REPORT: Iran-Saudi Energy and Econ

Taking a look at the waxing and waning of Iran-Saudi Relations and its implications on the state of Iraq.

Type: Report

Date: July 21, 2015

Length: 75 Pages

An Introduction: Iran and Saudi Relations

Iran-Saudi tensions date back beyond the 1979 revolution where Iran pronounced it-self an Islamic Republic and Sunni-Shia ten-sions flared. Four main geopolitical issues have and remain to be at the heart of the tenuous relationship: sectarian differences, oil and natural gas exports, aspirations for leadership in the Middle East and the Islamic World and relations with the West, particularly the United States. Bilateral relations only soured further between the two nations after the revolution and since nuclear talks began more recently. However, the competition has only waxed and waned with these historical markers and has not changed significantly in its nature.

The age-old tension between Iran and Saudi Arabia has had its peaks and valleys be-ginning most notably with the signing of the 1929 Saudi Iran Friendship Treaty. This was an effort by Ibn Saud and Reza Pahlavi to make amends for historical strains, which ultimately paved the way to the establishment of formal diplomatic relations. While the relationship spawned a new chapter for Iran and Saudi relations during the next ten years or so, it came to an abrupt halt in the late 1940s following the creation of Israel.

The Iranian support for Israel by way of de facto recognition for the manufactured state and establishment of close military ties, through the efforts of Muhammad Reza Shah , son of British imposed Reza Shah, sent shock waves throughout the Arab world. Mean-while, in 1948, Saudi Arabia joined with Egypt, Lebanon, Syria, Iraq and Yemen to boycott Israel by blocking oil shipments and eventually to crush Israel in the Arab-Israel War. In 1957, attempts were made once again by Iran and Saudi Arabia by way of a proposal for a joint military pact, which in the end came to naught but the two countries separately backed anti Egyptian royalist forces in the Yemen civil war and shared anticommunist intelligence. Succeeding the 1957 proposal, the Shah supported King Faisal’s efforts to promote solidarity and participated in the establishment of multination-al Islamic institutions like the Organization of the Islamic World Congress, the Muslim World League, and the Organization of the Islamic Conference.

Despite these amicable partnerships however, the strikingly divergent positions taken by Saudi Arabia and Iran over Iran’s support for meant that Saudis would not open themselves up to diplomatic discussions with Iran again until 1966. Even in 1966, discussions between King Faisal al-Saud and Muhammad Reza Shah were held on less than- friendly terms. The meeting was not intended to renew the sentiments of the 1929 Treaty but to discuss the controversial topic of island possessions in the Persian Gulf. Briefly, in 1925, Reza Shah had seized Arabic speaking Khuzistan and displayed interest in claiming Bahrain and various small Gulf islands, which aroused the concerns of Saudis regarding Iranian interests in expansion-ism. The meetings continued over time, and though largely symbolic, they gradually began to demonstrate a newly adopted responsibility to peace and security, heralding an unusually friendly surge of bilateral relations between Iran and Saudi Arabia, never to be witnessed again after that.

Some commentators have attributed this peaceful period primarily to the departure of the British, who officially left the region in 1968, to the conclusion of the Median Line Agreement in the Gulf and Shah’s acceptance of the U.N. supervised solution to the Bahrain dispute. This period is underscored as a rare time for Saudi Iran relations where the two countries learned to cooperate in certain areas without allowing their disagreements in other areas to spill over and disrupt the wider relationship. It would not be long however, until an equally challenging, destructive, and divisive power was introduced in the region in 1979, the year of the Iranian Revolution. When Ayatollah Ruhollah Khomeini emerged as the Supreme Leader of Iran, sources report that immediate criticism was voiced by a fearful Saudi Arabia.

Iran had in the past, shown signs of imposing military dominance with Reza Shah’s authorization of massive expenditures to invest in Iranian military capabilities, which trans-formed the Iranian army from sub-par to regional superpower status. The Shah’s desire for military supremacy over his neighbours was no secret. On paper, the Iranian military was thought to be the fifth most advanced force in 1978. In fact by 1968, an advanced arms relationship based on credit sales rather than aid had evolved as Iran’s economy had begun to mature. At that point Iran was America’s largest single arms customer, purchasing approximately 150 million dollars’ worth of arms per annum, an astronomical figure at that time.

By the early 1970s, following the OPEC price shocks and the quadrupling of the price of oil , the arms relationship transformed drastically. In addition, there were serious disputes between the Arab countries and Iran over oil production policy within OPEC, with the Shah seeking for a more gradual escalation of prices and production levels less likely to harm the interests of oil consumers or drive them toward conservation and alternative energy sources. Replacing the sales pattern of the 1960s, Richard Nixon gave the Shah a blank cheque for arms purchases in 1972 , and in return the oil-rich Shah embarked on a high-tech multi-billion-dollar annual arms spending-spree that continued until 1978 when he was exiled. In return, the US gained the net security benefit of a military strong, pro-Western state in the vital Cold War geopolitical battleground of the Persian Gulf.

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