Report: GCC Cooperation and Iran

July 28, 2016

Potential rapprochement between the United States and Iran in the wake of the nuclear deal could cause rifts between the Gulf Cooperation Council states, depending on how Iran is integrated into the regional security order. Engagement with Iran operates as a “wedge” between GCC members, with Oman being the outlier. Oman played a key role in secret talks between Iran and the United States that led to the nuclear negotiations.

The stronger GCC members, Saudi Arabia in particular, are most resistant to prospective warming in U.S.-Iran relations, because they think their dominance in the regional order could be challenged, according to a new RAND Corporation report.  The following are excerpts.

 

The Outlook for Arab Gulf Cooperation

In addition to the issue of political Islam, engagement with Iran operates as another wedge within the GCC. In this case, Oman is the main outlier, having long maintained friendly relations with Iran. The Omani strategy is variously described as “strategic hedging,” “omnibalancing,” or more creatively “Omanibalancing,” in which Oman triangulates between the United States, Iran, and Saudi Arabia in an effort to maximize its leverage and mitigate security threats. GCC counterparts tolerate Oman’s approach, although its perceived legitimation of Iran can cause consternation in specific cases. For example, Sultan Qaboos bin Said Al Said of Oman broke ranks in becoming the first head of state to visit Iran’s Mahmoud Ahmadinejad after the latter’s disputed presidential victory in 2009. Even more controversial, Muscat’s hosting of secret nuclear talks between Iranian and U.S. officials in 2012 and 2013 was seen by many Gulf leaders as a betrayal when its intermediary role was ultimately revealed. Most recently, Oman stood alone among the GCC states in not joining the Saudi-led coalition engaged in military operations in Yemen.

Security: Projected Trend Lines

There appears to be a great deal of continuity in the threats facing GCC security in the next ten years compared with the threats the organization faced in the first 35 years of its existence. These include the threat from Iran (both conventional and asymmetrical), attacks from jihadi groups and lone wolves inspired by them, and the prospects of unrest from within. It is also reasonable to assume that the two fronts in the GCC’s immediate periphery, represented by Yemen to the south and Iraq to the north, will continue to be a source of instability given that those countries have experienced protracted conflict for several decades now. In 2016, both countries are at a heightened boil.

Aside from a fundamental shift in Iran’s orientation (discussed in the next section), the course of proxy conflicts that have spread throughout the region may have the greatest impact on GCC unity in the years to come. Although Syria, Iraq, Yemen, and Libya have strong domestic drivers to their conflicts, external involvement also plays a major role in sustaining the conflicts and shaping their outcomes. Because several GCC states are involved as direct belligerents or primary patrons of factions within these conflicts, how they evolve is likely to have a significant impact on unity. Of the three current conflicts mentioned, Yemen has engendered the most action insofar as all GCC states except Oman are participating in the military operation against the Houthis and Saleh loyalists. In the short term, that military campaign is providing a tremendous boost to GCC unity. Qatar and the UAE, only a year removed from supporting different factions in Egypt and Libya, are now fighting together to restore the Hadi government. And an outcome viewed as successful by the coalition participants will almost certainly provide a boost to Saudi leadership within the GCC and the Middle East.

Outlier Security Developments that Could Break the Pattern of GCC Cohesion In 2015, the shared threat perception of Iran and the impetus it provides for most of the GCC states to cooperate in containing that threat is one of the strongest unifying factors within the GCC. In a future scenario in which the Joint Comprehensive Plan of Action (JCPOA) and shared interests in countering ISIL in Syria and Iraq lead to U.S.–Iranian rapprochement, the GCC states will face difficult choices. While our assessment is that a wider U.S.–Iranian rapprochement is unlikely, many in the GCC consider that outcome as the intent of U.S. policy.

Faced with broad U.S.–Iranian rapprochement, one choice would be for GCC states to join what could be perceived as an emerging new regional order by seeking to align themselves on issues where the U.S. and Iran are finding common ground, and to increase their own engagement with Iran in Gulf regional security dialogues. An alternative would be to actively resist a U.S.–Iranian rapprochement by pursuing foreign policies that are intentionally escalatory toward Iran to work against this outcome.

