Early 2016 has witnessed a succession of dramatic developments that have inflamed the already contentious Iran-Saudi relationship, bringing it to the forefront of global governmental and media attention. These have included: Riyadh’s decision to break diplomatic relations with Tehran at the beginning of the year, the accelerated decline of the price of oil deeply affecting both countries’ economies, the implementation of the Iran nuclear deal leading to Iran’s reinsertion into the global economic system, and a reversal of fortune in the Syrian civil war with Iranian and Russian-supported regime forces scoring major advances against the Saudi-backed opposition. We shall survey these developments (deferring, however, discussion of the fast changing situation in Syria to a later post) with the aim of extracting underlying factors that will continue to influence the Iran-Saudi relationship within the broader regional and global context. Our birds-eye view of a very complex, evolving situation will only allow us to make general inferences here, and so we shall hold off on incorporating identified influencing factors into our detailed conceptual map until we can examine them in greater detail in subsequent posts.

 User manual – Interactive graph (Ed.)

The detailed, step by step explanation regarding the use of graphs, their advantage, how we build the interactive graph and how to use it can be found here, in “Mapping an Interactive Network for Iran and Saudi Arabia Relations“. Each article of the Tempobs project then build upon the initial graph, step by step, to develop a better, more accurate model, until we shall reach the stage of obtaining a “good enough model”, to use Helen Fein’s (1994: 32) apt criteria, for strategic foresight and warning or risk management.
Here, the map we shall obtain at the end of this article is only an intermediary working map, between the initial “cluster map” (displaying the larger categories of cluster of variables) and the developing detailed and full graph. Click on each image below to access the corresponding graph.

The Saudi-Iran Diplomatic Break: On to the Cold War

Let’s start with the development that did most to focus the world’s attention on the Saudi-Iran relationship: Riyadh’s decision in early January to proceed with the execution of Saudi Shia dissident cleric Nimr al-Nimr. The dominant view among analysts is that Riyadh went ahead with this action in the face of Tehran’s admonitions against doing so in order to incite the Iranians into undertaking a reckless act of retaliation. This, the Saudi leadership hoped, would tarnish Tehran’s re-entry into the global community following the fast-approaching lifting of nuclear-related sanctions and reinforce Sunni sectarian sentiments at home and in the region to Riyadh’s political advantage (Marc Lynch, “Why Saudi Arabia escalated the Middle East’s sectarian conflict,” Washington Post, January 4, 2016). Alternatively, some argued that Riyadh wanted to signal Washington that it was prepared to act boldly, and in defiance of Tehran’s wishes, in light of what it viewed as a building U.S.-Iranian rapprochement as well as perceived U.S. reluctance to counter Iranian adventurism (such as its failure through early January to impose sanctions for Iranian ballistic missile tests in apparent defiance of UN resolutions) (Kim Ghattas, “The Saudi-Iran War Is America’s Fault”, Foreign Policy, January 13, 2016).

Whatever its intentions, Riyadh’s move achieved, at best, mixed results. An Iranian mob, of course, subsequently sacked the Saudi embassy possibly, it has been argued, with support from within the country’s security establishment, which closely monitors political protest (Golnaz Esfandiari, “The Mystery Behind The Saudi Embassy Attack In Iran,” Radio Free Europe/Radio Liberty, January 6, 2016). However, Iranian leaders, including Supreme Leader Khamenei, subsequently condemned the assault and ordered the arrest of a large number of suspected perpetrators. This response, together with Iran’s exchange of some prisoners with the United States in conjunction with the implementation of the nuclear agreement, took the spotlight off the embassy event (Shahir Shahidsaless “Rouhani outsmarts Iran hardliners as well as the Saudis,” Middle East Eye, January 15, 2016). Indeed, Western governments and media mainly criticized the Saudi’s for their provocative decision to execute al-Nimr; there was also increased critical attention paid to the Saudi government’s human rights record (especially its widespread use of capital punishment) and its suppression of the domestic Shia minority. Meanwhile, the al-Nimr execution incited a strong Shia reaction that, in Iraq, led to angry demonstrations aimed at shuttering the newly re-opened Saudi embassy, while in Lebanon, it appeared to have helped scuttle a recently-completed deal between Hezbollah and the Saudi-allied Sunni political faction to elect a Christian candidate to the presidency acceptable to Riyadh (Ali Mamouri, “Widespread Iraqi anger threatens Saudi ties,” Al-Monitor, January 25, 2016; Jean Aziz, “Lebanon feels aftershocks of Saudi-Iran crisis,” Al-Monitor, January 13, 2016). And only a handful of Sunni-majority states—mainly beneficiaries of Saudi largesse in East Africa—chose to follow Riyadh’s lead in fully breaking relations with Tehran, while its Gulf allies (excepting Bahrain) chose, at most, to downgrade relations (Tom Finn, “On Iran-Saudi rift, Gulf Arab states tread with caution,” Reuters, January 11, 2016).

