Will a Moderate Iran Ease Regional Tensions?

Will a Moderate Iran Ease Regional Tensions?

A recent Global Risk Insights post discussed an apparent softening of rhetoric on the part of Iran’s president, Hassan Rouhani, and foreign minister, Javad Zarif. Whether or not that apparent softening translates into meaningful policy changes remains to be seen and may, in fact, be unlikely.

But supposing that this new wave of leadership has indeed made Iran more amenable to cooperation with the West, what would the international business implications of that sea change be? And if nothing changes, what are the continued risks that an antagonistic relationship creates? What follows is a primer on some of the key strategic issues that Iran presents.

Iran is of strategic interest to the United States by virtue of its relationship with Arab countries in the Gulf and its role as the gatekeeper of a major transit point for oil. The dynamics of these relationships are informed by geopolitical and cultural factors.

Geographically, Iran is close to the Arab states across the Gulf: Saudi Arabia, Kuwait, Bahrain, Qatar, the UAE, and Oman. The Strait of Hormuz, which is 21 miles wide at its narrowest, separates Iran from its neighbors in the UAE and Oman. This narrow channel of water is significant for its role as a major transit point for oil. In 2009, an estimated 15.5 million barrels of crude oil traversed the Strait of Hormuz per day, representing 33 percent of all seaborne oil shipments worldwide.

This chokepoint in nestled in a neighborhood rife with tension. This tension is clear in the dispute over Tunb Islands and Abu Musa Island, which lie in the Strait of Hormuz. Although Iran occupies these territories, the UAE lays claim to them.

Given the political complications involving Iran, its neighboring countries, and the United States, the Strait of Hormuz is a point of serious vulnerability. A sustained closure of the Strait of Hormuz would take out about one quarter of the world’s oil from the market.

The precarious situation surrounding the Strait of Hormuz is indicative of the distrustful relationship between Iran and the countries of the Gulf Cooperation Council (GCC), which include Bahrain, Kuwait, Oman, Qatar, and Saudi Arabia. Together, these Arab countries account for close to half of the world’s oil reserves. Although Iran trades independently with most of them, tension has arisen because of the GCC’s worries about Iran’s nuclear ambitions.

Cultural differences also contribute to the tension between Iran and the countries of the GCC. This rift is illustrated by the “Shiite Crescent,” a term coined by King Abdullah II of Jordan to illustrate where Shiite Muslims form a dominant majority in the Middle East. While Iran is part of this crescent, most GCC countries are not. Additionally, Bahrain — which is 70 percent Shiite and the only GCC country that is a part of the crescent — is led by Sunnis. The UAE also has a somewhat significant number of Shiites (16 percent of the population), though Sunnis remain dominant.

Iran’s leadership, however, is Shiite and supports Shiite movements elsewhere, typified by Hezbollah in Lebanon and the al-Assad regime in Syria. This is a cause of concern for GCC leaders, who fear Iranian interference in their domestic politics.

Some of these regional dynamics are so thoroughly entrenched that no change of leadership can alter them. But if the US relationship with Iran evolved in a positive direction, it could diminish the threat of a closure of the Strait of Hormuz. And any resolution on the question of Iran’s nuclear program would lessen widespread tensions, thereby enhancing regional security.

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