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Tensions with Saudi Arabia could affect Iran’s economy

Tensions with Saudi Arabia could affect Iran’s economy

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Date: 12 January 2016 18:07

Baku, Azerbaijan, Jan. 12

By Elena Kosolapova – Trend:

Crisis in relations with Saudi Arabia and its allies could affect Iran’s economy, economist and expert on Iran at the US Northeastern University, Kamran Dadkhah believes.

Dadkhah told Trend that the direct effect on Iran’s economy will not be substantial because its trade and investment relations with Saudi Arabia, Kuwait, Bahrain, and Djibouti that severed their diplomatic ties with Iran and Qatar, which recalled its ambassador from Iran, are very limited.

Iran has extensive connections only with the United Arab Emirates which has also recalled its ambassador and downgraded its diplomatic relations with Iran, the expert noted.

But there could be strong indirect effects of the tensions between Iran and these countries, Dadkhah said.

“Many companies that are interested in investing or trading with Iran have extensive relations with the aforementioned countries. They may feel that becoming friendly to Iran could be detrimental to their interest in Saudi Arabia, Kuwait, Bahrain, and Qatar,” Dadkhah said.

The expert believes that given the hope generated by the conclusion of nuclear agreement with P5+1, Iran would have been better off if it had avoided this crisis.

Relations between Saudi Arabia and Iran soured after execution of Nimr al-Nimr, a prominent Shia cleric, by the Kingdom along with other 46 people, which was followed by a strong protest from Iran. Some Iranian protesters stormed Saudi embassy in Tehran on Jan. 3, smashing furniture and setting the building on fire before being dispersed by police.

The Saudi consulate in the eastern city of Mashhad also was attacked. Saudi Arabia broke off diplomatic ties with Iran in response to these attacks. Bahrain, Djibouti and Sudan aligned with Saudi Arabia and also cut the relations with Iran.

Speaking about the oil prices, the expert noted that if the Saudi- Iranian dispute remains at diplomatic and propaganda level that has been observed so far, it will not have any effect on oil prices.

“Because of high volume of output by Saudi Arabia and Russia as well as increased production by the United State (fracking and shale oil), there has been an increase in oil inventory. On the other hand, China’s economic slowdown foretells of stagnant demand,” he said.

Moreover Dadkhah expects that in response to the current dispute, most likely Saudi Arabia will continue its high level of extraction to deny Iran any substantial increase in its oil income following the nuclear agreement.

“Thus, we should expect short term volatility in oil prices, medium-term stability and long-term slow increase,” he said.

Meanwhile Dadkhah noted that if the two countries engage in actual warfare or face intensified terrorist attacks (for example, in Iran or Saudi Arabia’s oil fields) then the story will be very different. However the turmoil in the Middle East will likely not happen because, because otherwise, everyone would be a loser, he said.

Edited by SI

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