MENA and The Iran/Saudi Arabia Agreement

Figure 1: Iran and Saudi Arabia GDP forecasts

Source: IMF 

Foreign ministers have already meet in Beijing in early April and Iran’s President Raisi is planning a trip to Saudi Arabia. Saudi Arabia’s motivation is to promote regional peace, which in turn will help foreign funding to the vision 2030 mega projects. Additionally, Saudi Arabia is also motivated by not allowing a Russia-Iran-China axis to form. From Iran’s standpoint, the agreement allows a greater focus on domestic issues, while also potentially mitigating the economic crisis by improving relations with Middle East countries and China.

Although, no preconditions were made on Yemen, the hope is that the dramatically reduced level of fighting in the last year can be sustained and Iran’s involvement could wane. Whether this will lead to peace talks remains uncertain, however. Iran has also appointed the first ambassador to the UAE for seven years, this points to a wider improvement in regional relations. Elsewhere, in March, Iran and Iraq also reached a security agreement that is ambiguous, but allows both sides to protect the common border. For Iran, this reduces the risk of Iraqi Kurds being involved in Iran affairs. Finally, Saudi Arabia and others are moving towards Iran’s desires that Syria should be readmitted to the Arab League.

The obvious losers are the U.S. and West, that are less interested in the region and much more focused currently on the Ukraine war. Given that the Ukraine war will likely drags on, the U.S. and West could continue to play less of a role in the region. The U.S. did attack eastern Syria in retaliation for the death of a U.S. contractor, but this was an isolated development. The U.S. will also become domestically focused as the run-up to the 2024 presidential elections gets underway. Russia will intermittently work with certain countries to extend its multi-year increase in geopolitical influence as well as cooperation’s with OPEC+, but the biggest opportunity is for China. Russia is overextended with the Ukraine war and cannot provide support for forward looking Gulf countries aim for an economic transformation over the next decade to ensure less dependence on fossil fuel exports. China’s willingness to broker an Iran-Saudi agreement is largely for economic reasons, as China does not want a major military footprint in the region. China sees advantages in working with the region for energy security and export potential, as well as the soft power of geopolitical influence. How this develops with Middle East countries in the coming years will be tricky, as Chinese companies experience in Africa shows that China wants control of projects and companies and this may not be acceptable in a number of countries. Meanwhile, the economic focus for China suggests they will not become involved in every conflict in the region but rather involvement will be tactical and driven by economic opportunity.

Elsewhere, the overall risk level remains very high in Iraq/Yemen/Syria and Libya In Iraq, Prime Minister al Sudani is at the head of a weak government, with no signs of any momentum towards building out the non-oil sector or cracking down on corruption. Despite the weakness and last year’s expectations that this government was a 1 year stop gap, al Sudani and the coordination framework (CF) want to serve a four year team and this could risk clashes with the opposition latter this year and into 2024. In Libya, the tense political environment remains. Though the two opposing governments (the High Council of State (HSC) in Tripoli and the House of Representatives (HoR), based in the east) are undertaking talks, this is unlikely to lead to a unified election .Instead, the best that can be achieved is another attempt at a transitional executive authority, with representatives from both parliaments. At least, while talks are occurring, it does mean that the uneasy calm in Libya can continue, but this is not yet a road to long-term stability.

Meanwhile, in North Africa it is worth highlighting Tunisia. The arrest in February of Jaouhar Ben M’barek, a prominent opposition figure, shows that the crackdown from President Saied continues, as he extends his political control. With still high debt levels, plus the global slowdown, this leaves Tunisia in a difficult economic position as foreign funds are apprehensive. Elsewhere, tension remains between Algeria and Morocco over the routing of the Nigeria-Europe gas pipeline through Morocco. Egypt has seen less dramatic developments than those of 2022.Then, when Egypt’s financial difficulties were exposed by the spill over of the Ukraine war, an IMF package was followed by deposits from Saudi Arabia and Gulf deposits into Egypt’s central bank, as well as pledges of major new investments. Saudi Arabia has signalled that future financial support will be conditional on reform, which in the current situation, Egypt would have to accept.