Pursuing a policy of lowest oil prices, Saudi Arabia is waging an economic war over predominance in the Middle East targeting Iran who is expecting rapid economic growth due to the lifting of economic sanctions. A military escalation of this power struggle – that is not a sectarian one – must be prevented in any case.
In 632 AD, Prophet Muhammad unexpectedly died in his wife’s house in Mecca. The founder of Islam pursued an agenda of reconciliation among his Muslim contemporaries. Shortly before his demise, he preached the following lines:
“Listen to my words, O people, and understand.
Know for certain that every Muslim is a brother of another Muslim,
and that all Muslims are brethren.”
Muhammad’s disciples, however, were not interested in his reconciliation and indulged in running battle about the dead prophet’s succession immediately after his passing. With their quarrel they laid the foundation for the break-up of the young religion into two denominations that keeps Muslims split to the present day – Sunnis and Shias.
Saudi Arabia and Iran: leading powers of two denominations
The group of Sunnis constitutes by far the biggest denomination in Islam to which about 85% of the global 1.6 billion Muslims belong to. Sunni majority countries are mostly found in South (East) Asia and in the Arab World.
Even though only about one percent of all Sunnis live in Saudi Arabia, the kingdom conducts itself as the leading and protecting Sunni power. The royal House of Saud has converted the ultraconservative Islamic school of Wahhabism into a quasi-fascist state ideology and is ruling its population with systematic violation of human rights.
The Saudi Arabian claim to leadership is by no means a consensus among the world’s Sunnis. Besides countries that refuse to give allegiance time and again it is radical terror groups that strive for leadership over the Sunni bloc – first and foremost the ideological protégé of the Saudis: the Islamic State.
This inner brotherly battle among the Sunnis is a key differentiator to the Shia bloc that speaks with a substantially more united political voice to the outside world and barely questions Iran’s claim to leadership. Iran constitutes the economic, cultural, religious and power political center of the Shia bloc.
The group of Shia is territorial much less spread and lives predominantly on the axis of Lebanon-Azerbaijan-Iraq-Iran-Bahrain – the Shia Crescent. The kingdom of Bahrain takes a special position. It is populated by a Shia majority but the state leadership is Sunni and stands politically loyal to Saudi Arabia.
In Syria the reverse case is true. The predominantly Sunni population is ruled by the Assad regime that belongs to the Shia sect of Alawites and is the closest confederate of Iran.
Shia minorities are found in a couple of other countries. In Saudi Arabia, for instance, where about 20% of the population is Shia. The Shias are massively discriminated in the kingdom. Besides political, religious and social discrimination this manifests in the fact that among the victims of Saudi executions time and again there are high Shia clerics or other influential Shia figures.
A pacifist democrat executed as terrorist
Such as in January 2016. In a mass execution, the Saudi regime murdered 47 people, most of them sentenced as terror suspects. Among them was the notorious Shia cleric Sheikh Nimr Baqir al-Nimr who was highly regarded well beyond the Saudi Arabian borders for his open opposition to the Saudi monarchy and his nonviolent struggle for democratic transition and human rights.
During the timid Saudi Arabian version of the Arab Spring in 2011 that was bloodily crushed by the regime al-Nimr was in the vanguard of the protest movement critical to the regime. He called his proponents for explicitly nonviolent resistance against the Saudi dictatorship. After that, the regime, however, sentenced al-Nimr to death, among others for hate speech and lack of obedience.
Al-Nimr’s nephew, back then 17-year-old Ali Mohammed, was sentenced to death as well. Both death sentences bespeak that they were not passed out of a criminal perspective but simply serve political aims: they should be assessed as a warning to the Shiite minority, their future protest should be nipped in the bud.
The execution of cleric al-Nimr heated up a spiral of escalation. Politicians and clerics in Yemen, Lebanon, Iraq and Iran condemned the execution in the strongest terms. The Iranian leadership said it “would cost Saudi Arabia dearly”, announced “divine vengeance” and even claims to have recognized the beginning of the fall of the House Saud.
In some countries in the region the Shia population rallied against the execution of al-Nimr. In some cases, like in Bahrain, these protests were bloodily crushed. The Saudi-Arabian embassy in Tehran was stormed and set ablaze by protesters; similar events took place in Iraq.
The execution of al-Nimr exclusively serves political aims.
The Iranian president Hassan Rouhani strongly condemned the arson attack as “damage and insults to Iran’s dignity” and announced criminal prosecution for the attackers. The Saudi government, however, accused Tehran as the mastermind behind the attacks and, hence, cut all diplomatic ties to Iran.
Out of solidarity with the kingdom, a coalition of Saudi-affiliated countries – Turkey, Qatar, Jordan, Djibouti, Bahrain, Sudan, United Arab Emirates and Kuwait – severed relations with Tehran as well and partly recalled their ambassadors from Tehran. Iran responded by implementing an economic embargo on products from Saudi Arabia.
