If Iran is to make the most of the opportunities presented by the scaling back of Western sanctions, it will need to improve relations with its Gulf neighbours. But how quickly it might be able to do so remains an open question. So far, its efforts have been met with a distinctly mixed reaction.

In the weeks after the nuclear deal was agreed with the P5+1 countries in Geneva on 24 November, Iran’s foreign minister, Mohammad Javad Zarif went on a charm offensive around the region, visiting Oman, Kuwait, Qatar and the UAE. Two countries were missing from his list, however. For almost three years, Bahrain has accused Tehran of supporting opposition groups in the country, so its omission from Zarif’s itinerary is unsurprising. A more important exclusion was Saudi Arabia, which is Iran’s most powerful opponent in the Arab world. Despite Zarif publicly saying he is keen to visit Riyadh, a trip has yet to be arranged.

Geneva deal

This echoes the situation in the immediate aftermath of the Geneva deal. Within hours, most GCC governments issued statements welcoming the deal. Riyadh, however, dragged its feet and simply noted the following day that the deal was a “primary step towards a comprehensive solution”. All six GCC states did however manage to agree a joint statement at the end of their summit in Kuwait on 11 December, in which they welcomed Tehran’s new approach to its neighbours as well as the nuclear deal itself.

In economic terms, Iran’s most significant regional partner is the UAE. The Islamic Republic has long used Dubai as a trade route to the world and, although that role has declined in recent years due to sanctions, it remains important. Here, at least, Iran is pushing at an open door. UAE President Sheikh Khalifa bin Zayed al-Nahyan told Zarif during his visit on 4 December that “Iran is an important country and it is closer to us than everyone else” and added that “all Emirati officials and concerned bodies should do whatever they can to consolidate these relations.”

I am surprised by the current tendency going around to create a virtual enemy; Qatar does not consider Iran its enemy

Khalid bin Mohammed al-Attiyah, Qatar Foreign Affairs Minister

The UAE’s approach is understandable, given the benefit that more trade would bring, particularly for Dubai. “Dubai is clearly a regional hub,” says Michael Harris, head of frontier markets research at the US’ Bank of America Merrill Lynch. “One of the biggest drivers in 2014 will probably be the Iranian situation. This will be the conduit point through which the world trades with Iran. If Iran is integrating with the global economy, that will be a very, very positive sign.”

Qatar, which shares the North Field/South Pars gas field with Iran, also appears open to closer links. “Our two countries share much in common, starting with a long-standing history of trade and cultural exchange across the Gulf,” said Qatar’s foreign affairs minister, Khalid bin Mohammed al-Attiyah, speaking at UK think-tank Chatham House on 4 December. “I am therefore surprised and saddened by the current tendency going around to create a virtual enemy. Qatar does not consider Iran its enemy.”

The same cannot be easily said about Saudi Arabia’s attitude to Iran, particularly given their support for different sides in the Syrian conflict. Both Riyadh and Tehran are due to attend peace talks on Syria in Geneva on 22 January, which will provide both countries an opportunity to size each other up and offer a chance for bilateral talks. Few, however, expect an immediate breakthrough.

“Relations with Saudi Arabia can improve, but it depends if they can somehow manage to resolve the issue in Syria; it is conditional on that,” says Nader Habibi, professor of Middle East economics at the US’ Brandeis University.

Oil cuts

At the same time, their relationship could become more strained if Tehran’s rapprochement with the West leads to Iranian crude being traded freely on international markets once again. That would lead to lower oil prices and could force Saudi Arabia to cut back its own production.

“We have the potential for the return of Iranian and also Libyan [oil],” says Sabine Schels, head of fundamental commodities research at Bank of America Merrill Lynch. “If both happen at the same time, we could gear ourselves up for a pretty large shift in the global oil market balance. We think Saudi Arabia will act as the swing supplier as it has done in the past.”

Given its strong financial position, Riyadh can afford to make output cuts, but this certainly will not endear Tehran to it. In the meantime, improving political relations should be matched by stronger economic ties for other GCC states.

“Part of Iran’s trade with the GCC in the past few years was diverted because of sanctions,” says Habibi. “Iran was importing US and European products through GCC countries. That will diminish now that it can buy directly from those countries. But an improvement in Iran’s overall economy means its volume of trade with the world will expand, so we will see an increase in trade and travel between Iran and these Gulf countries.”

Iran and UAE yet to agree on Tunb islands ownership

One of the main issues fuelling tensions between Iran and the UAE is the dispute over the ownership of three islands located in the Gulf between the two countries.

