Context

Two of West Asia’s major powers that have been at odds with each other for decades, Saudi Arabia and Iran, agreed to restore diplomatic relations last week in an agreement brokered by China. It is a major breakthrough if viewed from the angle of implications the agreement could have on the region and global geopolitics.
In this context, this edition of the burning issue will elaborate on this agreement and its implications.

A Timeline of the Saudi-Iran relationship

Pre-1979 Phase: Saudi Arabia and Iran compete for regional dominance.
Iranian Revolution (1979) brings down the monarchy and turns Iran into a Shia theocratic republic.
1980-1988: Iran-Iraq war sees Saudi Arabia support Iraq.
1990-1991: Saudi Arabia supports Iraq against Iran in the Gulf War.
1996: Iranian-backed Hezbollah bombs Saudi military housing complex in Khobar, killing 19 US soldiers.
2011-2015: Saudi Arabia and Iran support opposing sides in the Syrian civil war.
2015: Saudi Arabia launches military intervention in Yemen against Iranian-backed Houthi rebels.
January 2016: Saudi Arabia executes prominent Shia cleric Sheikh Nimr al-Nimr, leading to protests in Iran and the burning of the Saudi embassy in Tehran. Saudi and several Arab allies cut diplomatic ties with Iran.
2019: Saudi oil facilities are attacked, leading to increased tensions between Saudi Arabia and Iran.
2021: Both begin direct talks, brokered by China.
March 2023: Both nations announce an agreement to restore diplomatic ties, brokered by China.

Reasons for hostile relations

Religious contradictions: Historically, the rivalry between the two countries dates back to the seventh century when the Prophet Muhammad died without a clear successor, leading to a dispute over the leadership of the Muslim community. This dispute ultimately resulted in the split between Sunni Islam (which dominates in Saudi Arabia) and Shia Islam (which dominates in Iran).
Geopolitical tensions: The two countries are located in a strategically important region, with both seeking to exert influence and maintain dominance in the Middle East. Iran’s Islamic revolution in 1979 posed a challenge to Saudi Arabia’s status as the leading Islamic power in the region, and the two countries have been competing for regional influence ever since.
Sectarian tensions: Saudi Arabia and Iran have long had competing visions for the role of Islam in society. Saudi Arabia promotes a strict interpretation of Sunni Islam known as Wahhabism, while Iran supports Shia Islam and the principle of the “Guardianship of the Jurist,” which asserts that a senior Shia cleric should have political power and authority over all Muslims.
Ties with west: The two countries have fundamentally different views on a range of issues, including democracy, human rights, and regional security. Saudi Arabia is a conservative monarchy with close ties to the United States, while Iran is an Islamic republic that has been at odds with the West since the 1979 revolution.

What are the terms of the agreement?

The details of the agreement are yet to be unveiled but prima facie it seems to be a quid pro quo.
Iran has reportedly agreed to prevent further attacks against Saudi Arabia from Houthi-controlled parts of Yemen
On the other hand, Saudi Arabia has agreed to rein in Iran International, a Farsi news channel critical of the Iranian regime.
Foreign Ministers of both countries will meet soon to thrash out the terms of the reconciliation before reopening embassies in each other’s capitals in two months.

Why did Saudi Arabia reach out to Iran, defying its ally the US?

Internal Security: When Saudi oil facilities were attacked in 2019, the US looked away, prompting the Saudis to look for alternative solutions to the Iran problem, such as reaching out to the Iranians.
Differences over Palestine: The US was trying to broker a normalization agreement between Saudi Arabia and Israel to bring the two pillars of its West Asia policy together against Iran.
US negligence of West Asia: The US deprioritized West Asia due to bigger foreign policy challenges, such as the Russian war in Ukraine and China’s rise in the Indo-Pacific.
Obsolesce of ties with the US: Relations between Saudi Arabia and the US have been rocky in recent years, as the US is not as dependent on Gulf Arabs as it used to be during the Cold War.
Shared opinions over Israel: Saudi Arabia has been hesitant to reconcile with Israel, and its relations with the US have been rocky in recent years.

What led Iran to accept the deal?

Isolation and Domestic pressure: Tehran is aware that getting relief from Western sanctions is not a near-term possibility. Despite the crackdown, protests in Iran refuse to die down.
Crumbling economy: Iran’s economy is deteriorating and its currency, the rial, is struggling. A deal with Saudi Arabia, under China’s mediation, could open economic lifelines for Iran
China factor: Iran wanted Chinese investments and support for the rial. China allowed Iran to withdraw parts of the $20 billion funds frozen with Chinese banks due to US sanctions.
Fouling American efforts: Iran knows that such a deal could complicate American efforts to rally Arab countries and Israel against it. A reconciliation with Saudi is beneficial for Iran, at least in a tactical sense.

Why is China brokering the deal?

Securing its oil supplies: China has an interest in promoting stability in the Middle East region, which is a major source of oil and natural gas for China.
Side-lining the US: By brokering a deal between Saudi Arabia and Iran, China can position itself as a mediator and gain goodwill from both sides.
Create an alternative axis: China has longstanding relationships with both countries. US since Trump’s departure is distancing itself from the US, whereas China is also getting closer to Russia amid the war.
Image building as a leader: While the US is busy rallying the Western world to arm Ukraine to push back Russia and weaken Moscow through sanctions, China is quietly brokering peace in the Global South.
Growing role in the Middle East: China could step in and help the two parties reach an agreement because its dramatic economic rise has given it a growing role in the Middle East.
Narrow approach of the US for the region: The United States, by contrast to china, has “special relationships” with some countries in the Middle East and no relationship at all with others, most notably Iran. The result is that client states such as Egypt, Israel, or Saudi Arabia take U.S. support for granted and treat its concerns with ill-disguised contempt

