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Iran-Saudi deal offers hope for increased Middle East stability

People, Person, Man China Daily via Reuters
L-R: Saudi minister of state Musaad bin Mohammed Al Aiban, Wang Yi, director of China’s Office of the Central Foreign Affairs Commission, and Ali Shamkhani, secretary of Iran’s Supreme National Security Council

The immediate economic impact of renewed relations between Saudi Arabia and Iran is expected to be minimal, but the agreement brokered by China is likely to have far reaching ramifications for the wider Middle East region, according to economists.

The two countries agreed to re-establish ties after four days of talks last week in Beijing.

It ends hostilities between the two Middle East powers, which have simmered since Saudi Arabia cut ties with Iran in 2016 after its embassy in the Iranian capital Tehran was stormed amid a dispute over Riyadh’s execution of a Shi’ite Muslim cleric.

Friday’s agreement, signed by Iran’s top security official, Ali Shamkhani, and Saudi Arabian national security adviser Musaed bin Mohammed Al-Aiban, agreed to re-activate a 2001 security cooperation accord, as well as another earlier pact on trade, economy and investment.

Iran’s exports to Saudi Arabia reached $14.71 million from the Iranian New Year that fell on March 21 2022, to November 1 last year – a record high since 2016 and up from $42,000 in 2021, according to the Iranian state news agency.

“I would imagine the direct economic impacts are limited as international sanctions against Iran are still in place,” Scott Livermore, chief economist at Oxford Economics Middle East, said.

“However, improved Saudi-Iran relations does lower one of the main geopolitical risks facing the region and this could be beneficial for the overall investment climate.”

Justin Alexander, director of Khalij Economics and Gulf analyst for GlobalSource Partners, added: “The immediate economic impact will be minimal, with the most notable element likely to be an increase in religious tourism from Iran to Saudi Arabia.

“Longer term, if US sanctions are lifted and trust is restored, Iran could benefit considerably from trade and investment with Saudi and other Gulf states.”

Tensions between the two countries had threatened stability and security in the Gulf and helped fuel conflicts in the Middle East, from Yemen to Syria.

Fellow Gulf states the UAE, Oman, Qatar, Bahrain and Kuwait welcomed restored Saudi-Iranian ties, as did Iraq, Egypt and Turkey.

“Further regional instability is not in Saudi or Iranian interest at the moment,” Kristian Coates Ulrichsen, a political scientist at Rice University’s Baker Institute in the United States, was quoted by Reuters as saying.

“And for the Chinese to have addressed this at a time when the US stance towards Iran is becoming more hawkish sends a powerful signal in itself.”

A summit between Iran and leaders from the GCC is scheduled to be held in Beijing later this year, according to a report from the Wall Street Journal.

Saudi foreign minister Prince Faisal bin Farhan Al Saud, in remarks carried by state television, said Riyadh “favoured political solutions and dialogue”.

Alexander said: “The big hope is for the wider region. It could support a renewed ceasefire, and perhaps a political solution, in Yemen; agreement on a new president and necessary economic reforms in Lebanon; reduced competition for influence in Iraq. However, this is getting ahead of things.

“When embassies were open before 2016, tensions and regional rivalry between the two were very intense. So the best we can say is that this is a start and there is a chance for regional de-escalation.”

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