US-Iran escalation continues amid renewed drone and missile strikes

WASHINGTON/DUBAI: The United States said it shot down two more Iranian attack drones threatening maritime traffic in the Strait of Hormuz, as tensions escalated across the Gulf region amid ongoing strikes and fragile ceasefire efforts, according to officials and a source familiar with the matter.

The drone interceptions came as Washington also considers a proposal to redirect Iranian assets toward rebuilding Gulf states damaged in the conflict with Iran, the source said.

U.S. officials, according to the source, are examining potential mechanisms to assess and recover costs for damage already sustained by allies in the region, including possible use of Iranian funds for future reconstruction efforts.

The latest escalation follows weeks of cross-border strikes involving Iran and U.S. forces, alongside regional spillovers affecting Kuwait, Bahrain and maritime routes critical to global energy flows.

US evaluates Iranian assets for reconstruction of Gulf allies

The U.S. Treasury Department, led by Secretary Scott Bessent, has reportedly directed a team to estimate the financial cost of damages incurred by Gulf partners, the source said.

The review includes consideration of whether Iranian assets, frozen or otherwise restricted, could be redirected to finance reconstruction in affected states. The proposal, however, risks further straining already fragile diplomatic channels between Washington and Tehran.

Iran has previously demanded access to billions of dollars in frozen assets and sanctions relief as part of broader negotiations aimed at ending the conflict.

Regional strikes intensify across Gulf states

Earlier, Iran launched missiles and drones targeting Kuwait and Bahrain, prompting defensive responses from both countries. Kuwait said it intercepted multiple ballistic missiles, while Bahrain issued shelter warnings after air raid sirens sounded.

Iran’s Revolutionary Guard claimed retaliatory strikes on U.S. bases, while Washington said most incoming missiles were intercepted.

Separately, U.S. forces struck Iranian radar installations in the Strait of Hormuz area, further escalating military tensions in the strategically vital waterway.

Diplomatic efforts continue amid widening conflict

Despite ongoing hostilities, indirect diplomatic channels remain active. Pakistan’s Interior Minister, Mohsin Naqvi, visited Tehran on Saturday carrying a letter for Iran’s Supreme Leader, according to Iranian media, as Islamabad continues to play a mediating role.

However, negotiations between Washington and Tehran have stalled, with both sides continuing periodic military exchanges alongside diplomatic signalling.

The conflict has already disrupted global oil flows, pushed up energy prices, and raised concerns over broader regional stability, even as limited ceasefire arrangements in other theatres remain under strain.