By: K. Noorshid
As tension mount’s, between Tehran and Riyadh after storming of the Saudi Embassy and consulate by a number of “extremists” in Iran, all minds are after what future holds for the trades between these two country.
Even Islamic regime was fast in response for the event and made large number of arrests and condemn the act but the Saudi’s cut diplomatic ties with Iran and to add some flavor for it they called on their Arab allies to follow their steps.
Attempts to de-escalate the situation have so far failed. Even the Iranian and Saudi foreign ministers displayed a good hand shake on the World Economic Forum in Davos last week, which indeed helped two regional rivals to come closer over their differences, including the Syrian crisis.
For decades, the two oil-rich countries have been competing to take an influential role in the region, specially Saudis.
Before the 1979 revolution Arabs in the region always envied Iran to be the strongest authority and soon after the revolution and start of the war between Iran & Iraq Saudis had the fantasy to play a major role in the region, from politics in the Middle East, to spread their ideological influence throughout the region and even taking a key role in pricing oil as a crucial development tool.
That particular power is gaining more significance as crude oil hit a 12-year low last week, putting overwhelming pressure on the oil-based economies of Iran and Saudi Arabia.
Indeed, Saudi Arabia ran a budget deficit of $98 billion in 2015 and is on track for an $80 billion deficit this year. Falling oil prices coupled with international sanctions have also left Iran with a budget deficit of at least $8.3 billion in the Iranian fiscal year ending March 19. Yet neither Iran nor Saudi Arabia seem willing to compromise despite the looming consequences of their dispute.
In reaction to Riyadh shutting down its embassy in Tehran and severing commercial ties, Iran banned all trade with Saudi Arabia. Almost all observers in Iran believe that the value of this activity is too trivial to hurt the Iranian economy.
Indeed, bilateral trade stood at a mere $215.1 million in the nine months leading up to Dec. 21. Iran’s trade with other Arab states that have followed Saudi Arabia’s lead in cutting relations is also not significant. For instance, Iran’s trade with Bahrain, Sudan, Djibouti and Somalia — the four other countries that have cut trade relations with Tehran — was as low as $145 million collectively.
The United Arab Emirates, however, is an exception among Iran’s Arab trade partners. Despite pressure from Riyadh to cut relations with Iran, Abu Dhabi only moved to downgrade diplomatic ties with the Islamic Republic. The UAE was a major trade partner of Iran while the nuclear-related sanctions were in place, and still is to this day. Iran-UAE trade exceeded $44.1 billion in value in the nine months leading to Dec. 21. The value of goods exported from Iran to the UAE in the last Iranian fiscal year accounted for 11% of total Iranian exports, while the value of those imported by Iran from the UAE accounted for 23% of total Iranian imports. These figures suggest that it would be hard for Iran to replace the UAE with any other regional partner, such as Turkey or Oman, as suggested by some traders, in the short run.
According to Hossein Salimi, chairman of the Iranian and Foreign Joint Venture Investments Association, although trade with Saudi Arabia and the Arab states that have followed its lead is too small to be meaningful, the UAE is a significant partner whose role in the Iranian economy cannot be ignored. He said Iran is also a lucrative market for the UAE.
“Economic factors shape political preferences,” he noted, adding that the UAE is unlikely to sacrifice its economic interests for a political dispute between Tehran and Riyadh.
Q- whether the mounting Iranian-Saudi tension could disappoint European investors, he said the West is familiar with the regional political developments and differences between Iran and Saudi Arabia that have existed for years. “The attack on the Saudi Embassy cannot affect the European appetite for investment in an untouched market like Iran.” referring to Rouhani’s and his team on recent European tour and having countries such as France, Italy or Germany signing lucrative contracts with Islamic republic.
Despite the financial loss if the relation between Iran and Saudi’s goes down, perhaps is just about the time for our Arab neighbors to wake up and smell the coffee.
. He told Al-Monitor that such political tensions have a “temporary” impact on Iran’s economic relations with the world,
According to news sources multinational banks have not yet responded to Iran’s call to resume trade with Iran and they should wait for a year or so before making any decision, but small European banks have already agreed to trade with Iran. Big banks hesitate to take part in investments in Iran due to sanctions still are in place.
Iran is widely seen as the world’s biggest untapped emerging market with growing population since the collapse of the Soviet Union. Neither Europeans nor Arabs are likely to choose to miss the opportunity to gain a share of business with Iran in the coming years.
So is time for Saudis to put their act together, another word given the seemingly insignificant impact of the cut in Iranian-Saudi trade and in the absence of bilateral political dialogue, perhaps finding a multilateral resolution to the myriad Iranian-Saudi competitions in the region, including in Syria, could be a turning point in the relations between the two countries. Until then, it appears that the cut in commercial ties is unlikely to compel political engagement between Iran and Saudi’s.