“Belligerent rhetoric only plays into the hands of the Saudi monarchy”

A report discusses the next “front” in the Iran-Saudi war.

It opens, “Looks like 2016 was born in violence. Saudi Arabia’s execution of popular Saudi Shiite cleric Nimr al-Nimr has led to an escalation with its regional nemesis, Iran. After Saudi Arabia’s embassy in Tehran was sacked by an angry Iranian mob, Riyadh severed diplomatic ties with the country and organized a regional coalition of countries to isolate it further — Bahrain, the United Arab Emirates, Qatar, Kuwait, Djibouti, and Sudan have all cut or downgraded diplomatic ties with the Islamic Republic in the incident’s aftermath. Iran accused Saudi Arabia of going even further Thursday, claiming that Saudi warplanes had launched airstrikes against its embassy in war-torn Yemen”.

It goes on to mention “Far from being an angry string of irrational actions, the Saudi escalation in recent days seems like a cold and premeditated act of international gamesmanship. Meanwhile, there is reason to believe that Iran’s moves following Nimr’s execution were a strategic blunder. Sheikh Nimr was, after all, a Saudi citizen; by going beyond condemnation to issuing threats, Iran’s reaction served to confirm, rather than challenge, the Saudi narrative about the cleric as a terrorist mastermind in the employ of an Iranian agenda. But the fallout from the recent war of words won’t only be felt on the battlefields of Syria and Yemen. While the military struggles in the region get the most attention, the most important area in which the conflict will play out could be the economic arena”.

He posits that “it looks like Riyadh and Tehran will increase support for their allies, as a negotiated peace looks further away than ever. Unfortunately, Syrian and Yemeni civilians will bear the brunt of the violence. The markets have also weighed in, and they do not appear to expect any direct military confrontation between the two countries. The oil market is particularly sensitive to disruptions in oil supply routes or facilities, as would occur during a conflict between the two Gulf powers. But while there was a spike in oil prices immediately following the recent escalation, it was short-lived, and prices continue to slide, hitting an 11-year low Wednesday”.

He writes that the Saudis aim to weaken Iranian economic growth, “Even as oil prices sit near an 11-year low, Saudi Arabia has continued to pump massive amounts of crude oil. It has repeatedly refused to cut production, rendering OPEC’s price-setting mechanisms useless — and the kingdom has enough excess capacity to drive the price even further down. Analysts have speculated that Riyadh might be trying to drive U.S. shale oil producers out of the market, but the more important aim is to wreak havoc on the budgets of Iran and Russia, both of which are dependent on oil revenues for income”.

He notes that “While the Saudi economy is more heavily reliant on oil than Iran’s, its foreign exchange reserves are far higher and its sovereign wealth fund owns far more assets. It also still has the untapped option of issuing bonds — it has the world’s lowest GDP-to-debt ratio (under 2 percent) and a high credit rating. Most importantly, Riyadh is already taking steps to inject more funds into government coffers: The development to watch out for is the planned economic reforms package, which would institute a value-added tax, cut subsidies, and privatise certain sectors. According to Saudi calculations, should this be successful, the country will see a balanced budget before 2020. Iran, on the other hand, does not have as many options. It’s already in the midst of a subsidy reform plan and, unlike Saudi Arabia, already taxes its citizens. Raising taxes is difficult when inflation is high (16.2 percent) and unemployment is in the double digits (10.4 percent). The oil price necessary to balance Iran’s budget is much higher than the price needed to balance the Saudi budget; the Iranian oil sector is in need of development after more than a decade of sanctions”.

He goes on to write “For these reasons, Iran’s aggressive reaction to Nimr’s death represents a strategic blunder. Rather than simply issuing a condemnation, Iranian leaders issued what could only be construed as a direct threat. Iran’s supreme leader, Ayatollah Ali Khamenei, talked of “divine vengeance”; a spokesman at its Foreign Ministry said that Saudi Arabia will “pay a high price.” Hezbollah leader Hassan Nasrallah gave a televised speech in which he went so far as to describe Saudi Arabia as an illegitimate state and said that Nimr’s execution “will not pass.” This belligerent rhetoric only plays into the hands of the Saudi monarchy, whose recent tough stance toward Iran seems to have become very popular at home”.

He ends “A young Shiite man from the kingdom’s Eastern Province is now less likely to feel Saudi or adopt a Saudi identity — something that does not bode well for the future. After the executions, young protestors in Nimr’s hometown marched to chants of “the people demand the downfall of the Sauds.” Saudi Arabia and Iran could have solved their long-standing issues without destabilizing the region, but they instead chose to cynically exploit existing sectarian tensions. The final chapter in this saga has not yet been written — but the region will not see peace until both sides recognize and respect each other’s boundaries”.

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