We employ a three-dimensional hydrodynamic model (COHERENS) in a fully prognostic mode to study the circulation and water mass properties of the Persian Gulf – a large inverse estuary. Our findings, which are in good agreement with observational evidence, suggest that the Persian Gulf experiences a distinct seasonal cycle in which a gulf-wide cyclonic overturning circulation establishes in spring and summer, but this disintegrates into mesoscale eddies in autumn and winter. Establishment of the gulf-wide circulation coincides with establishment of thermal stratification and strengthening of the baroclinic exchange circulation through the Strait of Hormuz. Winter cooling of extreme saline (>45) water in shallow regions along the coast of United Arab Emirates is a major driver of this baroclinic circulation.