Escalating tensions between the Middle East’s two largest economies are unlikely to disrupt business in the region or the process of lifting Iranian sanctions, despite potentially damaging political standoffs.
Saudi Arabia announced this week that it was cutting all ties, including commercial ones, with Iran. This came as a reaction to Iranians’ storming of the country’s Tehran embassy in protest against the execution of a Shia cleric by the Saudis.
Some have argued that Sunni Saudi Arabia, which is growing increasingly uncomfortable with Shia Iran’s return to the global stage, executed Nimr al-Nimr to get a violent reaction from Iran and show the world that the country should remain isolated. But regardless of the initial motives for this growing tension, most experts don’t believe in its ability to disrupt the process of Iran’s renewed internationalisation – and more specifically the Joint Comprehensive Plan of Action (JCPOA).
Charles Robertson, managing director, global chief economist and head of macro strategy at Renaissance Capital, tells GTR: “It’s not going to make an awful lot of difference – the US has ignored Saudi wishes on Iran for the last few years, and I can’t believe that this issue is going to disrupt the deal. It’s too late, and it’s not as if international opinion is suggesting Saudi is blameless here.”
Indeed, many in the west – including Saudi Arabia’s long-term ally, the US – have expressed concern about the execution, which is seen as fuelling already dangerous regional fires. Admittedly, these critics also condemned Iran’s reaction, but not as strongly as Saudi Arabia may have hoped.
In the region itself, Sunni and Shia powers voiced support for their respective allies: Bahrain, Kuwait, Sudan and the UAE reduced ties with Iran to various degrees, while Shia groups in Iraq, Lebanon and Yemen condemned Saudi Arabia. Note the absence of reaction from Qatar, which has strong ties with Saudi Arabia, but shared ownership of the world’s largest gas reserve, the South Pars/North Dome gas field, with Iran.
As of yet, only Saudi Arabia has decided to stop trading with Iran, and trade volumes weren’t significant enough for this move to be damaging. In fact, only the UAE, one of Iran’s most important commercial partners in the region, could tip the balance, but it is unlikely the country will overlook economic interests for political reasons.
Whilst there seems to be regime to regime instability at the moment in terms of standoff, we still believe that the Arab and Iranian business worlds will grow increasingly closer, because there is business to be done. Chris Parker, Iran Business Hub
Chris Parker, CEO of Iran Business Hub, explains: “All countries will, in terms of official lines, express support along traditional bases, however when it comes to business interest, those countries, especially the UAE, are now increasingly reliant on future earnings from countries like Iran due to oil prices. They need this trade and cashflow from people doing business with Iran, more than they did a year ago before the oil price crash.”
He tells GTR that the current crisis is mainly political, and will not threaten commercial interest at a time when many are awaiting the lifting of Iranian sanctions to boost trade with the country.
“We must remember that there’s a lot of trade that the Arab countries can do with Iran and there’s a potential benefit for some of them. So whilst there seems to be regime to regime instability at the moment in terms of standoff, we still believe that the Arab and Iranian business worlds will grow increasingly closer, because there is business to be done, and wherever in the world there is business to be done, people find a way to make friends quite quickly,” he adds.
On the Iranian side, there doesn’t seem to be any concern about the crisis’ potential to disrupt the JCPOA either. Katayoon Valizadeh, country risk and international co-operation manager at the country’s ECA, the Export Guarantee Fund of Iran, says: “There is no concern and relation between the recent tensions and the implementation of JCPOA. Iran has taken all the predefined steps for keeping the JCPOA on track till now, and it is envisaged that based on the schedule, in January, the process will be completed (implementation day) and the sanctions will be lifted.”
While the commercial impact of this rift should remain limited, it is likely to fuel conflicts in Syria and Yemen, where Saudi Arabia and Iran support opposing sides, and for which peace talks involving both powers, scheduled to be held early this year, are now compromised.