The changing tone of global engagement with Israel

Beyond the immediate military and market effects, Israel’s strikes on Iran are catalysing a significant international political reaction.

Notably, even many of Israel’s traditional Western partners are responding with unusually strong criticism and renewed focus on the Israeli-Palestinian issue in the wake of this escalation.

The strikes come on the heels of global outcry over civilian suffering in recent conflicts, such as Gaza in 2024, which has already strained Israel’s diplomatic standing in Europe and elsewhere. Now, by attacking Iran pre-emptively, without broad allied support, Israel faces a wave of condemnation and concern from Western governments that it might previously have counted on for backing.

Keir Starmer (Britain’s Prime Minister) called for “restraint, calm and a return to diplomacy,” implicitly reproaching Israel’s resort to force and emphasizing stability over unilateral action[1].

Emmanuel Macron (France’s President) and Friedrich Merz (Germany’s Chancellor) similarly urged de-escalation in carefully worded statements that, while acknowledging Iran’s provocations, made clear that their governments do not support a widening war.

This tone marks a shift, where once European officials might have reflexively supported Israeli military actions as self-defence, they are now publicly urging caution and hinting at limits to their support.

In the United States, too, the political discourse is evolving. While the Trump administration has praised Israel’s strike, with President Trump framing Iran as having “brought the attack on itself” by defying nuclear deal terms[2], there is a notable lack of overt U.S. participation, and some American lawmakers are voicing worries about spiralling conflict.

U.S. officials are explicitly distancing Washington from the operation, suggesting that Israel cannot assume automatic U.S. military backing for offensives beyond its borders[3]. This nuanced stance, supporting Israel’s security but not necessarily its initiation of hostilities – indicates the Western appetite for Middle East conflicts is limited, especially after two decades of wars in the region.

NATO’s leadership, via Secretary-General Rutte, made it plain that allies are now working urgently to “de-escalate” the crisis, underscoring that Israel’s action is not being treated as a collective Western operation but rather a unilateral move that allies are trying to contain.

One of the most significant shifts now gaining momentum is a renewed international push to address the issue of Palestinian statehood, including serious moves toward formal recognition of an independent Palestinian state.

The war in Gaza in late 2024 and now Israel’s strike on Iran, which many see as another destabilizing use of force, have galvanized opinion in Europe and elsewhere that a sustainable peace framework in the Middle East must address Palestinian aspirations, both on moral grounds and to undercut extremism.

In recent days, top European diplomats have linked Israel’s behaviour to the stagnation of the two-state solution, arguing that Israel’s unchecked military measures are partly enabled by the indefinite deferral of Palestinian statehood. As a result, calls for concrete action on Palestinian recognition are mounting. France has taken the lead: President Emmanuel Macron’s office signalled that France is seeking “momentum” to formally recognize an independent State of Palestine in the near future[4].

On June 9, a letter from Palestinian Authority President Mahmoud Abbas was delivered to Macron, in which Abbas made a series of unprecedented commitments, such as urging Hamas to disarm and agreeing to security arrangements, in support of a two-state vision. French officials have hailed these assurances as “concrete” and “unprecedented”, clearing the way for European nations to move toward recognition of Palestine as a state.

France, in coordination with Saudi Arabia, has organised an international conference on the Palestinian question to be held at the UN in New York from June 17–21. The conference aims to marshal global support for a roadmap to end the Israeli-Palestinian conflict, implicitly raising the prospect that if progress isn’t made, France, and potentially other EU states, will proceed with recognizing Palestine unilaterally.

This marks a notable diplomatic shift, with European powers aligning more closely with Arab states like Saudi Arabia in a coordinated effort to counterbalance Israel’s current stance.

Other countries such as Spain, Ireland, and Sweden, the latter recognized Palestine back in 2014, are voicing stronger support for collective EU recognition if Israel’s hardline policies continue. Even the UK, historically one of Israel’s closer friends in Europe, has domestic voices and opposition leaders pressing for acknowledgment of Palestinian statehood as a tool to revive negotiations.

In multilateral forums, the Palestinian cause has regained sympathetic momentum, as seen in late 2024 when an overwhelming majority of UN General Assembly members voted to demand a Gaza ceasefire and bolster Palestinian rights. Now, with Israel’s Iran strikes drawing criticism, Western governments find it politically opportune to push Israel on the Palestinian issue as well, perhaps to reassert a moral high ground and mitigate anger in the Arab world.

