Kevin Warsh was sworn in as chairman of the United States Federal Reserve System by Donald Trump after the Senate confirmed his nomination by a narrow majority. The vote starkly reflected the deep partisan divide in the country. Jerome Powell’s term officially expired, but he remained in office as acting chair until the handover, saying he intends to exercise his legal right to remain a member of the Board of Governors until the end of his term in January 2028. Powell said his decision was aimed at protecting the bank’s independence and completing criminal investigations against him, although analysts believe the move could delay the appointment of a Trump‑friendly successor.
Warsh takes office amid a complex economic and geopolitical trial, as his previous promises clash with an escalation of military conflict with Iran and its impact on global markets and the policies of Gulf countries. Before his nomination, Warsh was known for supporting rate cuts, based on the theory that a productivity boom tied to artificial intelligence could naturally restrain inflation, allowing aggressive rate cuts without inflationary risks. However, the start of U.S.-Israeli attacks on Iran pushed oil prices above $110, disrupted shipping in the Strait of Hormuz, and affected production in some exporting countries, completely changing the economic picture.
Oil shocks and tariffs introduced by Trump have again pushed U.S. inflation to around 3.8%, nearly double the Fed’s 2% target. As a result, Warsh was forced to adjust his rhetoric despite his prior inclination toward rate cuts. Wall Street analysts’ forecasts point to interest rates remaining at 3.50%–3.75% throughout 2026, with possible hikes later if inflation continues to rise. This reversal puts pressure on the policies of central banks in countries whose currencies are pegged to the dollar, forcing them to synchronize their rates to prevent capital outflows and to combat local inflationary waves.
Sustained high rates mean continued expensive borrowing for companies and households in several countries in the region and the Gulf, which could slow growth in non‑oil sectors such as construction, development and finance. At the same time, Gulf budgets are receiving significant surpluses thanks to high oil prices caused by the war and supply disruptions. However, high interest rates pull liquidity away from local stock markets into safe bonds and high‑yield deposits, limiting the growth of Arab exchanges despite huge oil revenues, creating an economic paradox in the region.
Regional instability has increased trade costs and the risks of maritime transport, forcing some economic powers to seek dollar swap lines from the Fed to secure foreign liquidity amid military uncertainty. The most vulnerable are Arab countries that are not oil exporters: higher U.S. rates make it harder to return “hot money,” complicate external debt financing, and raise the cost of energy imports. Thus, the foreign currency shortages in these states are directly exacerbated by rising oil prices and geopolitical turbulence.
Ultimately, the change of the “master of the dollar” plunges the region into a phase of waiting and domestic monetary discipline: peg‑to‑dollar regimes force central banks to follow Fed decisions even when they are undesirable, guided by the principle “if you live with wolves, howl like a wolf.” Arab borrowers and investors will have to postpone major plans for financial expansion until the geopolitical picture becomes clearer. The wise course now is to rationalize spending and reserve liquidity, because “a penny saves a ruble” in an era of news about oil tankers and tweets from the White House inhabitant.
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What strategic significance does the Strait of Hormuz have for the global economy and why does its disruption affect oil prices? — About 20–25% of the world’s seaborne oil and liquefied gas trade passes through the Strait of Hormuz. This narrow waterway is the main transporter of energy from the Persian Gulf countries (Saudi Arabia, Iraq, Kuwait, the UAE, Qatar and Iran itself). Any disruption — military action, blockade or even the threat of closure — sharply reduces oil supply on the global market, which immediately pushes prices up. Attacks on tankers in the region in 2019–2020 already caused price spikes despite temporary fluctuations.
Why are Gulf countries forced to follow the decisions of the United States Federal Reserve even if it is disadvantageous? — Most Gulf countries (Saudi Arabia, UAE, Kuwait, Qatar, Bahrain and Oman) have pegged their national currencies to the U.S. dollar at a fixed exchange rate. This is done for the stability of oil trade, which is denominated in dollars. When the Fed raises interest rates, Gulf central banks are forced to do the same to avoid currency devaluation and capital outflows. Even if this slows their economies or raises inflation, abandoning the peg could destroy investor confidence and undermine the dollar‑based oil payment system — which would be strategically unacceptable for them.
Which Arab countries are most vulnerable in a conflict with Iran and why are they not oil exporters? — Among Arab countries that do not export oil in significant volumes, the most vulnerable are Jordan and Lebanon. Jordan relies heavily on energy imports (especially gas and oil from Iraq and Egypt) and on transit of goods through Red Sea ports. Conflict with Iran could cut off its supply lines. Lebanon, in deep economic crisis, imports almost all energy and has maritime routes vulnerable to shelling or blockade from the south (by Israel) or the west. Also vulnerable are Bahrain (which produces oil but marginally — less than 50,000 barrels per day) and Syria (devastated by war, lacking major export capacity). Their vulnerability stems from geographic proximity to Iran or its allies (for example, Hezbollah in Lebanon), weak infrastructure and lack of domestic energy resources, making them hostages to regional shocks.
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