Tensions in the Gulf Flare, but Iran and Saudi Arabia must choose regional stability!

There is no shortage of suspicion against Iran, following the seizure of its oil tanker — Grace 1 — by Gibraltar, which was suspected of being en route to Syria. Iran’s retaliated, seizing a British tanker, Stena Impero and keeping its sailor’s hostage. Their release was contingent on the release of Iran’s oil tanker, which later happened after a court ruled against the decision to apprehend the vessel in the first place.

The diplomatic rift between Iran, the United States, and Britain appear to be widening. Iran was accused of attacking Saudi oil ships over the summer; It denied any wrongdoing. Iran’s motives do, however, remain unclear as they were fully compliant with international law at the time, consistent with UN security council 2231 and the Joint Comprehensive Plan of Action (JCPOA).

Meanwhile, the U.S. decision to unilaterally withdraw from the Iran nuclear deal and reinstate sanctions put its allies at risk of breaking international law. The agreement promised economic benefits in exchange for Iran curtailing its nuclear activities and limiting it to civilian uses only. It would be diplomatically ruinous for Iran too, therefore, attack said ships as its moral indignation at the U.S. appearing to flout international law will be swiftly called into question.

Before discussing the recent escalation in the Gulf, it’s important to revisit how we got here

1) In 2017, President Trump unilaterally withdrew the U.S. from the Iran nuclear deal and re-imposed sanctions.

2) France, Germany and the EU create a special purpose vehicle to circumvent U.S. sanctions.

3) Tensions flare in the gulf, tank seizures and rhetoric suggest brinkmanship.

4) Iran downs a U.S. unmanned drone.

5) The U.S. called off airstrike scheduled for Iran moments before.

6) The U.S. imposes sanctions on Iranian political class and limits foreign secretary Javad Zarif to specific buildings in the United States.

7) Iran begins scaling commitments under JCPOA — justifiably so.

8) Israel engages in indiscriminate airstrikes targeting Houthi rebels and Iranian strongholds in Syria, breaking international law by engaging in airstrike without U.N approval. A similar outcome precipitated the Iraqi invasion in 2003.

9) The Houthis launch targeted airstrikes on Saudi production units and oil fields. The U.S blames Iran and the world awaits the U.N investigation.

Escalations in the Gulf flare

In the meantime, tensions are flaring in the gulf, with the strait of Hormuz, a key chokepoint for global crude supplies at risk of overcrowding and virtue signaling from war-prone United states, a jittery and diplomatic oblivious Saudi Arabia and stoic Iran. The United States and Britain co-created a maritime task force, designed to protect the safe passage of oil tankers via the Strait of Hormoz. Not only does this cause tensions to rise, but any mishap by any country could also result in a conflict. Meanwhile, Iran downed one of the most technologically advanced unmanned drones from the U.S, with retaliatory airstrikes called off moments before. The United States now realizes that a sanctioned Iran is unlikely to be any more conciliatory than they need to be.

Saudi Arabia meanwhile, appears to be overwhelmingly dependent on the U.S. Disagreements with its neighbors are geopolitically counterproductive. Despite being the leader of OPEC, markets are now beginning to look more closely at its ability to rebalance the markets; Qatar’s exit from OPEC did little to increase Saudi dominance in global oil markets and rising U.S. production is only likely to exacerbate this.

Saudis most think more strategically about regional stability.

Saudi Arabia must urgently restart discussions with other countries in the region, as a diplomatic and sensible outcome to the wards and sectarian conflict are only possible via diplomatic routes. U.S. involvement has not yielded peace and stability in the region, if Saudi Arabia is ever to become a global player with geopolitical significance, it must start looking well beyond the U.S. After all, it’s no secret that the lack of sanctions following Jamal Khashoggi’s murder was nothing more than an attempt by the U.S. and some Western countries to maintain defense contracts and arms sales.

Saudi Arabia and Iran must discuss the root cause of their conflict. The Sunni and Shia conflict can only persist if the leaders allow it to, much to the detriment of a continent famed for contributing mathematicians and culture to the world. Rather than unequivocally endorse U.S. sanctions on Syria and Iran in exchange for amnesty over the humanitarian crisis in Yemen and the murder of Washington Post columnist Jamaal Khashoggi, its relationship with the West should be based on a set of laws mutually agreed with other Arab states. This could span political reform in democratic states and a more benign autocracy in kingdoms, a common development initiative, and religious and social tolerance.

Doing so will enable the Saudis to wean off their economy from oil, leverage technological advancements in countries such as Iran who have become technologically advanced out of economic and geopolitical necessity rather than market forces. It might be somewhat utopic to expect a de-escalation overnight, but the resulting increase in regional trade and economic opportunity will lessen the incentives for joining militias, currently at the heart of every conflict in the middle east. Take the Houthis for example, they are likely to see their numbers dwindle as young men are less likely to join any resistance whilst significant economic opportunities abound.

What should Iran do?

Iran should gradually reduce its commitment under the nuclear deal. It must also make clear to the international community of its patients, which has seen it breach nuclear enrichment levels only recently. The agreement, meanwhile, posits that a breach by any member provides sufficient other member countries to stop abiding by any commitments or restrictions initially agreed. While this allows some legitimacy for Iran to gradually withdraw its commitments, it would be diplomatically counterproductive to retaliate with a direct attack. Contrary to the United States, it remains committed to the Joint Comprehensive Plan of Attack and any intransigence will reduce the legitimacy of its complaints about U.S. breach of international law. Iran must continue to pursue a diplomatic course to ensure the legitimacy of the special purpose vehicle designed to circumvent the reimposition of U.S sanctions on Iran’s oil exports, members of its political class and threatened to impose sanctions on its Central Banks.

Meanwhile, China must continue to purchase oil from Venezuela and Iran. This should not be done to call the legitimacy of the U.S. into question, but begin playing a much more active role as a member of the U.N security council. Not only are sanctions causing a humanitarian crisis in Yemen, Gaza, and Iran, but the global economy is also worst off for it. Furthermore, another migrant crisis bodes ill for Europe or global stability and the U.S. geographic location insulates it from the repercussions of a migrant crisis in the Middle East. Iran and Syria are currently sanctioned, talks between the Taliban in Afghanistan and the U.S.A have broken down and Iraq is reeling from years of war, economic stagnation and the absence of any road map for peace in the near future.

Framing the attack on Saudi Arabia’s production facilities as an attack on the global economy is duplicitous. The Trump’s administration decision to unilaterally withdraw from the Iran nuclear deal gave the green light for a nuclear Iran, with inescapable longterm implications of the global economy. Not only does its ill-thought and poorly executed foreign policy reflect a trend of short-termism that has underpinned U.S. foreign policy for the past decades as evident from the fallout in Afghanistan.

The middle east is at crossroads of some sort, the Saudis must decide if it can countenance war and risk a humanitarian fallout with implications for its domestic economy and possible civil unrest. The oil-dependent country with a large fiscal deficit must begin a dialogue and facilitate religious coexistence between the Sunnis and Shia’s if the Middle East is to ever regain its independence from war. This will serve the crown Prince’s reformist tendencies, which was dented following Jamal Khashoggi's murder and see him emerge as a force for regional stability rather than one driving sectarian violence and exacerbating the adverse effects and security challenges that are inevitably linked to regional rivalry.

I am an economist and contributor to Nkafu policy, a think tank. I cover global economic, fiscal and monetary policy with policy and asset price implications.

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