Iran Steadfast Amidst Saudi Provocations

Iranian oil tanker approaching Port of Rotterdam in late 2007. With the implementation of JCPOA in early 2016, Europe will resume importing Iranian oil.

By Dimitar Georgiev

Threatened by an Iran with increasing regional and international influence after the implementation of the Joint Comprehensive Plan of Action (JCPOA), a diplomatic accord struck between Iran and the P5+1 (five permanent members of the UN Security Council and Germany) in July 2015, Saudi Arabia has in the new year engaged in a trade war against Iran. With Western companies and investors lining up to enter the untapped Iranian market, the Saudi kingdom has sought to undermine the boost to Iran's economy that is expected after EU, UN, and nuclear-related U.S. economic sanctions are lifted. The beheading of Shia cleric Nimr al-Nimr, among the mass execution of 47 others in early January, was a tactic intended to incite an Iranian response and part of this strategy to undermine the implementation of the nuclear deal.

Following the mass executions, protesters stormed and burned the Kingdom's embassy in Tehran, giving Saudi Arabia a pretext to sever all diplomatic and commercial ties with the Islamic Republic. At Riyadh's behest, many of its regional allies--Bahrain, the United Arab Emirates, Sudan, and Djibouti--also cut or downgraded diplomatic relations with Iran. Of particular note is Djibouti. The tiny East African nation controls the Bab el-Mandeb Strait, the approach to the Suez Canal and a vital maritime trade route between Europe and Asia. As Iran reintegrates into the global economy, it will be hard-pressed to diversify its export network beyond traditional buyers in the Asia Pacific region. Fears have emerged that Saudi influence on Djibouti could lead to higher fees for Iranian oil tankers passing through the strait, disadvantaging Iranian oil tankers in the European market.

As part of the trade war with Iran, the Saudi royal family is desperately trying to divert investor attention from new market opportunities in Iran back to Saudi Arabia's ailing economy. Case in point is the announcement by Deputy Crown Prince Mohammed bin Salman of a potential IPO of Saudi Arabian Oil Company (Aramco). Saudi Arabia perceives its relationship with Iran through a zero-sum lens, as any and all foreign investments made in the Persian country are considered lost opportunities. By offering a piece of the most valuable company in the world, the Saudi royal family has successfully enticed investment managers from Hong Kong to New York, diverting their attention away from Iran and back towards the Arabian Peninsula. The Saudis hope that a stake in the game will entice foreigners to prefer the purchase of Saudi oil over Iranian, helping the Kingdom maintain and expand its market share. While Iran will be desperate to begin selling oil on a wider global market, Saudi Arabia has the ability, through its $646 billion in foreign reserves, to continue withstanding low oil prices for at least another three to five years.

So far the Islamic Republic has taken the high road and been very measured in its response to persistent Saudi provocation. Iran has not directly retaliated against the Sunni nations that have severed diplomatic ties with Tehran. Nor has Iran undertaken drastic actions in response to the bombing of the Iranian Embassy in Sana'a or the sacking of Iranian Development Agency office in Mogadishu. Iranian authorities were also quick to resolve a potentially explosive situation with the United States by releasing, within 24 hours, ten Navy sailors whose boats mistakenly entered Iranian territorial waters.

What remains unclear at this moment is how much longer Iran will continue to endure Saudi provocations before responding in kind. Is Iran's measured response an effort to maintain international goodwill until the implementation of the nuclear deal? Or has the Iranian leadership decided more broadly to give diplomacy a chance to guide their nation out of isolation? Perhaps President Hassan Rouhani, with the promise of economic development and international reengagement, has found a way to hold back more hawkish elements of the Iranian regime. Much will depend on the level of economic benefits he is able to deliver following the lifting of sanctions, particularly as Rouhani prepares to lead his moderates' camp for legislative elections in February. A victory for the moderates will likely help continue Iran's current trajectory, while a victory for the hardliners may lead to more direct confrontations with Saudi Arabia. One thing is sure--Saudi Arabia will continue to do everything in its power to undermine Iran's economic development and reengagement with the world.

Dimitar Georgiev is a global strategy and operations analyst at the Crumpton Group LLC, where he specializes in emerging markets in the Middle East and Africa, global trade, and technology. He is also a 2016 International Trade Fellow at Young Professionals in Foreign Policy.