The news on 24 November that Tehran had agreed to suspend its nuclear enrichment programme for six months in return for a relaxation of international sanctions provided a welcome piece of diplomatic good news after a year dominated by the growing humanitarian disaster in Syria, rising violence in Iraq and increased sectarian conflict between the region’s Sunni and Shia communities.   

The agreement between Tehran and the five permanent members of the UN Security Council plus Germany has the potential to change the political and economic landscape of the region forever.

As well as reopening a market of 77 million people and boosting trade in the Gulf, the re-engagement of the Middle East’s second-biggest economy and the world’s third-biggest gas producer with the US and its allies promises a step towards regional cooperation that will substantially reduce concerns about global energy security, diffuse regional sectarian tensions and increase energy supplies.

But the deal also highlights the complex and delicate nature of diplomacy in the region. Western engagement with Tehran has angered some Arab governments in the GCC and increased tensions between Washington and Riyadh, which was already unhappy with the US’ decision to not step up action in Syria following the alleged use of chemical weapons against its own population by the Al-Assad regime.

On 17 December, Saudi Arabia’s ambassador to the UK, Mohammed bin Nawaf al-Saud, expressed Riyadh’s frustrations in an open letter published in the New York Times that said the kingdom “was left with no choice but to become more assertive in international affairs, [and was] more determined than ever to stand up for the genuine stability our region so desperately needs.”

Saudi Arabia and its GCC partners will face further pressure in the years ahead from the falls in oil prices projected to result from increased global energy capacity among non-Opec producers and from unconventional sources such as US shale gas. Rapprochement with Iran will add to the downward pressure on oil prices.

Aware that they have a limited opportunity to benefit from high oil revenues, GCC governments are rapidly accelerating efforts to invest in social infrastructure and job creation programmes to support population growth.

But there is also an increasing realisation that long-term economic growth will come not from raising oil production, but by driving greater efficiency in the utilisation and conversion of their energy reserves.

The result will be an escalation in major project activity in 2014, perhaps by as much as 20 per cent, with 2015 also lining up to see high levels of project spending. But in parallel, we can expect a growing focus on energy efficiency, water conservation and food security initiatives.