Based on past behavior, it would appear that a strategy of supporting Iran’s inclusion as a partner in regional security would be more likely for smaller GCC states less committed to the Sunni-Shi‘a and Arab-Persian dichotomies than Saudi Arabia. By this logic, Oman, Qatar, and perhaps Kuwait are all candidates for GCC countries as early joiners should a hypothetical U.S.–Iranian détente grow into rapprochement over the coming decade. Although these three states have their own bilateral concerns with Iran and share some of the threat perceptions of the other GCC members, they are more open to pursuing positive engagement with Iran than Saudi Arabia, Bahrain, and the UAE. Conversely, Saudi Arabia has a strong incentive to resist accommodation with Iran that would undercut its claim to regional leadership. And despite the potential for economic gain from trade and investment with Iran, the UAE generally shares the Saudi stance and adds to it the thorny issue of Iran’s occupation of Abu Musa and Greater and Lesser Tunbs, the disputed islands claimed by both countries. As for Bahrain, its Shi‘a majority population and proximity and deference to Saudi Arabia suggests it also would likely be in the camp most resistant to such a shift in regional alignment.

A shift in U.S–Iranian relations for the better could divide the GCC according to the differing capabilities of the member states. The strongest members and those that seek the dominant position within the regional order, Riyadh and Abu Dhabi, are most resistant to integrating Iran into a regional order. Even if they were to take the leap of faith that cooperation with Iran would enhance their security, this realignment would shift them down a peg in the regional hierarchy, essentially reverting to the days of the “twin pillars” strategy when the United States banked on Saudi Arabia and Iran as the regional heavyweights. If Saudi Arabia and the UAE, as a rising power, do not want to share billing with Iran, they could be tempted to spoil the prospect by baiting the Islamic Republic into actions that make it unpalatable for the United States to consider integrating it into the regional order. Should, for example, the Saudi-led coalition attempt to keep a large contingent of ground troops in Yemen, Gulf-supported factions in Syria focus their efforts on targeting Hezbollah fighters and Iranian Quds Force advisers, or the UAE attempt to confront Iran over the disputed islands, these actions would heighten tensions with Iran that would complicate the emergence of any U.S.–Iranian rapprochement. The approach also would work against GCC cohesion to say nothing of broader regional stability.

On the other hand, there is some possibility that a hypothetical U.S.–Iranian rapprochement would lead the GCC to move in parallel toward its own accommodations with Iran. That this remains a possibility is demonstrated by the warming that took place between Saudi Arabia and Iran when Mohammad Khatami was president of Iran in the 1990s. The key difference, however, is that Iran of the 1990s, while still seen as a foe by the GCC, was less threatening to the GCC at that time than it appears to be today. In the 1990s, the GCC states could test improvements in its relations with Tehran without the prospect that the United States would get ahead of it in these efforts. Iran had yet to exert the dominant influence it now enjoys in Baghdad or develop a serious nuclear program, and Hezbollah, the Houthis, and other subnational groups aligned with Iran had yet to emerge as significant actors in what was still a state-dominated order. So while Gulf outreach to Iran in the 1990s ran the risk of legitimizing a “bad actor,” it did not run the risk of legitimizing an ascendant regional power.

A related development to Iran’s future role in the regional security order would be a Saudi decision to develop a nuclear program. Categorized here as an outlier development, Saudi Arabia’s acquisition of nuclear weapons in the next ten years is possible but not likely. However, the fact that former Saudi officials have openly called for the Kingdom to pursue a nuclear capability, and that current officials have refused to rule it out, suggests the contingency is plausible enough to merit treatment. As it relates to this report, the key question is whether a Saudi bid to acquire turnkey nuclear infrastructure or develop it indigenously would lead the GCC to rally around the Kingdom or exacerbate schisms within the group.