Modelling Implications

Balance of Power

The diplomatic break is important, above all, because it has intensified and formalized the building—but still somewhat restrained—confrontation between Iran and Saudi Arabia of the previous year, transforming it into a  “cold war”, as it is now frequently referred to in global media (e.g., Max Fisher, “The cold war between Saudi Arabia and Iran that’s tearing apart the Middle East, explained,” Vox, January 4, 2016).  As a result, it has focused the attention of media and academic analysts, and undoubtedly of regional and global governmental actors as well, on the bilateral balance of power and how this would influence the confrontation were it to go “hot.” (Michael Knights, “What Would a Saudi-Iran War Look Like? Don’t look now, but it is already here,” Foreign Policy, January 11, 2016) We shall incorporate this classic international relations concept into our mapping and modelling effort. The balance of power encompasses a set of measures because power, particularly in a cold war environment, is not limited to military capabilities but also includes “softer” elements, such as political and cultural attractiveness, economic strength, leadership and diplomatic adroitness, and “credibility”—a reputation for following through on commitments that political leaders (if not all political scientists) view as essential to deterring adversaries (Joseph Nye, “Hard and Soft Power in American Foreign Policy,” Paradox of American Power, New York, 2002; Daniel Drezner, “Ten things to read about reputation in international relations,” Foreign Policy, May 2009).

• The balance of power influences behavior as perceptions of a changing balance can prompt a strengthening party to act exploitatively and a weakening one to act preemptively. The “Thucydides Trap” mentioned in an earlier post, is an example of a changing balance prompting a great power to move against a rival before its advantage is lost. The Saudi decision to up the ante with the provocative al-Nimr execution—said by several commentators to be driven by fears of rising Iranian power, declining Saudi clout due to the oil price plunge, and general instability in the region—may well have reflected this type of thinking (Kenneth M. Pollack, “Fear and Loathing in Saudi Arabia,” Foreign Policy, January 7,2016; John Jenkins, “Behind Saudi Arabia’s Bluster is a Country That Feels Under Great Threat,” New Statesman, January 9, 2016).
• Changes in a bilateral balance of power can also influence the behavior of third parties (allies and neutrals) by prompting them, alternatively, to join with the weaker party to balance against the stronger, to protect or advance their interests by “bandwagoning” with the latter, or to seek neutrality (Stephen Walt, Alliances: Balancing and Bandwagoning, 1987). The tepid response of most other Sunni states to the Saudi break in relations with Iran may reflect their uncertainties about the future direction of the Saudi-Iranian power balance.
• Looking at the balance of power from a cooperation theory perspective (as discussed in the previous post in this series), one can argue that a power shift will affect Prof. Robert Axelrod’s “shadow of the future”—the expected durability of rewarding interactions between parties—that, in turn, influences the willingness of parties to cooperate. For instance, the faster/deeper a movement towards a bilateral power imbalance and thus heightened insecurity for at least one party, the more the “shadow” may diminish—and, with it, prospects for cooperation.

