BRAVE NEW WORLD
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 ISSUE IS NOT THE NUCLEAR DOSSIER BUT IRAN’S GEOSTRATEGIC ROLE
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.
DéTENTE WITH IRAN MEANS LOWER OIL PRICES
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