These diplomatic shifts may point to a broader realignment in Middle East relations, including the potential slowdown or reversal of Arab-Israeli normalisation efforts seen during the Abraham Accords of 2020–21.

Saudi Arabia’s strong condemnation of Israel’s strike on Iran[5], despite its longstanding rivalry with Tehran, suggests that Riyadh feels compelled to publicly oppose Israeli actions, aligning itself with regional and religious expectations.

Saudi Arabia had been in talks, encouraged by the U.S., to normalize relations with Israel, but such plans are likely on hold. It would be politically untenable for Saudi Arabia or other Gulf states to formalise ties with Israel at a moment when it is widely viewed as the aggressor in a conflict with a fellow Muslim nation, and as renewed attention is being drawn to the Palestinian issue.

Instead, Arab states are closing ranks rhetorically. Even those that signed peace deals with Israel, like the UAE and Bahrain, have denounced the Iran strikes and will be recalibrating how close an embrace of Israel is prudent.

We may witness a subtle pivot where Gulf Arab countries emphasise their support for Palestinian statehood more strongly, both to appease domestic public opinion and to send a message to Israel. If Western countries like France start recognizing Palestine, Gulf states will certainly cheer and may leverage that in their own diplomacy, possibly coordinating recognition moves or tying future cooperation with Israel to progress on Palestinian sovereignty.

For investor sentiment in the GCC, these political undercurrents are a double-edged sword. On one hand, higher oil prices from the conflict benefit Gulf economies in the short run, filling state coffers of Saudi Arabia, UAE and Qatar, which could improve fiscal positions and potentially lead to increased government spending in those markets.

Additionally, a diplomatic realignment where Western powers engage more with Gulf states, for example, France working with Saudi Arabia on Middle East peace can enhance the Gulf’s geopolitical stature, potentially attracting more long-term foreign investment as the region is seen as indispensable in brokering stability.

The fact that Paris and Riyadh are jointly hosting a high-profile conference on Palestine highlights the growing role of Gulf states as partners to the West on key issues. This could bolster international confidence in flagship initiatives like Saudi Arabia’s Future Investment Initiative (FII) or the UAE’s high-profile economic and diplomatic forums, platforms increasingly seen as symbols of Gulf leadership in global affairs.

Greater alignment of GCC countries with Western diplomatic initiatives might reassure investors that the Gulf is politically savvy and somewhat insulated from being viewed as on the “wrong side” of a contentious issue. However, on the other hand, the immediate crisis raises risk perceptions for the region.

If Iran were to retaliate against U.S. or Israeli interests in the Gulf, a plausible scenario given the presence of U.S. bases and Western companies there, it could directly threaten infrastructure or stability in GCC nations.

Already, Gulf stock markets dipped on war fears despite the oil windfall[6]. Investors in the GCC will be weighing the chance of Iran extending the conflict to Saudi or Emirati targets. For instance, Iran or proxies might target Saudi oil facilities, recalling the 2019 Abqaiq attack, in revenge, which would spook markets.

If Western support for Israel weakens, it could shift the regional balance. The U.S. and Europe may turn to Gulf countries like Saudi Arabia to take a bigger role in dealing with regional challenges, especially Iran. That could give these Gulf states more political influence. But at the same time, it could increase friction, especially if long-standing tensions between Gulf states and Iran flare up as a result.

Such complexity can either be stabilizing, if it deters Iran or destabilizing, if it polarizes the region further. At the moment, investor sentiment in GCC markets is cautious, reflected in widened credit spreads and softening equity prices, as global funds reassess exposure to a region now at the forefront of geopolitical tensions[7].

If diplomacy gains traction, for example a ceasefire or new negotiations with Iran and a concurrent revival of the peace process for Palestine, GCC markets could see a positive re-rating: peace dividends in the form of more investment and economic optimism.

Conversely, protracted conflict would keep risk aversion high. Notably, Gulf investors often take cues from political leadership; with Saudi and Emirati leaders actively partaking in conflict resolution efforts, local investor sentiment may stay resilient, betting that their governments will manage to avoid direct entanglement while benefiting from higher oil revenue.