The most recent chapter of this complex dispute goes back to 1971 – the year the UAE was formed – when Tehran seized control of the islands of Abu Musa, Greater Tunb and Lesser Tunb after Iran and the emirates failed to agree on the sovereignty of the territories.

The dispute was flagged up most recently in December 2013, when a report claimed that Tehran and Abu Dhabi were in negotiations over the ownership of the islands, following Iran’s historic nuclear deal with world powers in Geneva.

US-based Defence News reported that an agreement on the sovereignty of the islands to be passed to the UAE was laid out during the visit of UAE Foreign Minister Sheikh Abdullah bin Zayed al-Nahyan to Tehran.

However, this has since been denied by the Iranian government. Iranian Foreign Ministry spokeswoman Marziyeh Afkham said reports about a secret agreement for striking a deal with the UAE over the islands was merely a “media hue and cry”.

“Iran’s sovereignty and territorial integrity is not negotiable at all and no change has been made in the country’s explicit and official positions,” she said.

Tehran’s official position has been that the islands have always belonged to Iran and has never renounced its possession of the territories.

Iran’s Foreign Minister Mohammad Javad Zarif said in early December that Tehran is willing to hold talks with the UAE “on the misunderstandings [regarding the implementation of the 1971 memorandum of understanding] on Abu Musa”, according to Iran’s Fars News Agency.

In 1971, before the end of the British Trucial States protectorate and the formation of the UAE, Iran claimed Abu Musa under a joint agreement with Sharjah. The UAE emirate conceded part of Abu Musa to an Iranian garrison and an equal sharing of any oil and gas discovered around the island.

When the Abu Musa deal went into effect, Iranian troops landed on the island. Meanwhile, the Iranians seized the Tunb islands after a brief firefight in which Iranian soldiers and members of the Ras al-Khaimah police force were killed.

The GCC has since repeatedly declared support of the UAE’s claims, while Abu Dhabi has attempted to bring the dispute to the International Court of Justice.

Muscat reinforces ties with Tehran

Oman’s leader Sultan Qaboos bin Said al-Said made the first official visit to Iran by a foreign head of state, after the election of President Hassan Rouhani in late August.

Local newspapers reported that a key reason for Sultan Qaboos’ visit was to act as an intermediary between Iran and the West in negotiations on Tehran’s nuclear programme and the resulting economic sanctions.

Muscat has a long history of diplomatic ties with Tehran, bucking the trend of the wider GCC region, with Abu Dhabi and Riyadh becoming increasingly agitated about the perceived threat across the Gulf. The sultanate played a key role as a diplomatic middleman throughout the 1980-88 Iran-Iraq war, with secret ceasefire talks held in Muscat during the conflict.

Unlike other GCC countries, Oman has not publicly voiced concerns about Iran’s nuclear programme. Muscat’s official position on the programme states: “The sultanate hopes Washington will engage in a direct dialogue with Tehran to resolve the crisis over [its] nuclear programme.

“The sultanate has no reason not to believe Iran’s assurances that the nuclear scheme has purely civilian purposes. This region, no doubt, does not want to see any military confrontation or any tension.”

In the UAE, despite housing a large Iranian community, tensions exist over the ownership of three disputed islands in the Gulf, while Tehran has criticised Abu Dhabi for letting France establish its first permanent Gulf airbase in the UAE.

Relations between Saudi Arabia and Iran have been strained since the Iran-Iraq war in the 1980s, and tensions have intensified since the American invasion of Iraq and the Saudi-led military intervention in Bahrain to quell unrest in the Shia population. The rivalry between the two countries has emerged in a proxy war in Syria between the Tehran-backed President Bashar al-Assad and opposition groups funded by Riyadh.

The GCC states have largely backed the US on international sanctions against Iran’s financial and energy sectors, which Washington imposed to pressure Tehran into increasing the transparency of its nuclear activities.

Sultan Qaboos’ three-day visit to the Islamic Republic, starting on 25 August, included meetings with Supreme Leader Ayatollah Ali Khamenei, Rouhani and Foreign Minister Mohammad Javad Zarif.

During the visit, the respective oil ministers – Iran’s Bijan Namdar Zanganeh and Oman’s Mohammed bin Hamad al-Rumhy – resurrected discussions on a gas pipeline between the two countries. Zanganeh has said he expects the two sides to secure a contract on the pipeline by the end of the current Iranian year (ending 19 March 2014) or the beginning of the next year.

Key fact

Riyadh and Tehran are due to attend peace talks on Syria in Geneva on 22 January

Source: MEED