Potential peace dividends should propel Gulf-Iran normalization
There are many good arguments for returning relations between the two shores of the Gulf to their historically normal levels. The four decades of war and strife following Iran’s revolution in 1979 have destabilized the entire region beyond the Gulf and retarded its development. The geopolitical fallout has been significant. In addition to saving lives, the potential economic benefits from a thaw in the Gulf Cooperation Council-Iran conflict are huge, if we are able to turn Saudi Arabia and Iran’s resumption of diplomatic relations into a driver of a more peaceful and prosperous region.
Instead of squandering their fortunes on regional conflicts and futile arms races, GCC states would rather use their resources for greater development, infrastructure and diversification projects as they prepare for the post-oil age. So Should Iran, which has regrettably transformed itself into a permanent war economy and prioritized foreign interventions over prosperity at home.
The contrast between Iran’s economic path since the revolution and that of the GCC during the same period illustrates the consequences of such divergent priorities. Although they were late in starting their economic development compared to Iran, GCC countries managed to catch up and quickly surpass it at almost every level. Oil was discovered in Iran in 1908, decades before any GCC country. Prior to the revolution and similar to GCC countries, oil provided abundant revenues to fuel its economic development. However, post-1979, the two sides’ development trajectories diverged widely.
In 1979, the year of the revolution, Iran was a significant economic player, while most GCC economies were small, barely appearing on any international achievement registers of note. The GCC’s combined gross domestic product was a mere $180 billion, with the largest being Saudi Arabia at $113 billion, representing about 62 percent of the total. In 2023, their combined GDP has ballooned to $2.1 trillion, growing twelvefold in the last 44 years and making it the eighth-largest economy worldwide. Last year, the GCC region was the fastest-growing bloc of countries anywhere in the world.
In addition to economic growth, the six GCC member states have vastly improved their social indicators relating to health, education and gender equality, already surpassing the UN Sustainable Development Goals set for 2030. They boast world-class universities, research centers and renewable energy hubs. They have become magnets for tourists, visitors and talent from around the globe.
By contrast, Iran, with a much larger population and similarly abundant endowments of natural resources, has not done so well during the same 44 years since the revolution. It holds the fourth-largest oil reserves in the world. It also holds the world’s second-largest natural gas reserves but is a net gas importer.
In 2023, Iran’s GDP stood at a mere $367 billion, about 17 percent of the GCC total. The chronically stagnant economy has fueled repeated protests, some of which have turned violent, with young people demanding jobs and improvements in their living conditions.
At the start of 2023, Iran was on track for stagflation — minimal to no growth, combined with high unemployment and high inflation at about 50 percent. More than half of Iranians were living below the poverty line, according to official figures. The rial was trading at over 420,000 to the US dollar, hitting a record low of 447,000 rials on Jan. 21. By comparison, it traded at 70 to the dollar prior to the 1979 revolution.
On Jan. 30, Iranian Supreme Leader Ali Khamenei publicly excoriated his government’s failed policies, saying that the economy was a “decade behind,” having stagnated since 2011, citing “many negative indicators showing this.” That year was the start of the so-called Arab Spring, when Iran adopted its more interventionist policies in neighboring countries.
“These are reliable indicators from official organizations and are not just empty claims,” Khamenei said, calling the high unemployment rate among young professionals a “disgrace.” He admitted that economic mismanagement was to blame, even criticizing the country’s over-focus on its nuclear program as a contributing factor to the poor economic performance. He also lambasted government red tape and overregulation.
In his January speech, Khamenei called for longer-term economic thinking: “We must concentrate our efforts for at least seven, eight or 10 years,” with a focus on knowledge-based companies and job creation, he said.
With such clear direction from the top, Tehran should pursue these economic goals, transforming the Saudi Arabia-Iran diplomatic breakthrough into a driver for peace and shared prosperity.
The Gulf countries’ economic and social transformations can be attributable, in part, to their peaceful and stable political environments, freer business practices and integration through the GCC. They are also closely integrated with the wider region and globally. By contrast, Iran has experienced frequent upheavals, embarked on costly external adventures and become an international pariah and a rogue state, acting outside international norms and eliciting sanctions from the UN, the US and Europe.
There were earlier attempts by the GCC and Iran to engage economically. A number of agreements on economic cooperation were signed with some GCC countries and discussions were started on establishing a wider GCC-Iran free trade area, but political disagreements precluded the conclusion of such an agreement, especially after the severe polarization following 2011.
To get started on the path toward economic integration, the principles agreed to in March’s Beijing statement — respect for sovereignty and noninterference — need to be operationalized at the working level. Security cooperation is also needed, including in combating terrorism, political violence, violent extremism and sectarianism; and refraining from injecting religious affiliations and differences into politics.
The contrast between Iran’s economic path since the revolution and that of the GCC illustrates the consequences of such divergent priorities.
Dr. Abdel Aziz Aluwaisheg
Not all disagreements with Iran are of a political or security nature. Some are border and territorial disputes that occur between neighbors; they need to be addressed according to international law, including the UN Convention on the Law of the Sea.
Once the necessary confidence-building measures are underway, economic integration could easily follow. If it chooses the path of peace, Iran has the capacity to achieve similar results to those of the GCC states, if not surpass them. It has a much larger population and a skilled labor force, as well as natural resource endowments comparable to those of the GCC states. GCC-Iran integration could easily double their current combined GDP of $2.5 trillion in less than a decade, judging by the past trajectory of GCC states. With the addition of Iraq, the eighth Gulf country, the integration benefits could propel the region to unprecedented economic heights.
- Dr. Abdel Aziz Aluwaisheg is the Gulf Cooperation Council assistant secretary-general for political affairs and negotiation, and a columnist for Arab News. The views expressed in this piece are personal and do not necessarily represent GCC views. Twitter: @abuhamad1