System effects

The January diplomatic break also vividly illustrates that in a complex international system such as the Iran-Saudi relationship, outcomes do not always follow in a linear and anticipated way from intentions. This is due to what noted American political scientist Robert Jervis has called “system effects”— the influence on outcomes of interactions with affected parties (including third parties), interconnections among countries, institutions and issues, which can cause unintended side and “knock-on” (second/third order, etc.) effects, negative (dampening) or positive (reinforcing) feedback among the parties in ongoing interaction, and changes of the system’s environment (rules of the game, public expectations, etc.) (“Complexity and the Analysis of Political and Social Life”, Political Science Quarterly, Vol. 112, No. 4 (Winter, 1997-1998), pp. 569-593). Thus, Riyadh’s desire to achieve diplomatic benefits was undermined by Iran’s refusal to play along (interaction effect), the response of Arab Sunni allies (third-party effect), and the intensification of Shia sectarianism in Lebanon and Iraq, leading to negative “side effects” for Saudi interests. And by raising the salience of the conflict at a time when most countries were focused on improving ties with Iran, the Saudi’s produced the unintended (system environment) effect of bringing critical global media attention upon themselves, undermining their image and thus their “soft power” (as in these examples, systems effects are intimately linked to the balance of power calculus).

• System effects are easy to spot in retrospect but much harder to foresee, as they can take many forms due to unique situational factors. Indeed, leadership and diplomatic adroitness, an element in the balance of power, often reflects an actor’s ability to correctly anticipate specific effects of interactions and interconnections. Our concept map, to which we shall add systems effects nodes at the bilateral, regional, and global levels, can at least help to direct attention to relationships that might be involved in producing unintended consequences.

The Oil Price Plummet

The implications of the 70 percent plunge in oil prices since mid-2014 came into sharper focus in early 2016, especially as the price fell briefly below $30 a barrel (the lowest level seen in over a decade) partly driven by an anticipated post-sanctions surge in Iranian oil production. Facing a dramatic decline of oil receipts that account for 90 percent of public revenue at a time of rising demands for expenditure — including for the war in Yemen — Riyadh has embarked upon an austerity program that includes cutbacks in capital expenditures, fuel and water subsidies, and the eventual introduction of a Value Added Tax. And while embarking on a major long-term program to diversify the economy, the Saudi’s are covering double-digit public deficits by tapping steadily into their foreign currency reserves, which, while valued at over $600 billion as of January 2016, are down by around a hefty 15 percent from their level at the start of the oil price plunge. (Simeon Kerr, “Saudis unveil radical austerity program,” CNBC, December 29, 2015)

Although much less dependent on oil revenues than Saudi Arabia, Iran too faces major challenges from the oil price collapse. Following the lifting of oil export sanctions, Tehran has worked to quickly ramp up production, with the objective of adding a million barrels per day (a rough 40 percent increase) to its output in coming months. But given the low price for what remains the country’s largest export earner, Iran’s stagnant economy is not expected to experience significant overall growth this year (Steven Mufson, “Oil glut dampens Iran’s hopes for big cash flows as sanctions lift,” Washington Post, January 16, 2016; Djavad Salehi-Isfahani, “The Economic Backdrop to Iran’s Elections,” LobeLog, February 24, 2016).

Saudi Arabia’s refusal to play its customary “swing producer” role within OPEC—cutting back on production to counteract a supply glut—in the face of insufficient demand is generally seen as the main driver of the oil price slump. Most analysts attribute this policy to Riyadh’s strategy of sustaining high prices over the long run by undermining US shale oil producers; many also see a desire to weaken the economies of Iran and its non-OPEC ally Russia. Tehran has emphasized in its public rhetoric that Riyadh’s oil production policies reflect hostile intentions towards it—an accusation for which Riyadh’s aggressive oil price discounting in traditional Iranian export markets in Asia provides some support (JM Valantin, “Oil Flood (1) The Kingdom is Back“, The Red (Team) Analysis Society, 15 December 2014; Dalan McEndree “The Hidden Agenda Behind Saudi Arabia’s Market Share Strategy,” OilPrice.Com, February 11, 2016; Jean-Michel Bezat, “Le Petrole, Autre Guerre Entre L’Iran et L’Arabie Saoudite,” Le Monde, January 16, 2016).

