Iran Nuclear Deal
Iran made a nuclear deal with the five permanent members of the UN Security Council in June 2015. The agreement restricts Iran’s production of nuclear weapons in exchange for the lifting of embargoes against Iran. The contract raised heated debates across many fronts in the United States with the administration of President Obama, finding it difficult to convince even the Congress to accept the deal. On the other hand, Tehran appeared to be happy about that, but the citizens kept shouting anti-US slogans every time they went on air to talk about the nuclear deal (Cornwell, 2015). The most difficult concern, however, is with the GCC countries that were neither represented in the negotiations nor consulted by any of the deal makers, yet the matter in discussion affects them more than any other region in the world. Ideally, the deal has both political and economic effects on the GCC countries. The purpose of this research paper is to look into how this agreement affects the GCC countries economically and politically but before that, it is important to understand what the deal entails.
Iran has continuously engaged in the production of nuclear weapons and other weapons of mass destruction. It raised concerns in the UN, the United States, and in Europe that if Iran did not use the arms against them, the increasing threat of terrorism that the weapons posed was not something the world could wait to take place. The five members of the United Nations Security including Germany were led by the United States in negotiating with Iran (Al Jazeera, 2015). The negotiations mainly concentrated on Iran’s nuclear capabilities, and Iran was supposed to reduce its production of nuclear weapons and in exchange the United Nations, United States, and European Union would lift the sanctions imposed on Iran due to the nuclear weapons production programs. The parties at the negotiation table signed the deal on June 17th, 2015. Since the deal was signed, parties on both sides of the negotiation table have started to put in place the necessary measures required for its implementation and as a matter of fact, the benefits of the deal to Iran are already coming to light.
The deal has direct economic consequences for Iran. They relate to the fact that Iran would be able to unlock more than $90 billion financial power that is in foreign exchange reserves (Gulf Business, 2015). The flow of these funds to the economy is likely to affect the exchange rates in the market, hence causing unexpected volatilities in the market for foreign currencies. What this means is that as the country engages in fiscal policies using the unlocked funds, the supply of the foreign currency would rise rapidly in Iran as well in other GCC countries. This volatility may end up having negative impacts on the economies of the GCC countries.
Other than unlocking the funds in the foreign currency reserves, the nuclear deal would impact Iran and the GCC countries by leading to a strong recovery in the trade, tourism, and oil production as well as exports in the region. Iran has been operating under sanctions from the EU, US, and the UN. These sanctions acted as impediments to the involvement of Iran in various trade activities including the production and sale of oil and gas as well as tourism and other international trade divisions (The Economist, 2015). By allowing the country to engage in these activities, there will be higher domestic production, and this is highly likely to affect other countries in the Gulf region, especially by drawing forces investor from other Gulf countries. The biggest worry, however, is about the production and sale of oil and gas. The prices of oil and gas have fallen sharply over the last year. Analysts argue that the falling in prices of oil and gas is linked to excessive production of this commodity (The Economist, 2015). Countries like Saudi Arabia are already suffering from the dipping oil prices and with the nuclear deal, the prices are likely to dip further because of Iran’s production of oil and gas. It means that the Gulf states will suffer economically because the oil prices are likely to drop further. According to analysts, the prices of oil and gas are likely to reduce by between $5 and $10 due to the reentry of Iran into the global market for oil and gas (Ibish, 2015).
Other than the impact of the Iran nuclear deal on oil prices, the GCC countries are likely to feel the spill-over effect of an economy anchored more in the production of gas compared to oil. The deal came at a time when the global powers are focused on the climate change and global warming. One of the key focuses of the global warming campaign is to reduce oil dependence for energy and focus more on gas. This shift is likely to impact on oil producing countries. In particular, the move will impact greatly on the GCC countries and the Organization of Petroleum Exporting Countries simply because Iran is a key producer of gas in the world, and by opening up the market for gas, the nuclear deal and global warming campaigns economically empower Iran to the extent that it is likely to tower over the GCC countries (Taleb, 2015). For instance, Kuwait is already considering the construction of a pipeline from Iran through Iraq to get a supply of gas from Iran.
The other major concern is the fact that Iran is highly likely to replace the GCC countries in the supply of oil and gas to China and India markets. With the opening of Iran and the lifting of trade sanctions, the country can now export its products to any country where they find the market. India is a key trade partner for Iran. After the announcement of the nuclear deal, India made an announcement that it was planning to increase a number of imports bought from Iran (Raghu, 2015). If the GCC countries lose business to Iran, it is highly likely that their economies will take a hit, especially when considered that the oil and gas industry is already struggling, and Saudi Arabia has already started issuing bonds.
