Iran looks to grow strongly after sanctions are lifted

RIVALRY between the two extremely unequal neighbours of Saudi Arabia and Iran was largely neutralised by Iran’s isolation by United Nations Security Council sanctions imposed since 2006, writes World Review expert Dr Friedemann Mueller. Both countries are Muslim but they differ extremely in religious terms - Shia against Wahabi Sunni. The Saudis are Arabs while Iranians are Persians and Iran is a proud nation which is at least 5,000 years old, with major impacts on Eurasian history, while Saudi Arabia’s statehood is not much more than 100 years old. Iran is the largest country by population in the region with 80 million people. Saudi Arabia has 28 million. Iran has a highly developed domestic education system, while Saudi Arabia sends its elite to American and British universities or the small and isolated, King Abdullah University. The majority of Saudi Arabia’s population pays more attention to religious education than to high international standards. Saudi Arabia discriminates against women more than other countries in the region while Iran, although discriminating too, makes use of women’s intellectual ability and admits them to highly qualified professions. Iran has a political structure with rule of law components including democratic participation, while Saudi Arabia is an autocratic kingdom. Iran is now preparing for the moment when it can take advantage of its superior potential while Saudi Arabia will try to make use of its comparative advantages which can be found on three dimensions. One is Saudi Arabia’s unique role in influencing the global oil market; the second its integration into a global network and third its huge currency reserves of US$745 billion, second only to Japan in a global ranking. This gives it tremendous flexibility. Oil: Saudi Arabia has the world's second largest oil reserves in the world - 268 billion barrels, compared with Venezuela’s 297 billion barrels. Iran’s reserves, estimated at 157 billion barrels, place it fourth largest. Saudi Arabia has the lowest production costs and the largest company, Saudi Aramco, which is totally state owned. Saudi Arabia dominates power in the 12-member OPEC cartel - the Organisation of the Petroleum Exporting Countries. Saudi Arabia’s global links: Saudi Arabia differs from Iran because it is integrated into important institutions such as the G20 - the group of the world's 20 most influential industrialised countries and emerging economies - and the World Trade Organisation (WTO). The International Energy Forum (IEF) is another important institution for Saudi Arabia’s international networking. This opens dialogue at ministerial level between major energy producing and consuming countries including OPEC and the International Energy Agency (IEA) as institutions. The IEF, based in the Saudi capital Riyadh, covers 74 member-countries including Iran. Currency reserves: These give Saudi Arabia room to manoeuvre including insisting on high oil production even if it keeps the oil price relatively low. Other big producers such as Russia, Venezuela or Iran suffer much more than Saudi Arabia under a low oil price - currently between US$50 and US$60 per barrel - as their state budget calculations are based on oil prices close to US$100. So will Iran be able to compensate for the benefits Saudi Arabia enjoys? Iran’s isolation has brought added disadvantages. It has not been part of global competition since 2010 and has organised its business sector more like a government command economy. The World Bank’s ‘Doing Business 2015’ report ranked Iran at 130 among 189 countries. Saudi Arabia is ranked 49. But Iran’s economy is much more diversified in the non-petroleum sectors than Saudi Arabia’s. It has a significant agricultural sector - 11 per cent of GDP, established industry- including electronics, aviation, automobile, defence - and a tourism sector which is quite developed. These sectors have the potential for strong growth - albeit from a low starting point - once sanctions are lifted. Iran’s GDP at US$366 billion is about half of Saudi Arabia’s US$745 billion, according to International Monetary Fund figures for 2013. Final agreement on the nuclear deal should be reached by June 30. The deadline is primarily defined by presidential election campaigns in the US in 2016 and Iran in 2017. Most experts consider it more than likely that agreement will be achieved because failure would harm the credibility of the leaders of both countries. Agreement will allow a strategic change in the relationship between the West and Iran and will lead to a major change in the political and economic balance of the Middle East. For a more in-depth look at this subject with scenarios looking to future outcomes, go to our sister site: Geopolitical Information Service. Sign in for 3 Free Reports or Subscribe.

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