In February 2016, Saudi Arabia, Russia, and several other major oil producers agreed to freeze oil production at near-record high levels, contingent upon adherence by other leading producers. Iran initially insisted that it was going to continue to ramp up oil production, then endorsed the agreement only to subsequently refuse to commit to a freeze. Whatever this initiative’s ultimate fate, its launching suggests increased Saudi sensitivity to the potential damage caused by sustained low prices, possibly presaging future attempts by Riyadh to work with other large producers to restrain or reduce output. (Ian Black and Terry Macalister, “Plunging oil price brings Saudi Arabia and Iran together in alliance of enemies,” The Guardian, February 20, 2016;  Ambrose Evans-Pritchard, “Saudi Arabia dashes hopes of output cut as oil woes deepen,” Daily Telegraph, February 23, 2016)

Modelling Implications

We shall pay close attention to expectations about longer-term movements in oil prices, as these will influence Saudi Arabia’s and Iran’s current behavior. For instance, both countries would be under much less pressure to reform their economies if the current widespread expectation that low to moderate prices are here to stay were to be replaced by one holding that—as some analysts argue—prices will rebound strongly in a few years as declining investment in oil infrastructure (driven by today’s low prices) leads to a supply crunch. (Ivana Kottasova, “Oil investment is weakest in 30 years,” CNN, February 22, 2016) And even within a more pessimistic scenario, whether expectations center on prices staying at or near very low recent levels for an extended period or rising to moderate levels ($50 to $70 a barrel) could have significant impacts for both countries’ economic and political choices.

• For Riyadh, differences within this range would affect the speed at which it depletes its foreign reserves–about five years at the high-end according to the IMF, (International Monetary Fund, Saudi Arabia: Tackling Emerging Economic Issues To Sustain Growth, 2015) to as little as three at the lower end, according to a financial media projection (Nicholas Wells, “Saudi Arabia Struggles With Cheap Oil,” CNBC, February 23, 2016). The faster the rate of depletion, the greater the pressure on Riyadh to implement tough economic austerity and reform measures that could potentially have negative impacts on Saudi internal stability, aid to Sunni allies, and military capabilities.
• For Tehran, sustained low prices would reduce the government’s ability to satisfy public expectations for rapid post-nuclear deal improvements in sagging living standards. This might affect the pace at which President Rouhani’s proceeds with plans to boost growth by opening the economy up to foreign competition and by reducing consumer subsidies (“The Economic Backdrop…,” LobeLog, op. cit.).

In light of the recent production freeze agreement, Saudi-Russian oil diplomacy bears watching as it demonstrates that the two largest oil-producing nations are open to collaborating despite sharp differences over the Syrian conflict (“Russia: Better Iran-Saudi Arabia ties would help oil prices” RIA, Business Insider, February 15, 2016). One analyst argues that the freeze agreement was primarily a joint Saudi-Russian effort to throttle back Iran’s planned oil production surge to their mutual economic benefit (Nafis Alam, “The Saudi-Russian oil gambit has little to do with prices,” The Conversation, February 23, 2016). Moscow’s receptivity to working with Riyadh could grow if oil prices remain very low for a long period because Russia also faces severe future economic challenges reflecting both diminishing oil receipts and Western economic sanctions related to Ukraine (Alexander J. Motyl, “Lights Out for the Putin Regime: The Coming Russian Collapse,” Foreign Affairs, January 27, 2016).

