Iran - the moose on the table for the GCC

Just in case you maybe think the GCC states are warming to Iran - here's a very interesting article in this week's Economist on the relationship between Iran and the UAE.

Must admit, nice timing to help with Oman's negotiations on accessing the Kish gas field at an economic price...

Yet one should remember that if anyone is 'the old enemy' of Oman it would not be Iran (who, albeit under the Shah, actually sent troops to assist HM in the civil war/Yemen insurgency of the early 1970s), but the Kingdom of Saudi Arabia - as the KSA apparently actively funded the 60's insurgency, and was always looking to annex a part of western Oman.

Iran, in it's pursuit of regional hegemony, needs to get the chip off its shoulder with the USA because of the support given to Iraq during the 1980's war. They really must be kidding if they think they own the straights of Hormuz... Half of that passage is Omani.

The Gulf states
Caught in the middle but still perky

Nov 6th 2008
Buffeted by ill winds from Iran and Iraq, and rattled by the world’s financial turmoil, the Gulf states still look set to survive the troubles around them

AT THE heart of a region better known for tension and strife, and at a time of global financial anxiety, the rich Arab monarchies of the Gulf exude an unworldly calm. Their lucky citizens seem to inhabit an enchanted cocoon of marble-halled villas, hotels and shopping centres, awaft in costly scents, serviced by an obedient army of foreign workers and protected by the might of the American superpower. Amid such playthings as thoroughbred horses, hunting falcons, yachts, jets and flashy cars by the fleetful, Gulf rulers have pondered not how to stay in power but what new castles, towers and cities to build for their happy subjects.

Just now, according to one survey, they have some $2 trillion worth of mainly publicly-funded projects planned or under way, which may look excessive were it not that the size of the six national economies that make up the Gulf Co-operation Council—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE)—has tripled within five years to an overall GDP of close to $1 trillion.

Yet storm clouds loom over this air-conditioned Shangri-La. In the past six months the price of oil, the export commodity that underpins such fabulous wealth, has fallen by more than half from record highs. Local stock indices have tumbled in line with the rest of the world; the biggest, Saudi Arabia’s, has fallen by 45% since the start of the year. The portfolio losses sustained by the Gulf’s sovereign wealth funds, estimated a year ago to have accumulated some $1.5 trillion in overseas assets, may approach the $400 billion earned by the GCC from oil sales last year.

Small wonder that Gulf governments showed little enthusiasm when Britain’s prime minister, Gordon Brown, who recently toured the region, asked them to stump up extra cash for the IMF, though Gulf investors have jumped in to prop up Barclays, a British bank, with an infusion of £5.8 billion ($9.4 billion) that could raise their share of its equity to more than 30%.

And while, with few exceptions, the Gulf monarchies face little short-term pressure for internal reform, geopolitical pressures are mounting. To the north lies Iraq, whose current relative calm carries little assurance of lasting. On the opposite shore of the Gulf sits the Islamic Republic of Iran, a testy Shia theocracy with nearly twice the GCC’s population (70m-odd versus 38m or so) and a nuclear programme that most Arabs assume will sooner or later bear atomic bombs. A nuclear-armed Iran would not be a strategic counterbalance to the United States or Israel, says a think-tank man in the UAE’s Dubai, reflecting official worries. “The weapon would be used only to intimidate us, the ones who have nothing.”

Not only does Iran maintain that the Gulf is Persian in name. It also insists that its neighbours respect its own pre-eminence in the region, underscored by its success in penetrating Iraq and backing “resistance” forces such as Hizbullah, Lebanon’s leading Shia party-cum-militia, and Hamas, the Palestinians’ powerful Islamist movement. Sunni Arab monarchs fear that Iran may influence their own Shia citizens, who are repressed and restive in Saudi Arabia and Bahrain, an island kingdom where Shias are a majority and which some Iranians continue to claim should belong to them (see map).

Iranian officials have a habit of sounding such sour notes, amid a sweeter chorus of benevolence towards their once barefoot Arab cousins. In case of attack, they have openly threatened to hit the American bases that dot the GCC monarchies and to blockade “indefinitely” the strait of Hormuz, through which 40% of the world’s exported oil flows. More recently, Iran said it plans to build a new base on its side of the strait. Besides, its forces have sat for years in occupation of three disputed islands in the Gulf, bluntly rejecting calls by the UAE, which has a strong legal case for ownership, to settle the issue of sovereignty by international arbitration.

Such tensions are partly historic, reflecting ancestral animosity between Arabs and Persians, as well as Iranian ire at the Gulf Arabs for their generous funding of Iraq’s Saddam Hussein during the brutal slaughter of the Iran-Iraq war in 1980-88. The GCC was founded, in 1981, largely for the rich and sparsely populated monarchies to fend off revolutionary Iran, which scornfully labelled the group an American club—with some justification, since they have all, with varying degrees of openness, hosted American forces on their land.

