will be compensated using frozen Iranian funds.
  • The plan repurposes tens of billions of dollars in seized Iranian assets, raising questions about legal authority and diplomatic backlash.
  • Gulf states have welcomed the move, while Iran warns it may escalate tensions.

Funding Mechanism for Regional Security

U.S. Treasury Secretary Scott Bessent said on Thursday that the United States will use frozen Iranian assets to compensate Gulf allies for damages caused by Iran-backed attacks. Speaking at a financial forum in Riyadh, Bessent stated, "Any damage to our Gulf partners will be paid for with Iranian funds. It’s a matter of fairness and deterrence." He did not specify the exact amount available but noted that the U.S. holds billions of dollars in Iranian assets under sanctions.

The announcement comes amid a spike in attacks on oil infrastructure in Saudi Arabia and the UAE, which Washington attributes to Tehran. The plan would create a compensation fund administered jointly by the U.S. and Gulf states, with audits to track disbursements. People familiar with the matter said the Treasury is working on a legal framework to redirect the assets, which are currently held in escrow accounts under humanitarian exemption rules.

Market and Diplomatic Reactions

Gulf stock markets edged higher on the news, with the Tadawul All Share Index gaining 0.8%. Analysts said the plan could reduce the risk premium on Gulf sovereign debt. "This sends a signal that the U.S. will back its allies financially," said a Gulf-based economist. However, some legal experts questioned whether the U.S. can unilaterally seize the funds without triggering lawsuits from Tehran.

Iran’s foreign ministry condemned the move, calling it "theft of national assets" and warning of retaliatory measures. The U.S. had no immediate comment on Iran’s response.

Context and Implications

The U.S. has frozen Iranian assets since 1979, with over $20 billion currently held in accounts for humanitarian trade. Redirecting those funds to Gulf allies would mark a significant shift in sanctions enforcement. The plan could also encourage Gulf states to increase military spending, knowing they have a financial backstop. However, it may complicate ongoing nuclear talks and further strain U.S.-Iran relations.

This story has been updated to include market reaction.