Saudi-Iran Discord Affects Prospects for Iranian Economy

 

These comments came in the wake of an Arab League summit over the Saudi-Iranian discord. In that meeting, the Saudis called for an earnest and coordinated response to the Iranian attacks, which representatives of the United Arab Emirates blamed on a deliberate effort by Iranian authorities to neither protect the embassy nor respond to the mob within a reasonable span of time.

Fox News reports that only three members of the Arab League refused to sign on to the Saudi resolution, whereas 18 regional powers are now expected to support whatever currently-unspecified next moves might follow the breaking of diplomatic ties. Only 11 votes are needed to pass a resolution within the Arab League.

While Fox News could not specify which nations refused to sign on to the resolution, the Huffington Post published a report on the same day which indicated that there are certainly some nations in the region that depend on Iran and Saudi Arabia simultaneously, and cannot afford to alienate either Sunni or Shiite domestic populations by showing clear preference for one side or the other in this largely sectarian conflict.

Regarding the practical connections among these countries, the Huffington Post points out that Saudi Arabia is a major source of financing and support for the Pakistani military, as well as being a source of employment for many Pakistani migrant workers. Meanwhile, Iran is a prospective partner in a number of near-term economic plans for Pakistan, including an energy-sharing agreement that is expected to take effect soon after Iran is granted relief from economic sanctions under its nuclear agreement with the West.

Since Western diplomacy has not yet been noticeably affected by the diplomatic break between Iran and much of the Arab world, many of the anticipated effects of the nuclear agreement remain unhampered for the time being. That is to say, Western nations continue to express interest in expanding their own trade relations with and investments in Iran.

Oil Price points out, for instance, that Denmark’s foreign minister visited Tehran on Monday with a delegation consisting of representatives from 58 companies. The visit highlights expectations that Denmark’s exports to Iran could increase by 72 million dollars after the lifting of sanctions. Oil Price adds that Germany and India will both be competing with Denmark for investments in aspects of the Iranian renewable energy market.

All of this suggests a strong outlook for Iran’s post-sanctions economy, but this assessment is widely disputed. And the discord between Iran and the Gulf States promises to both highlight these disputes and strengthen the case for a weak outlook by diminishing Iran’s economic relations with some of its nearest trading partners.

Al Arabiya reported on Monday that the United Arab Emirates described Iran’s impact on the UAE economy as being greatly exaggerated. At the same time, Western analysts have suggested that the potential impact of Saudi Arabia and its allies on Iran is tremendous, giving them the advantage in any near-term economic war that grows out of the current diplomatic break. This is due in no small part to the Saudis’ ability to convince other OPEC member states to hold down oil prices in order to stonewall a possible Iranian recovery.

But some other analysts question how probable such a recovery would be in any event. Along these lines, IranWire issued a report on the Iranian economy on Monday, in which it argued that the current government has only managed to “remove the minus sign” from major economic indicators, and would not be likely to do much more even under changing conditions.

The article suggested that factors such as government corruption, a slow pace of economic reforms, political instability, and low consumer demand due to a persistent recession would affect the success of foreign businesses and limit their investments. Naturally, the factor of political stability is affected by the current regional discord, and its impact on the Iranian economy may in turn mitigate the prospects for foreign investment and recovery.