This chapter discusses British policy in the Persian Gulf during the interwar period. A focus is placed on the way in which the British government coped with the challenges to its dominant position during key junctures of the interwar years. First it provides an analysis of how British policy evolved in relation to the emerging challenges in the region, namely the coming to the fore of Reza Khan and the consolidation of power by Ibn Sa‘ud. Then it provides an analysis of Britain’s negotiations with Iran toward the conclusion of a comprehensive treaty between the two countries. An analysis of these negotiations, which ultimately failed to produce an agreement, provides valuable insights into the positions of both governments on issues in the Persian Gulf during the interwar years. The last section sheds light on how local actors perceived Britain's role in the Gulf, an inquiry that forms a vital precursor to the topic of Arab-Iranian relations in the Persian Gulf during the interwar period.