Riyadh did not hesitate too long to answer militarily on its blazing embassy in Tehran. A couple of days later, the Saudi Air Force shelled the Iranian embassy in the Yemeni capital of Sana’a – according to accusations made by Tehran.
In the recent events that tend to escalate the confrontation over recent years between Saudi Arabia and Iran the Islamic denominations are misused as a tool to divide the Muslim world in two blocs. However, this conflict is not about religion, but about the power-political predominance in the Middle East instead.
An analysis published on JusticeNow! outlines the scenario of a new Cold War in which the two old hostile blocs increasingly draw on regional allies along Muslim-sectarian lines: Russia collaborates with the Shia bloc around Iran, the US with the Sunni bloc around Saudi Arabia.
With the increasing deployment of local proxies, the majority of the wars in the Middle East can be construed from this renewed dichotomous conflict architecture: the bloody counterinsurgency of the Arab Spring from Saudi troops in Bahrain, the support of the hostile parties in the Syrian war or the relentless Saudi bombardments of Shiite Houthi rebels in Yemen – the regular armies of Saudi Arabia and Iran and the respective proxy supported by the rival already face each other in several war theatres.
The coincidence of geographical distribution
Crude oil is (still) the most important strategic resource of our time and is all too often pivotal in geostrategic interests. Oil should thus be placed in the center of causal analysis of the conflicts in the Middle East – the most oil-rich region in the world.
A map meticulously compiled by Columbia University’s Michael Izady depicts the geographical distribution of oil and gas resources in the Middle East. Izady concludes there is a coincidence between the distribution of energy resources and the denominational affiliation of the population: oil and gas, for the main part, are found under predominantly Shiite populated areas.
This is true for Azerbaijan, for oil-rich Iran in any case, but also for the Kingdom of Bahrain, and Iraq where roughly two thirds of the oil reserves are located in the predominantly Shiite southeast of the country. Even in Saudi Arabia – the country with the second largest global oil reserves – the fossil fuels lie mainly under the areas predominantly populated by the Shiite minority in the east.
The Saudi-Arabian leadership is of course aware of this coincidence. In the race for predominance in the Middle East it makes every effort necessary to suppress the Shiite population at home and abroad, thereby undermining the influence of the alleged main enemy Iran.
The execution of al-Nimr – the trigger of the current tensions – must be seen in this light too: in 2009, the cleric threatened to secede the oil-rich areas in the east from the Saudi main land for the case the discrimination of the Shiite minority will be maintained. This secession would amount to an economic death sentence for the Saudi Monarchy.
The oil weapon against a re-strengthening Iran
Since mid-2014, the price of oil dropped dramatically by 70 percent and with the lowest value since 2004 it hit the historic bottom. Most of all, this can be traced back to US companies that have flooded the market with big amounts of unconventional shale oil for a couple of years. Thereby the US became the world’s leading oil producer in a triumphal march that was with respect to its pace historically unprecedented. The excessive supply led to the downfall of global market prices.
Usually the powerful Organization of the Petroleum Exporting Countries (OPEC) encounters a drop in oil prices by curbing the output of its members, thereby stabilizing the prices. But not in the current drop of the last year and a half.
The Saudi oil minister al-Naimi openly admits the OPEC-strategy of lowest oil prices to be a stroke in a battle over market shares against the rising US-competitors: with dropping oil prices, costly extractable US shale oil will become unprofitable much faster than the cheaply extractable conventional oil of the OPEC countries. In its current monthly the OPEC predicts a collapse of US shale oil production in the coming months – mainly due to dropping oil prices.
Keeping the recent escalation between Saudi Arabia and Iran in mind, the OPEC policy of falling oil prices, however, appears in a completely different light: not (only) US companies are the target but first and foremost Iran, and its ally Russia.
Since about half of Iran’s as well as of Russia’s state finances are dependent on oil exports both countries are already suffering from the current low. The Iranian president Rouhani lamented the national budget “would be under pressure” due to the “unprecedented drop” in oil prices.
Due to the historical Iran nuclear deal signed in the summer of 2015 and the subsequent lifting of crippling economic sanctions that started these days the Iran can expect an economic revival by no means less historical. Especially in the oil and gas sector multi-billion dollar investments will approach the country – the impact of which Foreign Policy’s Keith Johnson already predicts as “The Next Iranian Revolution”.
The European energy market, in particular, will be in the focus of the Iranian expansion. The EU Commissioner for Energy Miguel Arias Cañete encourages European energy companies to “invest big time” in Iran – with the aim to make Iran one of the main energy exporters to Europe in the long-term and, thereby, reducing Europe’s dependence on Russia.
The lifting of Iranian sanctions, in the midterm, will entail a change of the global energy supply structure and as a result, induce a shift in the power structure in the Middle East – to the favor of Iran and the disfavor of Saudi Arabia.