Other than impacting GCC countries through the oil and gas industry shocks, the nuclear deal will also cause shock in the investment and business environment in the region. The first possible occurrence is that the country will increase competition for foreign direct investment, and since there are many reforms underway, Iran is likely to attract more investors that Saudi Arabia and other GCC countries (Farhi, 2015). Consequently, it is likely to lead to foreign direct investment outflows from the GCC countries to Iran in the best case scenario. In the worst case scenario, the deal may lead to an escalation of animosity between Iran and other GCC countries. Countries like Saudi Arabia were sidelined in the Iran negotiations meaning that the Iran deal did not put into consideration the regional interests. Saudi Arabia seems to be the most affected by the structure of the negotiation to the extent that the king Salman asked President Obama to confirm whether he would still support Saudi Arabia, in case the deal lead to more strife in the region. Iran responded to this stating that the nuclear deal had nothing to do with the regional issues, therefore, no one would force the country into other decisions. The response indicates the likelihood of increased instability in the region, and this may lead to the flight of capital from the region hence making impacts on the GCC countries’ economic stability.
The nuclear deal however does not mean that it is all doom for the GCC countries. The revival of trade by the lifting of sanctions in Iran means that regional trade engagements are likely to increase. For instance, Iraq and Lebanon are among the countries that are likely to benefit from the nuclear deal. The revival of trade will not only affect China, European Union, Russia, and the United States, but it will also make its impact on regional trade (Abdullah, 2015). In particular, Lebanon’s banking sector is likely to benefit from the deal. The same applies to Saudi Arabia which is capita rich, and if the trade ties become stronger between the two countries, the return on investment for Saudi Investors will increase. The same will be expected for the construction, real estate, and development companies in the region, especially when considering that Iran will be reconstructing its infrastructure and facilities. In other words, the nuclear deal if handled properly at the regional level may just result in an economic boom for the region hence saving it from the current economic problems brought by falling oil prices.
The section above presents information on how the Iran nuclear deal is likely to impact on the economic landscape of the GCC countries. However, there is the other side that regards the geopolitical impacts of the agreement on the same countries. The first thing is that the Iran nuclear deal will shake the geopolitical climate of the Middle East to its roots and probably, this is a big cause of worry for the GCC countries. Iran has always acted as if it is charged with the policing role in the Middle East. It means that the country has had a lot of power to the extent that it can control what other regional players do within their borders (Gulf Business, 2015). Many political analysts argue that at times, the country has been rumored to be in support of terrorist groups. This role reduced considerably since the West imposed trade sanctions on the country, because the sanctions reduced the cash flows into the country hence almost crippling its role as the police force of the Middle East. The nuclear deal lifted the sanctions that the West imposed on Iran in exchange for restricted nuclear weapons production. The lifting of the trade sanctions means that the country will now be able to import weapons and ammunition, hence strengthening its role of policing the Middle East.
The second major concern for the Gulf countries relates to the fact that the region will now have three powers competing among themselves. The powers include Turkey, Saudi Arabia, and Iran. While it comes to competition, it may turn out to be dangerous especially if competition is based on pessimism, distrust, and extremism. Political analysts argue that going by the recent stances of the three countries in the Syrian crises, it is highly likely that the competition may deteriorate towards regional fragmentation and the race for purchase, production, and accumulation of firepower. The long-term impacts of such competition would be increased volatility and instability in the region as a result threatening even the global security (Pollack, 2015).
Before the nuclear deal, the United States had close ties with Saudi Arabia and all along the United States influenced the Middle East through Saudi Arabia. The goal posts, however, seem to be shifting with the United States trying to find an ally in the strongest military power in the Middle East. Surprisingly, the United States did not even seem to care about incorporating the interests of Saudi Arabia in the negotiations. It is important because Saudi Arabia and Iran have a long-standing conflict, and, as a matter of fact, there does not even exist any significant trade between the two countries. When the deal was signed, Riyadh expressed its reservations with the way the deal was handled. It was by affirming the comments of Israel on the issue where Israel termed the deal as the greatest mistake in the history (Pollack, 2015). Moving forward, it is highly likely that geopolitical realignments will be coming into play with the allies of Iran weighing on their relationships with the United States and Russia as well as with Saudi Arabia.
