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Wed. November 14, 2018
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The Likely War Between Iran and Saudi Arabia
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With a view to better understanding what might happen in the future between the Shi’ite Republic of Iran and the   Wahhabi and Sunni stronghold represented by Saudi Arabia, we need to examine a wide range of geoeconomic, political, ideological, strategic and military data and conditions.

Both geopolitical players, namely Iran and Saudi Arabia, may appear irrational to Western observers and decision-makers, but they are used to analyze their strategic equation down to the smallest detail.

Firstly, let us analyze the issue of oil prices and their geopolitical significance.

In principle, the oil price per barrel at around or below 30 US dollars should increase slowly, although Saudi Arabia has oriented and directed the rest of OPEC Sunni countries towards temporary overproduction, so as to further lower prices and damage Iran. And damage Russia as well, a small simultaneous favor to the American friends. This however, is a very ambiguous token of friendship: at a price below 30 US dollars/barrel, US shale oil is totally uneconomical and many US shale oil companies (reportedly 40%) are already on the verge of bankruptcy.

But none of the OPEC members, let alone the US shale oil  industry, can go on for a long period of time with this pace of plant over-pumping, which reduces the life cycle of wells and leads to huge costs for crude oil storage, in a situation of low economic growth of oil consumers.
The United States has accepted this policy that damages the Russian Federation, which has an economy still linked to the oil system.

If we look at data and statistics over the last few months, Saudi Arabia has reached an extraction record level of 10.24 million barrels/day. And the more the economic crisis worsens, the more Saudi Arabia will be interested in pumping at full blast, so as to have the immediate cash and liquidity it needs.

Even Iraq, Kuwait, and oddly enough, Libya, have increased the pace of their daily extractions. Apart from Iraq where oil is in Kurdish areas, where they are the new region of Saudi hegemony, they are conditioning for oil overproduction to destroy Shi’ite competitors and convince the United States to give up the shale oil extraction.

In geopolitical terms, the Sunni world tries to flood the Western markets with its oil, which will replace the oil of Iran and Shi’ite areas (including Iraq).

In the downward war of the oil barrel, the winner is the one that expels the opponent from the end markets. This obviously tends to cause more damage to countries which are most dependent on oil flows.

Nevertheless, with such low oil barrel prices, all OPEC producing countries do not succeed in maintaining internal social peace, military spending and their hard currency reserves.

With a view towards earning an acceptable margin, Nigeria - for example – needs an oil barrel price equal to 122 US dollars. In order to survive, Venezuela - which now has a "Weimar-style" inflation - should price oil at 117 US dollars per barrel, while the Shi’ite Republic of Iran should charge an oil barrel price equal to 130 US dollars in order to cover costs and reach an average margin of revenues that would allow the market allocation of new capital in the domestic oil sector. The greater the damage by Sunnis, the greater the Iranian presence in proxy wars against Saudi Arabia and its allies.

Obviously, the Western investors will take action in this regard, now that the sanctions against Iran have just been lifted.

Iran, however, will always have a primary oil customer, namely China, while all analysts forecast an increase in Iranian oil extraction this year and next year. If China is, and remains, the first customer of Shi’ite oil and if, together with Azerbaijan - where oil extraction is less expensive than elsewhere – it is connected with Iran, the damage caused by OPEC to Iran will be limited.

This year the Iranian amount of oil will be 3,133 million barrels but, with a view to taking advantage of the new post-sanction situation, the government plans to reach 550,000 bpd, with a program for increasing its daily production up to 4-7 million bpd within 2020. This means that Iran wants to conquer almost all Saudi Western markets.

Hence, a struggle between the two rivals to retain the new markets conquered, by reducing prices, and a struggle to prevail in maintaining the internal balance of power at a time of budgetary constraints. Finally, a struggle to prevail in keeping military spending high and, above all, pushing the regional opponent in as many regional proxy wars as possible  - wars which exhaust forces, deplete resources and force the players to sell oil at any price just to "make money" and have cash available.

