Saudi Arabia will have been aware that the execution of 47 people on January 2nd, including the prominent Shia cleric Sheikh Nimr al-Nimr, would almost certainly cause widespread dismay abroad, and antagonise Shia communities nearer home. So this move will have had specific aims for the Saudi government and it is likely that the executions, mainly of Sunni Islamist jihadis, were carried out primarily with a domestic audience in mind as way of reinforcing the government’s tough stance on domestic terrorism. This is a key message in light of the number of attacks that have been conducted by IS supporters in Saudi Arabia over the past year.
But, even if designed principally for a domestic audience, the international ramifications have been widespread and profound. While negative rhetoric between Saudi Arabia and Iran has been increasing over the past several months, the cut in diplomatic relations came in response to an event that was perhaps unpredictable, but not entirely surprising; Saudi Arabia last suspended relations with Iran in 1988 when protestors stormed its embassy in Tehran. However, the move is broadly in line with Saudi Arabia’s efforts over the past year to assert itself as a regional leader in security and foreign policy. The regional draw down by the United States has also created a need for Saudi Arabia to demonstrate independence from its principal international backer.
The diplomatic dispute and the execution of Nimr will ripple throughout the security environments of countries across the region. While a direct military confrontation between Iran and Saudi Arabia remains unlikely, their participation is essential in efforts to resolve the conflicts in which they support opposing interests. The tensions are likely to disrupt ongoing attempts at diplomatic resolutions in Syria and Yemen as well as worsen persistent tensions in Iraq and Lebanon, thus prolonging these conflicts.
Protest activity over the Nimr’s killing is likely to persist across the region in the coming days, with demonstrations most likely In Saudi Arabia’s Eastern province, neighbouring Bahrain, Iran, Iraq and Lebanon. In addition, the rising political and sectarian tensions will increase the likelihood of sectarian violence throughout the region. Localised political violence by Shia militants, including small scale attacks, will persist in Bahrain and in Saudi Arabia’s Eastern province with a focus on the security forces. In addition, retaliatory violence against the Sunni community in Iraq by Shia militias is likely. Sunni militants such as Islamic State are likely to leverage these tensions to exacerbate regional sectarian and political divisions.
As for the Iranian nuclear agreement (JCPOA), the diplomatic dispute between Iran and Saudi Arabia, the UAE, Bahrain and (temporarily) Kuwait will not have an immediate effect on its implementation. The JCPOA process is tied to a series of political milestones and technical requirements which are near completion. However, the row will have two consequences that will affect the durability and impact of the JCPOA.
The Iran-Saudi Arabia dispute gives further fuel to critics of the JCPOA in the United States who are pushing for new non-nuclear related sanctions in Congress and the executive. Iran’s unveiling of a new missile facility this week will also do that. With Saudi Arabia (and potentially other countries) indicating that trade ties will suffer, companies mulling investment in a post-nuclear sanctions Iran will be concerned about whether they can do business on both sides of the Gulf.
That said, it is too early to be definitive about what Saudi Arabia (and other countries) will do on this issue of trade. Control Risks’ position in 2015 was that there was unlikely to be broad formal or informal embargoes on trade with Iran, though multinationals with Saudi Arabian counterparts could expect questions and perhaps displeasure from these counterparts should they start business in Iran. We thought then – and still believe – that this will be largely in sensitive sectors, primarily oil and gas. It will be informative to watch how Saudi Arabian companies with big business in Iran are treated. Even if no formal embargo is put in place, it is possible that companies doing business in both countries may face informal pressures on trade and business operations, such as delays in customs or other bureaucratic procedures.
The dispute does underline a key consideration for companies thinking of investing in Iran: if you have business in the Gulf Cooperation Council countries and - more importantly for most - in the US, Iran represents a big reputational gamble.