US-Iran dé­tente

Gulf Business - - FRONT PAGE - Dr. Nasser Saidi is founder and pres­i­dent of Nasser Saidi & As­so­ciates and for­mer chief econ­o­mist at Dubai In­ter­na­tional Fi­nan­cial Cen­tre.

WE ARE AT A PO­TEN­TIAL cusp, a trans­for­ma­tional mo­ment in the Gulf and the Mid­dle East where dé­tente with Iran could rad­i­cally change the geo-pol­i­tics and eco­nom­ics of the re­gion. The op­por­tu­nity should not be missed. Iran has been head­line news for the past few weeks af­ter the P5+1 (short­hand for US) reached a deal whereby Iran agreed to curb some of its nu­clear ac­tiv­i­ties in re­turn for a promised $7 bil­lion in sanc­tions re­lief. In a deal agreed for a six month time­frame and re­flect­ing the cur­rent bal­ance of power be­tween the ne­go­ti­at­ing par­ties, Iran agreed to halt en­rich­ment of ura­nium above five per cent pu­rity, neu­tralise its stock­pile of ura­nium en­riched to near 20 per cent pu­rity, stop build­ing its stock­pile of 3.5 per cent en­riched ura­nium, for­swear “next gen­er­a­tion cen­trifuges”, shut down its plu­to­nium re­ac­tor and al­low ex­ten­sive new in­spec­tions of its nu­clear fa­cil­i­ties. Con­ces­sions Iran “won” in­cluded sus­pen­sion of in­ter­na­tional sanc­tions on Iran’s ex­ports of oil, gold, and cars, which could yield $1.5 bil­lion in rev­enue, while un­freez­ing $4.2 bil­lion in rev­enue from oil sales and re­leas­ing tu­ition-as­sis­tance pay­ments from the Ira­nian govern­ment to Ira­nian stu­dents en­rolled abroad. Fol­low­ing the an­nounce­ment, Iran’s of­fi­cial mis­sions hogged the lime­light as did the GCC Sum­mit’s lead­ers ap­plaud­ing Iran’s “new di­rec­tion”, though its com­mu­niqué also voiced con­cern over Iran’s plans to build more nu­clear power plants on the Gulf, say­ing these “threaten the en­vi­ron­men­tal sys­tem and wa­ter se­cu­rity”.


The cur­rent fo­cus of ne­go­ti­a­tions is on Iran’s nu­clear ca­pa­bil­ity and sanc­tions. It will take time and con­fi­dence build­ing mea­sures to over­come sus­pi­cion, mis­trust and three decades of deep freeze in re­la­tions. On both sides, hard­lin­ers and losers from dé­tente (no­tably Is­rael and Saudi) will ac­tively at­tempt to de­rail ne­go­ti­a­tions. How­ever, the op­por­tu­nity and over­ture of­fered by the elec­tion of Has­san Rouhani should not be missed. A new path must be cho­sen.

The ul­ti­mate pur­pose and ob­jec­tive lies not in the nu­clear dossier but in defin­ing Iran’s fu­ture geo-strate­gic role in the Gulf, Mid­dle East and South East Asia. It is about Iran’s ac­tive par­tic­i­pa­tion in heal­ing long-stand­ing open wounds, in­clud­ing the cancer of the Is­raeli-Pales­tinian im­passe. Only a Pax Amer­i­cana-Ira­nia can lead to a sta­bil­i­sa­tion of Iraq, Afghanistan, and Pak­istan and pre­vent Syria from turn­ing into a failed state with desta­bil­is­ing spillovers into neigh­bour­ing coun­tries, no­tably weak Le­banon and Jordan.

The Iran dé­tente stakes are high. A large div­i­dend from dé­tente would re­sult from re­duced mil­i­tary ex­pen­di­tures, of ‘swords into ploughshares’ across the Mid­dle East. In 2012 Mid­dle East­ern coun­tries ac­cu­mu­lated more than $132 bil­lion in mil­i­tary spend­ing, the high­est per­cent­age of GDP in the world (with Saudi leading at 8.9 per cent of GDP, Oman 8.4 per cent and Is­rael 6.2 per cent. Free­ing up eco­nom­i­cally ster­ile mil­i­tary ex­pen­di­ture and re-ori­ent­ing spend­ing for in­vest­ment in hu­man cap­i­tal, in­fra­struc­ture, R&D, eco­nomic and so­cial de­vel­op­ment projects and re­gional pub­lic goods would have nu­mer­ous ben­e­fits. Leading to much-needed job cre­ation, in­creas­ing pro­duc­tiv­ity growth and rais­ing real in­come for the young gen­er­a­tions of a re­gion that has wit­nessed too much death and de­struc­tion. A new path must be cho­sen.


Glob­ally, dé­tente with Iran would mean a low­er­ing of ten­sions and risk of dis­rup­tion of oil sup­plies through the Straits of Hor­muz – sub­stan­tially cut­ting the $10 to $15 risk pre­mium built into world oil prices – and would also re­sult in in­creased oil ex­ports from Iraq and Iran, putting fur­ther down­ward pres­sure on oil prices. Lower oil prices would con­trib­ute pos­i­tively to the nascent global eco­nomic re­cov­ery, though the Gulf oil ex­porters would suf­fer from a fall in oil ex­port and budget rev­enues. Sim­i­larly, ac­cess to in­ter­na­tional bank­ing and cap­i­tal mar­kets would be re­stored for Iran and the sov­er­eign risk pre­mium would de­cline for all coun­tries, low­er­ing the cost of cap­i­tal and fi­nance. There would be two other im­por­tant medium and longer-term im­pli­ca­tions. One, OPEC’s gov­er­nance, strat­egy and role

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