Geopolitics in the Middle East

A bit under the shadow of the war in Ukraine and the increasing tensions between the US vs. China, some remarkable developments have started in the Middle East.

Main developments

Iran and Saudi Arabia have resumed diplomatic relations, Bashar al-Assad’s Syria has been officially rehabilitated and Arab autocrats appear to govern with renewed vigour, brutality and impunity. In Iran potential internal unrest goes side by side with unbridled adventurism abroad. The latter directed still and ever more against Israel where, for the first time since the inception of the country 1948, a basic rift has opened between the autocratic government of Netanyahu and the defenders of a truly democratic system based upon the rule of law.

Do we witness the beginning of basic realignments in the region lead by an uneasy Sunni-Shia alliance with the common aim to new security arrangements in the region less dependent on the hitherto supremely reigning pax americana? Or are the old demons of religious and historic hatreds still alive, albeit under a surface of societal modernism and, still oil driven, financial interests?

Now, what does this geopolitical background signify for exports and investments in the region? Is it safe to bet on the commercial future of Saudi miracles in the desert such as the future mega-city Neon? Is even a resumption of trade with Iran in the cards, granted nolens volens by Washington in the face of regional co-chairmanship Riyadh-Tehran and a potential global retreat of the US to ‘make America great again’?

Main actors

USA

The USA remains the global military superpower with regional dominance in the Middle East, too. The historic US-role as Israel’s defence line of last resort, the dominant role of the US in supplying key military hardware to the region’s NATO-ally Turkey and countries like Egypt, Jordan, Saudi Arabia, United Arab Emirates, are facts which may in fact have been overshadowed by recent developments: Rapprochements between Israel and Arab governments through the US sponsored Abraham Accords, the diplomatic manoeuvring space left by Washington to China for a thaw between the Saudis and Iran as well as a de-escalation in the proxy war in Yemen between the Saudis and Iran may have hinted at tectonic moves to the disadvantage of American dominance in the region.

Indeed, US-President Biden had to retract his initial contemptuous treatment of Saudi’s factual ruler Crown Prince Mohammed bin Salman (MBS) two years ago. His administration had to accept that traditionally solid allies and partners in the region have developed a degree of operative autonomy in their policies which may resemble a sort of strategic autonomy.

But the fundamentals of the world’s power equation remain unchanged: US economic and military power, which translate into political influence and are the basis for unmatched US soft power globally, have not withered under China’s challenge. Beijing may have increased its means of influence and is certainly continuing to do so on a global level, pretending equality in a bi-polar world order. But the general dominance of the US, also in the Middle East, fundamentally remains unchallenged. The big economic question is now to which extent China as a buyer of Saudi oil exports is replacing the US and the West as supplier and as a market for other goods or services by nascent industrial capacities (and ambitions) of Arab Gulf states?

Saudi Arabia and the Gulf, Egypt and Israel

Crown-Prince Mohammed bin Salman (MBS) governs his country with a hard hand promising changes, partially already installed, in societal governance and financial security ‘beyond oil’ in return for undisputed political leadership. The country is, and remains a family firm, rather than a modern state where the rule of law and the will of all people serves as a guideline. If as a non-Saudi you run afoul of ‘the firm’, you are out of the country overnight or worse. The same goes for the UAE. Both countries have lately embarked on less overly aggressive foreign policy as in Yemen, more cohesion within in the Gulf states, papering over the rift with Qatar and, together with the latter, competing for world events, both of a sporting (World Championships, Olympic Games) and a political (World Expo and COP 26 in Dubai) nature to keep their countries in the global head-lines.

An altogether different question is the Gulf’s, and especially Saudi’s relationship with global powers. The interests of Riyadh and Moscow with regard to oil sometimes align, sometimes not, such as right now when Russia wants a low world market price to sell as much of its Western-banned resource whereas MBS needs a high price to drive internal development. China can be helpful to Riyadh as shown in the role of an in-between with Tehran. But in this particular case Washington as an archenemy of the Mullahs was out; furthermore MBS went from the right assumption that Iran would not want to anger Beijing as its biggest supporter on the global scene. Yet, China can’t, and thus won’t replace the mighty US security presence in the Gulf as mentioned above.

In Egypt President Sisi reigns as despotic as Mubarak ever did. Here again, you either work with the government and its oligarchic, often military dominated clientele, or else. If you look further afield in the Arab world, the hope for a lasting Arab spring appears to have been squashed, even in Tunisia. Experts predict, however, that underneath brutal repression the ember of popular revolt remains, and thus it could flare up at any time again, such as we see occasionally in Iran.

In a desperate attempt to cling to power and escape prison, Nethanyahu has led Israel to the edge of an internal abyss of a permanently divided country. Israel cannot afford such internal strife as it is still asserting its right to peace and prosperity in a troubled neighborhood. The Abraham Accords, underpinning the normalization between the Jewish state and its Arab neighborhood could well be of a temporary nature: The support of the ‘Arab street’ for the Palestinians remains, thus limiting the space even for autocratic governments to full accommodation of Israel.

Iran

Iran’s ill-advised strategic decision to get actively involved in Russia’s war against Ukraine has further increased the set of international sanctions against its economic development and its people’s future in general. The supply of advanced military drones to the battleground may help Iran to profit from Russia’s potential (and desperation) to buy high- tech military goods in its disastrous campaign against Ukraine. But it does not generate any other meaningful advantage, neither political nor military or economic, for Iran’s leadership, which appears more and more helpless when it comes to policies for the furtherance of national development and the general well-being of the nation. This is in addition to the wide-spread demonstrations since last October, which fundamentally question the regime’s legitimacy. All data and opinion polls available indicate that the authorities of the Islamic Republic of Iran are left today with a popular support of some 20 percent of the nation. 80 percent thus seem to reject the Islamic Republic as such. The ruthlessness of the repression can uphold the regime’s power over the country for quite some time, but in an undetermined future the power system will inevitably crumble, unless the government turns into a military dictatorship with the clergy not keeping any meaningful say in state and social affairs.

The Iranian regime’s dreams of building a powerful new strategic bloc together with China and Russia in order to survive in a future multipolar order are unrealistic. Iran has no natural community of interests with Russia and China and even less historic inclination to belong to a bloc formed by Russia under the leadership of China. Iran’s natural interest, if there is such a thing, lies in a longer term association with Western powers and civilisations and the regain of some sort of accommodation with other regional powers and possibly even dominance over the Gulf region and Central Asia. The improvement with its relations with the Saudis is certainly a positive step in the interest of all countries in the region. But more concrete signs hinting at further such developments are inexistent. Swiss exporting industry continues to be left with cumbersome transactions in order to uphold existing legal and legitimate trade relations with Iran, if they wish to be ready for the day when the Iranian economy reopens as a very attractive market.

Economic potential and risks

Geopolitics is a relevant background of business-related decisions and deserves a due diligence of its own. Mindful of this caveat, exporting into the Middle East has definite potential when keeping in mind the additional necessity of commercial due diligence in particular regarding the potential for US/Western boycotts in local contacts, private or official; possible sudden expropriation and/or nationalization; corruption; the need for an extra careful study of ‘big projects’, especially in Saudi-Arabia, literally built on sand.

Picture: Stuart Rankin