IranSource | Understanding and Analyzing a Multifaceted Iran

March 23, 2016
Perhaps no single rivalry will determine the future of the Middle East more than that of Saudi Arabia and Iran.

The once cold peace that existed between these two regional heavyweights has turned into a hot proxy war being fought in Syria, Yemen, Iraq and increasingly, Lebanon. Riyadh’s recent move to have the Arab League label Hezbollah a terrorist organization will only exacerbate tensions. In fact, since the US toppled Saddam Hussein’s regime and paved the way to a Shi’ite-led government in Baghdad, Riyadh increasingly sees the Middle East as a grand chessboard on which it is engaged in a zero sum game with Tehran.

The secret negotiations that took place between the Obama Administration and Iran in 2013 took the Kingdom by surprise. Riyadh values its privileged relationship with Washington. That relationship became somewhat of an exclusive partnership after the 1979 Islamic Revolution toppled the Shah, then America’s most important ally in the Persian Gulf. So long as Iran and the United States refused to talk to one another, Riyadh felt comfortable.

The Saudis lobbied hard for Washington to take military action against Iran’s nuclear infrastructure, and were privately opposed to the Obama administration’s historic diplomatic push with Tehran. Once the parameters of the Joint Comprehensive Plan of Action were announced, the White House went to great pains to reassure Riyadh that the nuclear deal with Iran was not a precursor to a “Grand Bargain.”

As a signal of its continuing commitment to Riyadh, the Obama administration did not dispel Saudi Arabia’s questionable narrative about the conflict in Yemen being instigated by Iran through its support of Houthi rebels. Washington even agreed to sell the Saudis advanced weapons to conduct their war on the poorest country in the Arab world. Riyadh’s war of choice has been a disaster, and Yemen is now facing a humanitarian crisis according to the UN. Meanwhile, the Houthis are far from being defeated.

The Kingdom’s position in the Syrian civil war has also become untenable. While it desperately wants to depose President Bashar al-Assad, it has relied on radical Sunni groups such as Jabhat al Nusra – an affiliate of al Qaeda, and a U.S.-government designated terrorist organization. Furthermore, it wanted to exclude Iran from a seat at the negotiating table at Geneva peace talks, despite the fact that Tehran has put substantial assets in defense of its interests in Syria. Not surprisingly, the US, Russia, the UN, and the European Union overruled Riyadh and invited Iran to participate in the talks.

More recently, Saudi Arabia’s energy policy has been as misguided as its foreign policy. As the U.S. and EU were imposing sanctions on Iran’s oil exports, Saudi Arabia ramped up its production to compensate for the barrels of crude that Tehran’s traditional customers were no longer importing. In 2011, Iran was providing 700,000 barrels a day to the EU. In 2014, that figure dropped below 20,000.

Since the nuclear accord, energy prices have tumbled, and yet Riyadh is determined to deny Tehran its old market share. With oil prices at lows not seen in over a decade , the Kingdom is determined to flex its muscles and engage in a price war to force Iran to sell crude at severely discounted rates. The Saudis are betting that such a strategy will deny Tehran much needed revenue, and thereby either force it to change its regional policies or destabilize the regime.

History, however, is not on the Kingdom’s side. Iran has withstood a revolution; a bloody eight-year war with Iraq; the most draconian sanctions regime ever imposed on a country by the international community; and $12 a barrel oil in the late 1990s. Tehran can withstand this price war with Saudi Arabia and its economy will still grow. Oil exports only account for 15% of Iran’s GDP. They account for 55% of Saudi Arabia’s GDP. It seems now the Saudis want to freeze production at current levels, something Tehran has ruled out until it has regained its foothold in the market.

Iran and Saudi Arabia’s differences over regional influence may appear irreconcilable, but they are not. As President Obama has stated in his interview with The Atlantic both countries need to share the region. Whether Riyadh likes it or not, Hezbollah is a key part of the political, economic, and social fabric of Lebanon.

Saudi Arabia’s newly aggressive policies don’t serve its long-term interests. The International Monetary Fund estimates that if the Saudis continue their current path, they will run through their cash reserves in five years. This year alone, they are facing a $98 billion budget deficit. Tehran has said that it is prepared to discuss regional issues with Riyadh bilaterally. So far the Saudis have balked. They want to continue on their policy of isolating Iran. They do so at their own peril.

Amir Handjani is a Truman National Security fellow and an Atlantic Council Board Member.

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