But Iran’s prickliness also reflects a confidence that, although its Arab neighbours are under an American military umbrella, they are neither strong nor unified enough to oppose the Islamic Republic. Despite prodding to toughen their stance towards Iran, particularly from the Bush administration, the GCC states have for the most part preferred to leave diplomacy to their Western allies.

One reason is that some of them enjoy extremely lucrative economic ties with Iran. Dubai, the regional trading hub that is one of the UAE’s seven statelets, handles an estimated 60% of Iran’s merchandise trade, hosts nearly 10,000 Iranian-owned firms and is linked to Iran by more than 250 flights a week.

The Gulf Arabs have also been reticent because of political differences. Saudi Arabia, with its physical size and pretensions to Sunni leadership, has tended to adopt a harder line towards an Islamic Republic whose head of state, Ayatollah Ali Khamenei, styles himself supreme commander of the Muslims. But diminutive and ultra-rich Qatar, which happens to share a giant natural-gas field with Iran and whose leaders have often been at odds with their Saudi cousins, has had reason to be warier. Many of the smaller Gulf states have, until recently, quietly worried as much about Saudi Arabia, a state that was created by conquest under an extremist Wahhabi ideology, as about the more distant regional heavyweight over the water.
Uncle Sam’s clodhoppers

The Arabs’ discomfort with their superpower patron has been another reason for toning down differences with Iran. It is not only that America’s troop presence, which citizens of the smaller Gulf states tend to accept as a necessary evil, is unpopular. It is also that, under Mr Bush, America has ridden roughshod over Gulf objections to such policies as invading Iraq and backing Israel in its war with Hizbullah in 2006.

So, instead of helping their erstwhile American ally by, for example, moving to challenge Iranian influence in Iraq or loudly protesting against Iran’s nuclear plans, the Gulf states have been largely passive. Countries such as the UAE have applied sanctions mandated by the UN Security Council against Iran, intended to punish it for failing to reveal the full extent of its nuclear programme and heed demands to stop enriching uranium. Yet they have continued to signal friendliness, to the point of inviting Iran’s controversial president, Mahmoud Ahmadinejad, last year for a pilgrimage to Mecca and to attend the GCC’s annual summit meeting. On October 28th the group’s secretary-general, Abdel Rahman Attiya, made a first-ever visit to Tehran, reiterating support for Iran’s right to peaceful nuclear technology and expressing hope for “cementing and consolidating” relations.

Yet there are signs that the Arabs’ patience with Iran is thinning. Mr Ahmadinejad has pointedly not been invited back, so far, to the GCC leaders’ meeting in February. For all his kind words in Tehran, Mr Attiya recently likened Iran’s occupation of the three Gulf islands claimed by the UAE to Israel’s occupation of Palestinian land.

Iranian businessmen have lately complained that it is harder for them to do business via Dubai, since ever-fewer banks in the free-trading emirate are willing to open accounts for them. Arab governments are now keener to engage with Iraq, opening embassies in Baghdad in a belated effort to bolster forces not aligned with Iran. Meanwhile, they have quietly smoothed over their own differences. A striking rapprochement between the region’s diplomatic maverick, Qatar, and Saudi Arabia, has been marked by a toning down of criticism of the Saudis by the popular Qatari-owned television channel, al-Jazeera.

Privately Gulf Arab officials sound much harsher about Iran, reflecting increased doubt that either diplomacy or economic sanctions can block its nuclear ambitions. “If the military option happens [ie, if the Americans or Israelis bomb Iran’s nuclear facilities], we will have no problem with that,” asserts a Gulf security expert. “If we reach a point where the choice is living with a nuclear Iran or suffering the consequences [of an attack], we would choose the latter.” Other analysts note that, despite the manpower imbalance between forces, Arab Gulf states are better equipped to damage Iran and resist counter-strikes. The UAE is due to become the first foreign country to deploy America’s most advanced air-defence system, capable of destroying incoming missiles at a range of 200km (124 miles). Already, Arab air forces far outgun Iran’s.

Sceptics of economic pressure on Iran may be proved wrong. In the GCC’s open economies, the effects of global financial turmoil are plain. Places such as Dubai, highly leveraged and with a swollen property bubble, may suffer harder shocks in the near future. Still, all the Arab monarchies have giant cash cushions, the biggest one belonging to Dubai’s generous sister emirate, Abu Dhabi. The GCC’s ambitious government budgets can probably stay in the black, even with oil prices sinking towards $50 a barrel, or could be trimmed at prices well below that with little pain.

Iran, by contrast, has little spare cash after three years of Mr Ahmadinejad’s spendthrift populism. With inflation nearing 30%, Iranians are already grumpy: witness a recent strike by bazaar merchants protesting against a plan to impose VAT, at 3%. Iran needs oil to stay at no less than $75 a barrel to maintain spending. While its isolation from the world economy, partly a result of sanctions, does provide a temporary buffer, a sustained decline in national income may yet focus minds on the cost of pursuing a nuclear programme that promises no benefit for many years to come.