Saudi Arabia-Iran: Tensions and Intertwined Futures

In the past few years, Saudi Arabia has not managed to make a single foreign policy decision that makes logical sense to anyone outside the Saudi royal family. Things started to go downhill for Saudi Arabia when it decided to inundate the oil market by pumping excess oil to suppress prices and recapture the market share lost to U.S. shale oil and other producers with higher operational costs.

Previously, Saudi troops helped suppress the Shi‘a uprising in Bahrain. Then came along the threat of ISIS. Making things worse, Saudi Arabia started bombing the Shi‘a Houthi rebels in Yemen, dragging the country in a protracted conflict. Government finances have taken a hit and its first sovereign bonds sale in decades occurred a few months ago. And now finally, following years of rhetoric, Saudi Arabia and Iran are now literally at each others necks.

One might be surprised by how the execution of a prominent Saudi Shi‘a cleric has sparked outrage throughout the region. Indeed, Iran also has not been quiet. Iranian proxies have controlled the so-called “Shi‘a crescent”—a crescent-shaped territory comprising of Iraq, Syria and the Shi‘a militia Hezbollah in Lebanon—for a decade now. But within Saudi Arabia, the Shi‘a minority (~25% of the population) have been relatively calm, despite massive government oppression excluding it from the wider Saudi society. Thus, the Saudi Shi‘a have been a time bomb waiting to go off. The execution of the cleric might have marked the point of no return.

The manner in which protesters in Tehran behaved, attacking the Saudi embassy, portrays the long standing animosity. The Syrian conflict has degenerated into a Shi‘a-Sunni sectarian war. Iran is replacing its own troops in Syria with Pakistani Shi‘a volunteers.  The current standoff sparked off on January 4 is sure to define the path the region is going to take in 2016. And it is not going to be a pretty one.

Since protesters in Tehran set fire to the Saudi embassy, Bahrain, the United Arab Emirates, Kuwait and Qatar have downgraded their diplomatic relations with Iran. They have not gone to the extent of cutting diplomatic relations with Iran because of the economic and demographic links they must sustain for their own stability. Iran replied by accusing the Saudi coalition of bombing its embassy in Yemen on purpose.

Some have come to speculate that the Saudi-Iran crisis has been engineered toward preventing Iran from releasing a further 500,000 barrels per day on the market over the next month as the sanctions are lifted. Further, some speculate that an all-out war between oil producing nations will finally cause long anticipated hikes in the oil price. High prices are essential to the proper functioning of the Gulf country finances if they are to maintain autocratic regimes supported by massive social transfers to their population. In that case, some parties do have an incentive to find ways to prevent Iran’s increased oil supply.

Iran strikes an uneasy balance between democratic institutions and its theocratic nature. A plethora of different factions are represented in its ruling elite. Rouhani comes from the more moderate faction who manage to take over power since the more hardline faction of Ahmadinejad almost destroyed the country’s economy. One can speculate that Saudi Arabia intends on increasing Sunni-Shi‘a tensions so that public support in Iran reverts back to the hardliners. The Saudi embassy on fire surely made the fundamentalists happy while undermining the moderates’ attempt to portray to the world a progressive Iran.

Iran has a dynamic and vibrant young population which has grown to favor more engagement with the West. The failed 2009 “Green Revolution” was an attempt by these youth to end the rule of the hardliners. If they return to power, they will have a lot of youth dissent to curb. That means a lot of additional human rights violations which will lead to new sanctions being imposed.

Iran badly needs economic growth to avoid being sidelined. For it to retain the title of defender of Shi‘a Muslims, it must have the ability to support Shi‘a governments and factions abroad. Indeed, Hezbollah, Assad and Iraqi Shi‘a militia all depend on Iranian support. Hence, ironically, the fundamentalists have to support the moderates to run the country efficiently in order to achieve their goals of regional hegemony.

Developments in the Middle East will depend heavily on how Iran and Saudi Arabia react to each other’s actions. Rouhani will have to ensure that the Iranian Revolutionary Guard Corps does not carry out overt aggressions. The missile test in October and the recent detaining of two U.S. patrol boats near Qatari waters were risky. A country of Iran’s stature has the right to develop its own ballistic missile system and to detain trespassing naval vessels. Brazil has its nuclear-powered submarines and Pakistan has its nuclear weapons. No one is imposing sanctions on them for that.

The difference is that Iran has lost its reputation as a responsible member of the international community since 1979. It needs to rebuild it and the Rouhani government has taken a lot of positive steps toward that direction. Paraphrasing President Obama, Iran is too large a country to keep isolated from the rest of the world. The world also needs to understand that Rouhani cannot immediately act friendly with the West—Iranians have grown up to loathe the West for decades. To stay in power, Rouhani must be seen as protecting Iranian interests and its self-perceived power. If he is seen as a Western stooge, the fundamentalists will return to power.