Business
Iran deal has consequences for the Gulf
Domestically, the US President Donald Trump is facing sharp criticism from both political flanks over his deal with Iran to end the war. In the Gulf there is relief – but also recognition that some policies will have to change as the deal is already being tested in the Strait of Hormuz
One measure of the relative weakness of the deal to end the conflict between the US and Israel against Iran – from the US point of view – was that a reopening of the crucial trade route of the Strait of Hormuz had to be negotiated. The Strait only became closed as a result of the conflict, which was initiated by US President Donald Trump and his ally Israel.
The President has failed to secure some of the strategic aims he sought at the start of the war, most notably as the Iranian regime remains in power. The essence of the deal is to exchange a pledge of investment capital for Iran and sanctions relief in return for a commitment not to develop a nuclear bomb and a reopening of the Strait.
Many of the President’s critics point to the similarities of the recently negotiated deal with that of former President Barack Obama, which President Trump withdrew from in 2018.
The Joint Comprehensive Plan of Action (JCPOA) agreed under the Obama administration in 2015 sought to block four pathways to Iran developing a nuclear weapon and included a requirement to keep uranium enrichment to 3.67%, well below the 90% needed to develop a nuclear weapon.
President Trump’s deal seeks to apply ‘maximum pressure’ on Iran, but it remains a Memorandum of Understanding (MoU) at this stage, subject to finalising a longer-term deal. The JCPOA was detailed and specified enforcement mechanisms, backed by the UN Security Council. Both deals specify monitoring by the International Atomic Energy Agency, although verification remains the decisive test. President Trump emphasised his willingness to use military force.
There are 14 points in total to the MoU. The primary one is commitment to a complete and permanent cessation of hostilities. This includes US allies, namely Israel, and refers to all fronts, including Lebanon. There is a commitment to mutual respect for sovereignty, refraining from intervening in each other’s domestic affairs. This weakens any domestic pressure on the Iranian regime.
The third point commits the parties to agreeing a permanent deal within 60 days of its signing.
Other substantive points in the MoU include economic measures. In return for not proceeding with an atomic bomb, Iran will benefit from a fund for reconstruction and economic development worth $300bn. Economic sanctions will be removed and frozen Iranian assets are due to be released. Oil-related sanctions relief has begun under the MoU. Wider sanctions relief remains conditional on a final agreement.
While there is considerable diplomatic momentum for securing a lasting agreement, there is a degree of uncertainty. That uncertainty has deepened after fresh attacks around the Strait of Hormuz and Bahrain on June 26-27, which have tested the interim understanding. On June 19, the US Vice-President JD Vance postponed a trip to Switzerland to meet his Iranian counterparts. Negotiations were put on hold owing to resumption of hostilities in Lebanon, although Israel and Iran declared a ceasefire later in the day.
The return of Iran to full economic participation in world trade carries with it many opportunities in the region.
For the nations of the Gulf Co-operation Council, this year’s conflict will have major and lasting repercussions. The oil and gas trade, and tourism, have been badly affected. The Gulf may be seen as a less reliable supplier.
GCC ministers held a meeting with Marco Rubio, Secretary of State for the US on June 25. In the subsequent announcement, the two parties declared their commitment to ‘free, unconditional, and unrestricted navigation’, through the Strait of Hormuz. It also rejected attempts to impose control, tolls or political conditions on commercial passage.
The statement welcomed the agreement between Oman and the International Maritime Organisation on evacuation and maritime safety arrangements for stranded vessels.
Under the terms of the Iran-US deal, the Strait of Hormuz will be reopened to trade, with the Iranian and US navies withdrawing their naval blockades. While significant levels of shipping movements have returned, this has not been without incident. On June 25, a ship passing through the Strait, in Oman waters, was struck by an unknown projectile, without casualties; a further tanker incident was reported on June 27. It is not confirmed who was responsible for the strike, but Iran has condemned use of the southern route near Oman and insisted that freight companies should co-ordinate passage with Iran.
The IMO suspended its planned evacuation of the 11,000 people on stranded cargo vessels following the attack, announced just two days earlier.
Iran’s leaders would be wise to refrain from bellicose action – doing so frequently or inappropriately could damage relations weaken their position. Its leverage is maximised by restraint. The economic benefits for Iran specified in the MoU are conditional on it ensuring the Strait is fully reopened for safe transit.
From the GCC point of view, establishing better relations with Iran ought to be a priority. Engagement, however, must be conditional on safe navigation and credible verification.
Economic development in Iran itself should help stabilise its internal politics; also opportunities will spill over into neighbouring countries.
In terms of economic policy, for the GCC there needs to be a commitment to investment in overland transport infrastructure, especially the rail network. This will help provide alternative freight routes to the sea as well as encouraging domestic economic development.
While trade routes for oil exports are opening again, there has been some demand destruction as the switch to renewable energy sources was accelerated during the crisis.
The war this year was unwelcome for all, and horrific for some. But it could prove to be a spur to improve relations between Iran and the Gulf nations to help economic development and prevent a recurrence of conflict. That opportunity depends on restraint, safe navigation and credible enforcement.
The author is a Qatari banker, with many years of experience in the banking sector in senior positions.