Hence, Saudi Arabia’s calculus could be to boycott Iran’s predicted boom from the outset by an oil price artificially kept down with the help of an oversaturated market. For sure, this tactic will weaken the boom but a low oil price alone will not be capable of entirely averting “The Next Iranian Revolution“.
The Saudi economy too, as is known, is massively dependent on oil exports, even much more than the Iranian one: 88 percent of the royal budget is generated from oil sales. So, the argument that Saudi Arabia would use the oil weapon against Iran appears less intuitive on first sight – for the Saudi Arabian economy suffers from the low as well.
The second sight, however, reveals that the financial starting positions of both countries vary widely and, hence, dropping oil prices hit both economies with a completely different force as well.
To improve its position in a fist fight against Tehran, Riyadh embraces the possibility of the economic breakdown of its allies.
After China and Japan, Saudi Arabia disposes the third highest foreign exchange reserves: the Saudi central bank keeps on hand 635 billion dollars in foreign currency, six-fold the Iranian amount. With 672 billion dollars, the Saudi sovereign wealth fund administers the ten-fold amount of the respective Iranian fund. In addition, Saudi Arabia, with below two percent, has the lowest debt-to-GDP-ration on the globe, a number far away from those of highly industrialized countries such as USA (106%) or “frontrunner” Japan (246%).
Saudi Arabia, hereby, has optimal preconditions to cushion lowest oil prices for a longer period of time too. In 2015, the Kingdom already had a historically unprecedented budget deficit of 98 billion dollars, which was compensated by massively accessing its cash reserves.
To European ears this may sound surreal but in Saudi Arabia the population is not taxed. The Saudi government in conjunction with five other Gulf states, thus, is planning to implement a VAT on their populations as a compensation for the drop in oil prices.
Iran on the contrary, has only few possibilities to react on short-term lost revenues. Due to the disastrous inflation of recent years with annual rates up to 35 percent tax increases at short notice appear utterly difficult to enforce.
Altogether, in the poker game of lowest oil prices Saudi Arabia has the greatest monetary scope and plays it off relentlessly – against friend and foe.
Saudi Arabia is by far the biggest producer within the OPEC and, hence, is considered its de facto-leader. All in all, the 13 OPEC countries had to bemoan a loss in revenues of about 500 billion dollars due to the oil price low in 2015 alone. If the Saudis had allowed the common price formation mechanisms to work and pursued a policy of curbing outputs the dramatic fall in prices could have been avoided.
By ceaselessly pumping oil on the markets on a big scale, the leadership in Riyadh, however, decided to exploit its power in the OPEC to abrogate these stabilizing mechanisms. No other OPEC country has as extraordinarily convenient financial preconditions as Saudi Arabia. The oil price low thus hits the other national economies much harder than the Saudi one.
In order to improve its position in a fist fight against Tehran, the leadership in Riyadh embraces the possibility of the economic breakdown of its allies – Venezuela stands on the threshold of collapse.
Saudi Arabia’s conduct is intolerable. Therefore, the other OPEC countries should attempt to pursue their common aim of re-stabilized oil prices which otherwise could be achieved in cooperation with the four big non-OPEC oil producers: USA, Russia, China and Canada.
In any case an expansion of the conflict between Saudi Arabia and Iran must be prevented. International pressure should be exerted on both countries in order to resume their diplomatic relations and to cease the rhetoric saber-rattling.
A direct military confrontation of the two regional powers would catastrophically impact the whole Middle East. Due to the present sectarian incitement an escalation would perilously radiate in all other war theaters in the region.
Abuse of religion
The deliberate incitement of the two big Islamic denominations that we witness today is nothing but an instrumentalization of religion. Artificial borders are drawn, differences are accentuated and elevated in order to justify violent action.
Religion is misused as a dividing tool in order to unite peoples behind their leaders.
There is no millennia old war between Shias and Sunnis. The roots of the current tensions can hardly be traced back longer than a few decades. The tale of the ancient bitter enmity of the two Islamic denominations is a myth. With the aim of uniting peoples behind their leaders in distinction to “the other”, as it is so often the case, religion is misused as a dividing tool in order to enforce a political agenda.
Like the Israel-Palestine conflict or Huntington’s long-yearned-for Clash of Civilizations, the conflict Saudi Arabia vs. Iran is not about religion, nor the legitimate succession of the Prophet Muhammad – it is about politics, particularly power politics. It is about market areas, spheres of influence, market shares, and predominance.
The rhetoric of the conflict must be dragged out of the realm of a religious mysticism. There, naturally, it remains intractable. Religion to human beings is something utterly personal, emotional. If the religious component of the conflict Saudi Arabia vs. Iran, however, is eliminated and instead its real nature is unmasked – which is a battle over political and economic predominance – it will become substantially harder to incite peoples against one another. The conflict must be resolved at negotiating tables not on battlefields.
This is a translated version of a German article that appeared here on JusticeNow!
The English version first appeared on Foreign Policy Journal – connect critical journalism worldwide!