New Energy Supplies are leading to New Partnerships in the Persian Gulf

June 25, 2014

Host: The Woodrow Wilson Center

Speakers:

Dr. Bijan Khajehpour, Managing Partner, Atieh International

It is a well-known secret that there is an ongoing proxy war in the Middle East. In Syria, Iraq, and around the region, the Gulf Cooperation Council led by Saudi Arabia, has been in direct competition with Iran and its allies – Hezbollah in Lebanon, Bashar al-Assad in Syria, and leaders in Iraq. While this competition has been on going for decades, as the region continues to change and redefined, new partnerships are beginning to form. Although historically enemies, Iran has managed to forge strong ties with Iraq under the Maliki/Shiite-led government. Similarly, Oman – a member of the GCC – recently played an instrumental role in working with both Iranian and American officials in order to set up preliminary nuclear talks.  Should a nuclear deal be reached between Iran and the P5+1, Dr. Khajehpour believes that these instances of Persian-Arab cooperation will become far more common and redefine the political and economic framework in the Middle East.

Although it will undoubtedly take years to unwind all the international sanctions currently imposed against Iran, there is still huge economic potential in Iran’s near term future. This will come in the form of drastically increased trade and foreign investment. Although Dr. Khajehpour acknowledged that some countries and institutions may still be wary about investing in Iran, many will be eager to help address the shortages of resources and commodities that was brought about by sanctions. This increase in imports will be simultaneously matched by the unfreezing of Iranian capital, currently being held in foreign banks, and also resurgence in Iranian exports – namely energy.

Home to over 40% of the world’s natural gas reserves, the Persian Gulf is currently producing below its potential as it accounts for only 32% of the world’s production. This is in large part due to Iran’s own significant underproduction, as it has the largest gas reserves in the region. However, as the global and regional energy markets evolve and move away from crude oil and towards petroleum products, the demand for natural gas will quickly rise – Dr. Khajehpour labels it “the most efficient” fuel for producing and transporting civil energy.

In Saudi Arabia, the UAE, Qatar, and throughout the Gulf, energy consumption per capita is drastically rising while efficiency is lagging behind. Further, as Dr. Khajehpour highlighted, GCC economic and energy integration is not where it needs to be. As it stands now, Qatar exports its liquefied natural gas (LNG) to Japan and markets around the world while Saudi Arabia and Kuwait are importing LNG from international sources “with their ships crossing each other in the Strait of Hormuz.” Greater regional cohesions and cooperation is needed.

Oman and Iraq have already signed gas deals with Iran, while with Kuwait is currently in the works. Based on statistics, the UAE and Saudi Arabia will likewise need to increase their gas imports in order to meet growing energy demands. Without importing gas they will be forced to use their liquid resources inefficiently to produce energy. As the energy demands needs across the region grow, the old political and economic rivalries must also evolve adapt. By ignoring change, Iran and the GCC not only risk further civil instability, but they are also robbing themselves of future opportunities. As it emerges from sanctions, Iran will be in need of commodities, financing, and direct investment. This is an opportunity for the Gulf States to not only improve and reset relations with Iran, but also better position themselves to benefit from the increased energy production that they will inevitably need. In order to secure a better, sustainable, and more efficient future, the Gulf States and Iran would do better to put aside old rivalries and look toward the mutual interests of the future.

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27. June 2014 by Will Houstoun
Categories: Economics, Energy, Middle East | Comments Off