The Implementation of the Nuclear Deal

Iran has moved swiftly to take advantage of the lifting of most nuclear-related sanctions and the release of frozen assets. Beyond ramping up oil production, Tehran has already negotiated major capital purchase or joint venture deals worth over $55 billion with several European countries (“How Iran Rejoined the World’s Economy in Just 10 Days”, New York Times, January 26, 2016). In addition, it has signed a set of commercial agreements with China estimated to be worth $600 billion over the next decade, and formalized Iran’s participation in Beijing’s “One Road, One Belt” program” to build commercial routes across Eurasia. (JM Valantin, “Iran, China and the New Silk Road“, The Red (Team) Analysis Society, 4 January 2016; 4 January 2016;  Sara Hsu, “China’s Relations With Iran: A Threat to the West?” The Diplomat, January 26, 2016). Many in the global financial community now view Iran as among the most promising of the emerging markets given its diversified economy and educated labor force (Christian H. Cooper, “Iran is the ‘single greatest growth spot in the world’,” Business Insider, February 5, 2016). Meanwhile, in the security domain, Iran is seeking an agreement with Moscow for large-scale purchases (estimated at $8 billion) of advanced fighter aircraft, helicopters, and coastal defense missiles that, in conjunction with a previously signed agreement for sophisticated Russian S-300 anti-aircraft missiles, would significantly improve its aging conventional forces (“Iran Vows to Continue Military High-Tech Cooperation With Russia,” Sputnik, February 16, 2016).

Modelling Implications

Despite Iran’s dramatic re-entry into the global economy, optimism about Iran’s post-sanctions prospects is not universally shared. Some economic analysts point out that, in addition to the drag imposed by sustained low oil prices, there are numerous structural impediments to rapid economic growth within Iran, including a culture of corruption and red tape, opposition to large-scale foreign participation in the economy, a banking system beset by sanction-era non-performing loans, and the dominance of heavily state-influenced and inefficient institutions in the economy. These impediments are directly tied into internal politics, with many powerful groupings in the “conservative” faction, including the clergy and Iranian Revolutionary Guard Corps (IRGC), wanting to preserve the closed, regime-dominated, “resistance economy,” from which they benefit financially (Cyrus Amir-Mokri and Hamid Biglari, “A Windfall for Iran?” Foreign Affairs, November/December 2015; Patrick Clawson, “Sanctions Relief Is Not the Key to Iran’s Economy”, Washington Institute, December 23, 2015).

• We shall monitor factors affecting Iranian economic performance such as structural reform, direct foreign investment initiatives, etc., that may also have internal political and foreign policy implications by, for instance, affecting the country’s openness to the outside world. One early sign that significant change may not come soon is that the vast majority of the first phase post-sanctions relief commercial deals appear to have benefited state-influenced large institutions rather than the privately-owned small business sector (Thomas Erdbrink, “In Iran, State-Backed Companies Win From Lifted Sanctions,” New York Times, February 5, 2016).
• In the wake of the recent elections for Parliament and the Assembly of Experts (formally charged with supervising and electing the Supreme Leader), we shall, of course, follow the pragmatist-conservative political balance given its significance for economic reform as well as for foreign and national security policy. President Rouhani’s pragmatic faction appears to have made gains in these elections, while some prominent conservatives have lost their seats. Nevertheless, there is considerable debate among analysts of Iranian politics (to be examined in a future post) about just how much the ideological distribution within the new Parliament has changed given that Rouhani’s alliance itself included many conservatives. Some analysts also question how much clout even a strengthened pragmatic faction could wield given that the conservatives continue to control other important levers of power, such as the IRGC and the judiciary. (Kathy Gilsinan, “Who Really Won Iran’s Elections?” The Atlantic, March 3, 2016; Saeed Kamali Dehghan, “Iranian election results: cynics’ and reformists’ views from Washington,” The Guardian, March 3, 2016;
  Saeed Ghasseminejad, “Iran’s False Choice: Rebranding Hard-Liners as ‘Moderates’”, The National Interest, March 4, 2016)
• In the security domain we shall keep an eye on how relaxation of sanctions will  allow Tehran to expand and modernize its military capabilities, thus directly affecting the bilateral balance of power. A recent report indicating that Moscow is resisting Tehran’s demand to buy weapons on credit from Russia—as it has done in the past, may demonstrate the economic constraints imposed on both countries by current low oil prices (Pavel Felgenhauer, “Russia’s S-300 Shipment to Iran Appears Stalled Again,” Jamestown Foundation, February 18, 2016).
• One additional factor to track is the role that China will play within the Iran-Saudi relationship. Iran would now appear to be on its way to becoming China’s most important Middle Eastern economic partner given the large-scale of the recently completed bilateral commercial deals, although Saudi Arabia remains a major partner as well as China’s second largest oil supplier. Iran’s inclusion in the “One Belt One Road” project may also create major collaborative opportunities for the Gulf states as  well as for neighboring Pakistan, also a partner in the project. This could potentially further complicate the balancing calculus for some of Riyadh’s closest allies (JM Valantin, “Iran, China and the New Silk Road“, The Red (Team) Analysis Society, 4 January 2016; “Iran, China Embark on “New Silk Road,” Financial Tribune, January 26, 2016; David Gardner, “Iran Poses an Economic Challenge to Saudi Arabia,” Financial Times, January 26, 2016; Sameer Lalwani, “Will Pakistan Draw Closer To Saudi Arabia To Balance Iran?” War on the Rocks, February 24, 2016)