In recent years, Saudi Arabia has been able to count on reflexive support from Bahrain, and given the latter’s heavy economic dependence on its neighbor, this is likely to hold true over the coming decade absent fundamental political change in Manama. As for the other GCC member states, it is an open question whether they would support or oppose a Saudi push for nuclear weapons and would likely depend on the particular context. If Iran was found to be cheating on its commitments under the JCPOA or withdrew from the agreement based on its reading of Western noncompliance with the terms, this would logically strengthen the justification of the Saudis pursuing a nuclear counter. But absent indications of Iranian deception under the JCPOA terms, neighbors could view a Saudi advance as unnecessarily escalatory and perhaps an opportunistic bid to advance its regional leadership. It would also constitute an awkward shift in Saudi policy because it and the other GCC states led a diplomatic push to establish a Weapons of Mass Destruction–Free Zone in the Gulf and Riyadh is a signatory to the Non Proliferation of Nuclear Weapons Treaty.

Additionally, the GCC countries that appear most exercised by the issue of Saudi hegemony—namely, Qatar, Oman, and Kuwait—would be candidates to resist being folded into a Saudi nuclear umbrella that would reduce them to adjuncts of Riyadh. Those states would also have concerns that an arms race would put them at risk of being collateral damage in a broader Saudi-Iranian military confrontation. The Obama administration has gone on record that a Saudi step in this direction would have fallout on the Kingdom’s relationship with Washington, and given Washington’s enduring interest in nonproliferation, this sentiment is likely to extend to future U.S. administrations. So the smaller GCC states would be in the position of alienating a major security patron should they side with a hypothetical Saudi push to acquire. This all suggests that absent a heightened nuclear threat from Iran, Saudi pursuit of its own nuclear program would likely prove divisive within the GCC.

Outlier Economic Developments that Could Break the Pattern of GCC Cohesion

Although the anticipated trend over the next decade is one of increased GCC economic integration, sanctions relief provided through the Iran nuclear agreement may create rifts within the GCC over individual member states’ trade ties with Tehran. The removal of some trade and financial sanctions against Iran is likely to impact GCC cohesion via two mechanisms—oil prices and regional trade.

As sanctions relief relates to oil prices, this development may reduce global oil prices by as much as $10 per barrel following Iran’s “full return to the global market.”44 The lower oil prices resulting from new Iranian oil available in the global market could accelerate many of the financial pressures highlighted earlier.

As the nuclear deal relates to regional trade, GCC states’ trade policies with Iran could emerge as a wedge issue if a subset of GCC states is tempted to put economics before politics in their relations with Tehran. The GCC and Iran became important trade partners during the late 1990s and 2000s, culminating in a planned GCC FTA in 2008 that ultimately failed because of the political climate. By 2006, GCC exports to Iran accounted for nearly one-quarter of total Iranian imports. Although these GCC exports to Iran were dominated by re-exports passing through the UAE, Iran was also an important importer of nonoil exports originating in Saudi Arabia and the UAE.46 However, GCC–Iran trade dropped precipitously under the sanctions regime against Iran, with GCC–Iran trade falling by nearly 50 percent from 2013 to 2014.

The removal of economic sanctions against Iran could challenge some of the recent GCC unity exhibited in the foreign policy realm. In one scenario, differing tolerances for economic relations with Iran could lead to infighting between the GCC states, or in the case of the UAE, within a single federated state as Dubai and Abu Dhabi have historically had different approaches to trade with Iran. In the short term, the UAE and Oman are expected to be the greatest beneficiaries within the GCC of the removal of sanctions.48 Given Muscat’s positive relations with Tehran, it could be tempted to seek a preferential trade relationship with Iran as the latter emerges from sanctions. This would not only be contentious for its symbolic value, but would give Iran some access to the entire regional bloc as Omani re-exportation of Iranian goods should be anticipated given that Oman has consistently had the highest level of trade integration in the GCC. Oman has just barely been surpassed by Bahrain in the past few years, with some 30 percent to 40 percent of Omani trade occurring with other GCC nations (see Figure 2.1)

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