“That’s how a great power maximizes its leverage: You make it clear that you’re willing to work with others if they are willing to work with you, and your ties with others remind them that you have other options, too”

Key implications for the US

Welcomed the move: The public narrative is that the peace deal would help stabilize the region and benefit the global energy market.
It is a wake-up call: for the Biden administration and the rest of the United States’ foreign-policy establishment because it exposes the self-imposed handicaps that have long crippled U.S. Middle East policy.
China as a force of peace: It also highlights how China is attempting to present itself as a force for peace in the world, a mantle that the United States has largely abandoned in recent years.
Hegemony decline in the region: The US would not like to lose its influence in West Asia even when it is deprioritizing the region.
Saudi may drift away: the US sees an ally (Saudi Arabia) drifting further away, a rival it wanted to contain (Iran) making new friends, and China spreading and deepening its influence in a region the US has dominated historically.
Iran Sanctions going loose: The Iran nuclear deal is practically dead and the US wants Saudi Arabia to normalize ties with Israel and put up a joint front against Iran.
The US should change its policy towards the region: The obvious lesson for the Biden administration is to devote more attention to defusing tensions, preventing wars, and ending conflicts, instead of defining foreign-policy success by how many wars it wins, how many terrorists it kills etc. If the United States allows China to establish a reputation for being a reliable peacemaker, as a great power that is willing to live and let live in its relations with others, convincing others to line up with the US will become increasingly difficult.

Possible Outcomes of the deal

Dispute resolution without the US: Besides bolstering China’s diplomatic credentials and possibly lowering the temperature between two well-armed rivals, the agreement gives all three nations involved the chance to show that one can resolve issues without US engagement, something China and Saudi Arabia have been keen to demonstrate.
For Iran — still under punishing sanctions for its nuclear program and facing criticism for its crackdown on protesters — the agreement will help it repair ties with more Arab nations. Economically it could benefit both Iran and Saudi Arabia by luring more Chinese investment. And the deal could even help foster peace in Yemen, riven by a civil conflict that has been seen as a proxy war between Tehran and Riyadh.
For Saudi Arabia: Yet the agreement also sets up an interesting balancing act for Crown Prince Mohammed, who has helped turn his economy more toward Asia while chaffing at US criticism of his nation’s human rights record. But Saudi Arabia still relies on US firepower for its military, a reality unlikely to change anytime soon. And the deal risks a fragile working relationship the Saudis — tacitly backed by Washington — have built with Israel, which still considers Iran enemy No. 1.
For Yemen: The deal renewing diplomatic relations between Saudi Arabia and Iran had barely been signed on March 10 in Beijing when all eyes turned to Yemen, where the two rival powers have been in indirect confrontation since 2015. The surprise agreement between the two Middle Eastern powers may have its most concrete impact in Yemen, which has been ravaged by a war between its government, supported by a Saudi-led military coalition, and Houthi rebels supported by Iran.

Implications for India

Beijing’s strategic footprint will grow in the Indian Ocean: The China-backed Saudi Arabia-Iran detente and its expanding strategic levers in Islamic World with ports in Iran, Oman, UAE, Pakistan and Sri Lanka is designed to choke India in its own Indian Ocean backyard with New Delhi facing a possible action from Beijing over its close relations with its QUAD partners, two of which are in the AUKUS alliance, on its northern land frontiers.
Iran further moving away from India: There is little doubt that while India has been successful in expanding its relations with all key actors in West Asia, it has ended up with diminished relations with Iran. It is not in its interest to see China entrench itself in a country that is strategically important, quite apart from being one with which we enjoy long-standing civilizational affinities
Security of energy: Since Iran and Saudi Arabia produce the majority of the world’s oil, a conflict between them could push up oil prices, which would have a significant impact on India’s energy security. The steady supply of oil to India and the stabilization of global oil prices could both result from normalizing relations between these two nations.
Trade: India has significant trading relationships with Saudi Arabia and Iran. India could benefit from new trade and investment opportunities if their relations were normalized.
Stability in the region: The International North-South Transport Corridor (INSTC) is one of India’s most important economic and strategic interests in the Middle East.
Stability in India’s extensive neighbourhood: which includes Iran. For India, any instability in the region could have far-reaching effects. Iran’s ties to Saudi Arabia could help stabilize the region and lessen the likelihood of terrorism and conflict. India contributes significantly to the maintenance of regional peace and stability by maintaining cordial relations with Saudi Arabia and Iran.

What inferences can be drawn from all these?

Strategic realignments in West Asia: It can be inferred that West Asia is currently undergoing significant strategic realignments, with the UAE normalizing relations with Israel and other Arab countries deepening their partnerships.
Shifted US focus on Ukraine and Indo-Pacific: The US, which traditionally held significant power in the region, has deprioritized West Asia due to bigger foreign policy challenges such as Russia’s war in Ukraine and China’s rise in the Indo-Pacific.
China occupying power vacuum: This de-prioritization has created a power vacuum that has allowed Iran to rise as a challenge, prompting the US to try to bring Israel and the Arab world together against Iran.
When the elephants fight, the grass suffers:” In the decades to come, many states will prefer to rally behind whichever major power seems more likely to promote peace, stability, and order. By the same logic, they will tend to distance themselves from whichever major powers they believe are disturbing the peace.

Conclusion

Reduced tension between Saudi Arabia and Iran is a positive development that reduces the risk of a serious clash in a strategic region.
This new détente is to be welcomed, therefore, even if Beijing gets some of the credit. The proper U.S. response is not to bemoan the outcome; it is to show that it can do as much or more to create a more peaceful world.
However, India must be ready to deal with Beijing translating economic might into diplomatic wins.

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