Seeing the Big Picture

Looking simultaneously at these distinct but related developments should help remind us that historic change often takes place due to a coming together—or in social science parlance, a confluence—of trends, events, causal agents, etc., especially when brought to a head by a catalytic event. The American political scientist Richard Lebow has explored the confluence concept in connection with the origins of World War I, arguing that it was the coming together of several political/military factors (Germany’s concerns about Russia’s growing military strength, Austria’s worries about a rising Serbia’s threat to its internal stability, and Russia’s need to compensate for various military and diplomatic humiliations) that—catalyzed by the assassination of the Austrian Archduke—led to the chain of events in the summer of 1914 culminating in war. Lebow goes on to dispute historians’ conventional wisdom that events would have eventually unfolded in much the same way even without Sarajevo because of these “underlying causes.” He maintains that time is a crucial factor in that the 1914 confluence would have dissipated within a few years so that outcomes in a later analogous crisis would have been very different: i.e., the Russian military build-up would have reached a point at which Germany would have been much more leery of launching a two-front offensive war. (Richard Ned Lebow, “Contingency, Catalysts, and Nonlinear Change,” in Explaining War and Peace, Case Studies and Necessary Condition Counterfactuals, 2007)

The confluence of developments discussed in this article, including a “declared” cold war, lower actual and expected oil prices, and post-sanctions Iranian economic growth, could — if sustained — significantly affect the Saudi-Iran balance of power to Tehran’s likely advantage. Other readily identifiable current factors that could contribute to such a confluence include improving fortunes for the Iranian-backed regime in Syria, the increased regional influence of Iran’s ally Russia, and a shrinking footprint the Saudi’s traditional partner in the region, the United States (all to be discussed in later articles). Some analysts, including noted American Middle East specialist Aaron David Miller, argue that the balance of power has already swung significantly in Tehran’s direction. Whether in the short or in the longer timer, such a change could increase prospects for intensified bilateral conflict through “Thucydides Trap” preventive behavior by Riyadh, and/or as a result of a clash arising from a catalytic Sarajevo 1914-type event. (Aaron David Miller, “Hello to the Iranian Spring,” CNN, January 18, 2016; and “America’s awkward Iran dance,” CNN, February 2, 2016).

But even if a power shift has arrived or is underway, there are many uncertainties in the factors we have discussed (e.g., oil price trends, the internal Iranian political balance and its impact on economic reform, potential Russian-Saudi collaboration) as well as in those we do not have yet examined (e.g., a possibly more interventionist US stance in the Middle East under the next Administration) that could dilute or reverse such a trend down the road and/or close the window for assertive action (e.g. if Iran were actually to attain a position of clear military superiority over Saudi Arabia and its allies). As we proceed in this project, we shall incorporate periodic “big picture” observations of how influencing factors may move in combination and in a temporal context to try to sense when, where, and how they might lead to confluences affecting Iran-Saudi interaction.

Featured image: Still from VOA video “Tensions in Middle East Heat Up as Saudi Arabia, Iran Cut Diplomatic Ties”, 4 January 2016. Public Domain.

About the author: Dr Warren H. Fishbein is a Washington, D.C.-based independent consultant focused on foresight and warning for global security issues. He retired at senior level after a career in government. He holds a PhD in Political Science from the Massachusetts Institute of Technology.