In order to better understand this issue and this situation, Algeria should sell its oil at 130.5 US dollars per barrel; Kuwait at 54, Qatar at 60, Saudi Arabia – as we have already seen - at 106, and Russia at 100. Currently, no one really earns on oil sales, and everybody is strongly damaged by low prices, including consumers.

Russia is playing its game in Syria also for this reason. It does not want to cut production because it needs liquidity, but its wells are aging and "getting obsolete" quickly. The extraction of Siberian oil has been decreasing since 2007, while Russia needs capital to play the card of Arctic oil.

Hence, the Sunnis need the US production to decline and the oil extracted by Iran and its Shi’ite allies not to reach  Western markets at a reasonable cost, in large quantities and competitive with the Sunni oil.

Incidentally, it is precisely the Mesopotamia’s axis, where Syria is present, which is the major corridor of Shi’ite oil and, in many respects, of Russian oil.

Therefore, the proxy war between Daesh/Isis and Assad’ Syrian Arab Army, backed by Russian forces, will last until the Saudi oil market stabilizes itself at an acceptable price which, according to the most informed and knowledgeable analysts, should be 80-90 US dollars per barrel.

The problem lies in that fact that – through regional wars – Saudi Arabia wants to avoid the Iranian oil benefitting from the same price increase. Conversely, Iran wants to "retain" the Alawite Syria to secure the autonomous control of a channel for the transit of oil and gas not touching the Sunni-dominated areas.

The territories currently at war are, and will increasingly be, used as taps to be turned on or off so as to open or close the transit of their own or other countries' oil.

Is this, however, the background of a direct confrontation between Sunnis and Shi’ites? Let us analyze the issue carefully. Now that Iran is coming back onto the global economic scene, Saudi Arabia obviously wants to avoid the Shi’ite expansion into the Greater Middle East.

The 2011 uprising in Bahrain, in which a Shi’ite majority was brutally repressed by the Sunnis in power with the Saudi support, was probably the beginning of the final confrontation between Iran and Saudi Arabia for hegemony over the Middle East region. The 2014 Shi’ite uprising in the Kingdom was then seen as a practice run for the likely Shi’ite secession in the Saudi universe, where the Al Hasa Shi’ite area was conquered by the Saudi security forces only in 1913, while the Shi’ites around Medina were eliminated later, in 1926.

In the Hejaz region, there are still pockets of resistance to the Saudi Wahhabi fundamentalism, while, in the Eastern province of Al Islahiyyah, traditionalist groups, in good relations with the Shi’ites, have long been present and could unite the opposition to the Al Saud’s Kingdom, which has never succeeded in gaining full hegemony over the Southern part of the Arabian Peninsula. Osama Bin Laden’s hatred for the Royal Family dated a long time back and was related to his family’s origin from the Hadhramaut region, at the border with Yemen – a region which has never really submitted to the Al Saud family.

In other words, Iran, but also the Saudi Kingdom, has to manage Shi’ite or Sunni minorities or majorities in a situation in which, throughout the Middle East, States are actually falling apart or, anyway, hardly manage to face the severe threats posed to their survival.

Obviously, in this situation, each of the two major contenders tries to make the other collapse by initially destabilizing the peripheries of both areas of influence and, later, possibly hit the core of the enemy’s power, when the peripheral disintegration process is over.

Nevertheless, Saudi Arabia is and will always be a Sunni-majority country, as Iran will always be a nation where the "Party of Ali" is almost completely present.

What about converting the enemy? It is a likely option. In Indonesia, Shi’ite refugees are forced to convert to the Sunni Islam line before having any other economic support, while Iran itself was converted to the "Party of Ali", namely the Shi'a, only with the Savafid dynasty in 1501 - the same dynasty that rebuilt Iran as an independent State.

Formerly, Shi’ism was widespread in the areas of which the Iranian universe was composed within the Ottoman Empire, such as Dagestan and other Caucasus areas, which are now a stronghold of the Sunni jihad inside the area of Russian influence.

