Attempting to bridge the gulf

Tehran is looking to strengthen ties with the GCC, following the scaling back of sanctions. So far, its efforts have been met with a mixed reaction. Published in MEED, 30 December 2013

If Iran is to make the most of the opportunities presented by the scaling back of Western sanctions, it will need to improve relations with its Gulf neighbours. But how quickly it might be able to do so remains an open question. So far, its efforts have been met with a distinctly mixed reaction.

In the weeks after the nuclear deal was agreed with the P5+1 countries in Geneva on 24 November, Iran’s foreign minister, Mohammad Javad Zarif went on a charm offensive around the region, visiting Oman, Kuwait, Qatar and the UAE. Two countries were missing from his list, however. For almost three years, Bahrain has accused Tehran of supporting opposition groups in the country, so its omission from Zarif’s itinerary is unsurprising. A more important exclusion was Saudi Arabia, which is Iran’s most powerful opponent in the Arab world. Despite Zarif publicly saying he is keen to visit Riyadh, a trip has yet to be arranged.

Geneva deal

This echoes the situation in the immediate aftermath of the Geneva deal. Within hours, most GCC governments issued statements welcoming the deal. Riyadh, however, dragged its feet and simply noted the following day that the deal was a “primary step towards a comprehensive solution”. All six GCC states did however manage to agree a joint statement at the end of their summit in Kuwait on 11 December, in which they welcomed Tehran’s new approach to its neighbours as well as the nuclear deal itself.

In economic terms, Iran’s most significant regional partner is the UAE. The Islamic Republic has long used Dubai as a trade route to the world and, although that role has declined in recent years due to sanctions, it remains important. Here, at least, Iran is pushing at an open door. UAE President Sheikh Khalifa bin Zayed al-Nahyan told Zarif during his visit on 4 December that “Iran is an important country and it is closer to us than everyone else” and added that “all Emirati officials and concerned bodies should do whatever they can to consolidate these relations.”

The UAE’s approach is understandable, given the benefit that more trade would bring, particularly for Dubai. “Dubai is clearly a regional hub,” says Michael Harris, head of frontier markets research at the US’ Bank of America Merrill Lynch. “One of the biggest drivers in 2014 will probably be the Iranian situation. This will be the conduit point through which the world trades with Iran. If Iran is integrating with the global economy, that will be a very, very positive sign.”

Qatar, which shares the North Field/South Pars gas field with Iran, also appears open to closer links. “Our two countries share much in common, starting with a long-standing history of trade and cultural exchange across the Gulf,” said Qatar’s foreign affairs minister, Khalid bin Mohammed al-Attiyah, speaking at UK think-tank Chatham House on 4 December. “I am therefore surprised and saddened by the current tendency going around to create a virtual enemy. Qatar does not consider Iran its enemy.”

The same cannot be easily said about Saudi Arabia’s attitude to Iran, particularly given their support for different sides in the Syrian conflict. Both Riyadh and Tehran are due to attend peace talks on Syria in Geneva on 22 January, which will provide both countries an opportunity to size each other up and offer a chance for bilateral talks. Few, however, expect an immediate breakthrough.

“Relations with Saudi Arabia can improve, but it depends if they can somehow manage to resolve the issue in Syria; it is conditional on that,” says Nader Habibi, professor of Middle East economics at the US’ Brandeis University.

Oil cuts

At the same time, their relationship could become more strained if Tehran’s rapprochement with the West leads to Iranian crude being traded freely on international markets once again. That would lead to lower oil prices and could force Saudi Arabia to cut back its own production.

“We have the potential for the return of Iranian and also Libyan [oil],” says Sabine Schels, head of fundamental commodities research at Bank of America Merrill Lynch. “If both happen at the same time, we could gear ourselves up for a pretty large shift in the global oil market balance. We think Saudi Arabia will act as the swing supplier as it has done in the past.”

Given its strong financial position, Riyadh can afford to make output cuts, but this certainly will not endear Tehran to it. In the meantime, improving political relations should be matched by stronger economic ties for other GCC states.

“Part of Iran’s trade with the GCC in the past few years was diverted because of sanctions,” says Habibi. “Iran was importing US and European products through GCC countries. That will diminish now that it can buy directly from those countries. But an improvement in Iran’s overall economy means its volume of trade with the world will expand, so we will see an increase in trade and travel between Iran and these Gulf countries.”