Since negotiations began to end the U.S.-Israeli military campaign against Iran, Tehran has demanded reparations for damages it has incurred from what it alleges was an illegal war, along with the release of billions of dollars in assets frozen by Washington. As negotiations continue over the terms of a final settlement,, U.S. Treasury Secretary Scott Bessent has proposed a different destination for the $24 billion in frozen funds: directing them toward the Gulf states to repair the extensive damage they have suffered from the thousands of missiles and drones Iran has launched against them over the past three months.
Whether reparations by either side constitute a serious ask—legally or politically—is an important question, irrespective of whether a near-term deal is reached. The international law predicate for compensating the Gulf is stronger than it might appear, but the domestic legal vehicle Washington is relying on cannot bear the weight being placed on it. The political dimensions are at least as complicated: Iran will not look kindly on Gulf states being party to the seizure of its assets, and those states have not publicly endorsed a proposal that could make them a target.
In any case, without a structured, multilateral mechanism, Washington’s proposed approach risks being a signal Tehran will not believe, a framework American courts may not sustain, and a hollow promise to the Gulf states bearing the actual cost of the conflict.
The Case for Gulf Compensation Is Not Complicated
Iran launched more than 6,400 missiles and drones against Arab states in the first six weeks of the war. Kuwait’s airport was struck repeatedly, killing one person and wounding dozens. Abu Dhabi’s Barakah nuclear power plant was hit, causing what the International Atomic Energy Agency director called a “serious compromise of nuclear safety.” Qatar’s Ras Laffan LNG complex suffered a direct hit causing billions of dollars in damage and losing roughly 17 percent of its output.
The economies of the Gulf states have been shattered, along with the perception of safety and stability that long underpinned them. The case that Iran should pay for what Iran destroyed is not complicated.
When Russia invaded Ukraine, American legal scholars spent two years working out what international law and domestic statute actually permit. That debate produced a clear framework, and it applies directly to the limits of what Bessent is promising the GCC.
The first lesson is that the International Emergency Economic Powers Act (IEEPA), the primary legal tool successive administrations have used to impose sanctions and freeze foreign assets, does not do what its name might suggest. The IEEPA permits freezing but not seizing. Congress deliberately stripped the confiscation power from IEEPA when it was enacted in 1977, leaving that authority in the Trading with the Enemy Act, a World War I-era law that applies only in declared wars. The 2001 Patriot Act added a narrow exception for direct attacks on the United States. The 2024 REPO Act carved out Russian state assets specifically. There is no equivalent carve-out for Iranian assets. Bessent’s “all available authorities” language is doing considerable work, because the honest version of that sentence is shorter: U.S. executive authorities are limited.
Beyond the statutory problem, the Foreign Sovereign Immunities Act’s (FSIA) protections for central bank assets and the international law doctrine of sovereign immunity both apply to Iranian assets with at least as much force as they applied to Russian assets. The FSIA protections are particularly strong: customary international law requires immunity from execution for currency reserves, and the U.S. Supreme Court has never clearly held that foreign states lack due process protections when their property is at stake. Iran has already demonstrated it will not let Washington proceed quietly—Tehran has filed suits at the Hague invoking the Algiers Accords, and its lawyers will exploit IEEPA’s limits to stall any transfer.
There is also a structural implementation problem that the Washington debate tends to obscure. The bulk of Iran’s frozen assets sit not in American financial institutions but in China and Iraq, outside direct U.S. jurisdiction. Converting Bessent’s directive into actual compensation for Gulf allies requires cooperation from Beijing and Baghdad, both of which have complicated relationships with Tehran and neither of which has shown any inclination to assist. Treasury can designate, announce, and signal. It cannot unilaterally transfer funds it does not control.
Where the Regional Case Is Actually Stronger
The international law predicate for using Iranian assets to compensate Gulf states is arguably stronger than the Ukraine predicate, primarily due to multilateral legitimacy. Russia used its Security Council veto to block any UN authorization for action against its assets. Iran has no such protection. When the Security Council voted in March 2026, China and Russia chose to abstain rather than veto, allowing a resolution condemning Iran’s attacks to pass 13-0.
The countermeasures doctrine holds that states may take actions otherwise prohibited by international law when designed to bring a violating state back into compliance. The key constraint is reversibility: countermeasures must be temporary and capable of being undone. Continued freezing of assets satisfies this requirement. Outright confiscation and transfer to third parties does not, and the U.S. plan crosses exactly that line. Collective countermeasures—where third-party states join the injured party in maintaining pressure—are more legally defensible than unilateral ones, and the Gulf states are themselves the injured parties. But stronger ground is not the same as sufficient ground, and the reversibility problem remains a fatal flaw in the American proposal as currently constructed.
The Versailles Problem
The conventional wisdom on reparations, anchored in economist John Maynard Keynes’s The Economic Consequences of the Peace, is that they do not work. Published in 1919, the book predicted that punishing reparations imposed on Germany by the Treaty of Versailles would destroy its economy, a prophecy that proved prescient, as those very conditions paved the way for the rise of the Third Reich and the outbreak of World War II.
What failed at Versailles was punitive, open-ended liability without a structured mechanism for adjudication or termination. The Iran-U.S. Claims Tribunal, established under the Algiers Accords of 1981, is the counter-example that current U.S. policy keeps overlooking. It worked because it was structured, bilateral, and reversible. A similar mechanism for Gulf state damages, funded through frozen Iranian assets and conditioned on a comprehensive settlement, would be far more legally defensible and strategically coherent than what Bessent is currently describing.
The Political Problem
Saudi Arabia, the United Arab Emirates, Kuwait, Bahrain, Qatar, and Oman have all been silent on the Bessent proposal. Becoming visibly party to the seizure of Iranian sovereign assets carries real risks for states simultaneously trying to manage their own relationships with Tehran, which has already made clear that Gulf states it views as complicit in the U.S.-Israeli campaign are fair game. The proposal is designed to help them; it could also make them targets.
Bessent’s announcement landed even as Tehran was demanding access to the same assets as part of any broader settlmenet with Washington. It reads less like an executable legal policy and more like a pressure signal: the longer Tehran holds out, the more of its money funds its neighbors’ repair bills. That logic is not irrational. But pressure signals only work when the other side believes the threat can be carried out, and Tehran has reasons to doubt that. Most of the assets sit in China and Iraq, outside Washington’s hands.
Without an updated legislative architecture or a shift toward a structured trilateral mechanism like the Algiers framework, the current U.S. plan remains a signal Tehran will not fully believe, a framework American courts may not sustain, and a hollow promise to the regional states bearing the actual cost of the conflict.
The opinions expressed in this article are those of the author and do not necessarily reflect the views of the Middle East Council on Global Affairs.