The other major political concern that came with Iran deal is the fact that with increased trade and business, Iran was likely to continue supporting the regime of Bashar al-Assad in Syria. The regime has been criticized by many, especially, because it is dictatorial, and, at one time, it used chemical weapons to attack its people. Continued support of the regime puts Iran at loggerheads with both the United States and Saudi Arabia (Cornwell, 2015). These are the two major countries supporting the ousting of Assad from power. Ideally, Iran is also willing to stifle the war against ISIL. The country uses the crimes of ISIS to justify why the regime of Assad should remain in power.
In light of the changing geopolitical landscape in the Middle East, analysts indicate that the deal between the United States and Iran is likely to hurt the relationship between the US and the GCC countries as well as between Iran and the GCC countries. In fact, nobody in the Middle East wants to experience a stronger Iran. Arguably, the member states of the GCC indicate that Iran is one of the countries which majorly participates in sectarian wars in the region. Iran contributes to such wars by the provision of financing support (Ibish, 2015). To deal with the threat that is Iran, the GCC countries are, therefore, highly likely to severe the relations with Iran and the United States and instead from a military coalition in readiness to dealing with any form of hegemony from Iran, which is now being supported by the United States. Such a move would bring a paradigm shift between the United States and the Arab countries relations.
The above points concerning the political impacts of Iran’s nuclear deal are based on a pessimistic view of the relations between the Gulf States and Iran. However, the deal can also be looked at from a different perspective. Iran has been the most stable country in a region bugged by endemic instability. The stability of the country has been due to the presence of systemic regime of leadership which are duly elected by people. Additionally, the country stands out as a military tower in region, indicating that is the region that unites the GCC countries to have the capacity to deal with any threats, including terrorism, which has been affecting the region for a long time. The country is influential enough to be able to affect the decisions of the GCC countries on key political and economic issues, such as the production of oil among other factors (Gulf Business, 2015). This influence, if properly utilized, is likely to strengthen not only the international relations among the GCC countries, but also the economic benefits that the countries are set to gain from this form of integration.
At the time of presenting this report, the international relations between various GCC countries and Iran seemed to be strengthening. For instance, the relationship between Oman and Iran has been becoming strong over the years. It is not only because of trade interests, but also because of the common goals towards the eradication of extremism in the region and the attempt to establish stronger regimes of governance in the neighboring countries (The Economist, 2015). The best indicator for this strong political relationship was revealed in the nuclear deal that has just been completed. The negotiations between the United States and Iran has been going on for more than two years. Most of these negotiations took place in private, with Oman being the proxy for Iran. The successful signing of the nuclear deal, therefore, represents success not only for Iran but also for Oman. The deal also inspires good international relations between Iran, Iraq, Lebanon, and Kuwait and, if followed, the deal is highly likely to yield a strong force that is ready to pursue common political and economic interests, including creating more stable relations, governments, and development approaches. Such political integration would help the countries deal with the threat of ISIS and other terrorist organizations that threaten the region’s stability.
This paper discussed the importance of Iran nuclear deal to the GCC countries. The deal was signed in June of this year with the five permanent members of the UN Security Council. The main aim of the deal was to ensure that the capacity of making and using nuclear weapons was limited to Iran. In exchange, the country would have trade and other sanctions against it being lifted by the US, UN, and the European Union, hence ending a thirty years period of trade embargoes for Iran.
During the negotiations, no member of the GCC countries was involved in negotiations. It means that those at the negotiation table did not consider the regional interests concerning the Iran deal. From a general point of view, the lack of representation translates to the possibility of several negative implications, both economically and politically for the GCC countries. However, there are also several positive implications of the deal for the GCC countries, meaning that the implications will depend on how the actualization of the deal will be handled by both sides of the negotiations and, most importantly, the way Iran will handle the implementation process.
Economically, the deal will lead to possible declines in the already low oil prices, as Iran adds its 1.5 million barrels a day to the international market for oil and gas. The deal may also point to the possibility of stability in Iran, hence attracting foreign direct investment in the country. It may come at the expense of the GCC countries that may experience massive capital flights, as investors try to take advantage of high returns on investment in Iran. The country is also expected to replace business for some of the GCC countries with countries like India, China, Oman, and Kuwait being key importers of the country’s products. However, there are some political implications of the deal. The first possibility of the rise of a third economic and military power in the region is leading to competition among them. The three dominant countries will, therefore, be Saudi Arabia, Turkey, and Iran. The competition has the likelihood of developing into a competition for military power and accumulation of arms, as distrust among the countries is likely to increase. Additionally, the deal paints a changing image of the role of the US in the Middle East.