In conclusion, the Israeli strikes on Iran have set in motion far-reaching strategic ripples. Internationally, we observe Western allies beginning to balance their support for Israel with calls for accountability and renewed focus on Palestinian statehood, a development that could reshape alliances and power dynamics in the Middle East.

Investors are closely watching these shifts. A Western move toward diplomacy and a more balanced approach to the Israeli-Palestinian conflict could help lower long-term regional risk, but in the short term, markets in the region are likely to remain volatile as the situation continues to evolve.

The coming weeks will be critical. Diplomatic efforts, including the Paris-Riyadh conference and emergency UN sessions, will test whether this crisis can be turned into momentum for a broader peace initiative, including progress on Palestinian rights, or whether the region continues to drift toward deeper confrontation.

Meanwhile, strategic partnerships, such as U.S. and European support for Israel, will come under growing scrutiny, as policymakers navigate how to uphold longstanding alliances while responding to shifting public sentiment and working to prevent a wider war. For now, the situation remains highly fluid.

Both governments and markets are on high alert, weighing the risk of further escalation against the hope that behind-the-scenes diplomacy, possibly triggered by the shock of recent events, might still steer the region away from a deeper crisis.

The remainder of 2025 may well hinge on what follows Israel’s dramatic move, whether it leads to broader conflict or prompts a long-overdue return to negotiations on multiple fronts. Intelligence and financial communities around the world will be watching closely, aware that in this region, crises often redraw geopolitical and economic realities overnight[8].

Written by Aries Russell

Managing Director, Aries Intelligence

[1] Reuters, “World reacts to Israeli strike on Iran over nuclear programme,” June 13, 2025, https://www.reuters.com/world/middle-east/world-reacts-israeli-strike-iran-over-nuclear-programme-2025-06-13/#:~:text=AYATOLLAH%20ALI%20KHAMENEI%2C%20IRAN%27S%20SUPREME,LEADER.

[2] Reuters, “Stocks, oil sell off as Israel strikes Iran,” June 13, 2025, https://www.reuters.com/world/middle-east/view-stocks-oil-sell-off-israel-strikes-iran-2025-06-13/#:~:text=MATT%20SIMPSON%2C%20SENIOR%20MARKET%20ANALYST%2C,CITY%20INDEX%2C%20BRISBANE.

[3] Reuters, “World reacts to Israeli strike on Iran over nuclear programme,” June 13, 2025, https://www.reuters.com/world/middle-east/world-reacts-israeli-strike-iran-over-nuclear-programme-2025-06-13/#:~:text=AYATOLLAH%20ALI%20KHAMENEI%2C%20IRAN%27S%20SUPREME,LEADER.

[4] Le Monde, “France seeks momentum before recognizing Palestinian state,” June 12, 2025, https://www.lemonde.fr/en/international/article/2025/06/12/france-seeks-momentum-before-recognizing-palestinian-state_6742279_4.html#:~:text=state%20www,several%20%27concrete%27%20and%20%27unprecedented.

[5] Reuters, “World reacts to Israeli strike on Iran over nuclear programme,” June 13, 2025, https://www.reuters.com/world/middle-east/world-reacts-israeli-strike-iran-over-nuclear-programme-2025-06-13/#:~:text=going%20to%20get%20hit,A%20lot%20more.

[6] Reuters, “UAE bourses, regional markets, bonds fall after Israel strikes Iran,” June 13, 2025, https://www.reuters.com/world/middle-east/uae-bourses-regional-markets-bonds-fall-after-israel-strikes-iran-2025-06-13/#:~:text=OIL%20PRICES%20SURGE.

[7] Reuters, “UAE bourses, regional markets, bonds fall after Israel strikes Iran,” June 13, 2025, https://www.reuters.com/world/middle-east/uae-bourses-regional-markets-bonds-fall-after-israel-strikes-iran-2025-06-13/#:~:text=OIL%20PRICES%20SURGE.

[8] Reuters, “Israel says it strikes Iran amid nuclear tensions,” June 13, 2025, https://www.reuters.com/world/middle-east/israel-says-it-strikes-iran-amid-nuclear-tensions-2025-06-13/#:~:text=been%20sharply%20degraded%20over%20the,Lebanon%20and%20Hamas%20in%20Gaza.