During that Savafid period also Azerbaijan was converted to Shi'ism, as well as most of Iraq, with the Shi'ite reconquest of Baghdad in 1624, which caused the destruction of the Sunni majority of its inhabitants.

Currently, the number of fast conversions to Sunnism is in Iran is remarkable and it is obvious that Iranian authorities regard this phenomenon as a deadly danger. Furthermore, the Wahhabi – and hence Sunni - Salafism is used in Iran as a tool for insurgency against the Ayatollahs’ regime.

The expansion of the Hezbollah linked to the Iranian "Revolutionary Guards", from the Lebanon to Jordan, is a further factor destabilizing the Sunni universe.

In Iran, the Ayatollahs’ statements on the pan-Islamism which must characterize the Iranian policy have decreased for years. On the contrary, all Sunnis are increasingly accused of being at the origin of the global jihad which, according to Iranian leaders, is targeted both against the West and against Imam Ali’s followers.

It is a zero-sum game which does not provide for a balance, except for the possible destruction of the areas through which both Sunni and Shi’ite oil transit, which is the only reason why sometimes the war between the two Mohammedan traditions goes through slack periods.

In other areas, an expansion of conversions to the Shi’ite line is recorded as a tool of political fight against the local authoritarian regimes: in Bahrain, Egypt, Jordan, as well as in Islamic emigration or in the ancient Islamic Mohammedan communities in Canada or in the United States.

Both in the Saudi and Iranian cases, the expansion of conversions to either Islamic line is a direct tool for hegemony.

If this happens in the Middle East, the Shi’ite or Sunni conversions lead directly to the creation of minorities, sooner or later organized for the armed struggle, as currently happens in Yemen or in Syria.

That is, however, the military potential of either lines of Koran interpretation and tradition? Saudi Arabia increased its military spending by 14% in 2014, despite budgetary constraints, which is over 10% of its GDP. If the pace of Saudi Arabia’s rearmament is maintained, and in the absence of new developments on oil markets, Saudi military spending could lead to a severe economic recession in the Kingdom within 2017.

This is the reason why it is useful for the enemies of the Saudi dynasty to trigger a small destabilization southward and eastward, as well as preserve the "small wars" in Yemen, in the Syrian Sunni area, as well as in Iraq, or in the Pakistani Shi’ite areas in the near future.

In 2015, Iran spent 10 billion US dollars, 60% of which was allocated to the Revolutionary Guards. Considering the Iranian specific situation and the economic crisis induced by a long regime of sanctions, the growth of military spending will be contained at around 10-15%.

If tensions between Iran and Saudi Arabia turn into an open conflict, this will be the end of Russian plans of regional hegemony to offset the US withdrawal. This could recreate a strategic relationship between the United States and Saudi Arabia, in view of a new and more difficult Iranian regionalization after the lifting of sanctions.

In this regard, Israel maintains highly confidential, albeit fruitful, relations with both Islamic contenders.

It is worth recalling, however, that neither Islamic country has an interest in giving up the project of "wiping out" the Jewish State and, in a future phase of confrontation, both Islamic countries could create a casus belli for encircling Israel from the North, from Sinai and the PNA Territories, where the Saudi presence is increasingly significant.

Hence, we need to rebuild - with the help of the Russian Federation and the United States - a status quo in the Middle East entailing the definition of new and more rational borders, as well as negotiations on regional disarmament and a new Summit – along the lines of the old Madrid Agreements – resuming and following up the policy to make Israel safer, by recognizing a new great power status to Russia and a new NATO’s intervention doctrine in the region. 

Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, theHebrew University of Jerusalem and the Yeshiva University in New York.

He currently chairs "La Centrale Finanziaria Generale Spa", he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group and Khashoggi Holding’s advisor.

In 1992 he was appointed Officier de la Légion d'Honneur de la République Francaise, with this motivation: "A man who can see across borders to understand the world” and in 2002 he received the title of "Honorable" of the Académie des Sciences de l'Institut de France."

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