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Middle East Euromonitor publishes comprehensive data and analysis with five-year forecasts on products, industries, demographics and consumer lifestyles in the Middle East.

Soaring Tensions Between Iran and Saudi Arabia Divide the Middle East

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The Middle East has been one more time the scene of a diplomatic fiasco with ambassadors from multiple countries returning home as a result of the tensions between Iran and Saudi Arabia, following the attack on the Saudi Embassy in Teheran on Sunday 3rd of January - aftermath of a raid by Saudi forces on a prominent Shia cleric. While the United Arab Emirates had reduced its diplomatic relationship with Iran, Bahrain joined Saudi Arabia in cutting its relationship with Tehran, Kuwait has also recalled its ambassador to Iran. Some other Middle Eastern countries – such as Turkey and Egypt - have taken a more moderate approach in order to keep the necessary relations with both countries, while already dealing with they own domestic conflicts.

Impact of the conflict on key sectors such as oil, tourism and trade but also on the overall economy could be felt not only by Iran but also by the already fragile MEA region. The volume of Saudi exports to Iran reached about USD102m by the end of 2014 whereas Saudi imports from Iran reached USD181m. This makes trade exchange between the two nations exceed USD266m for 2014. As diplomatic ties between Saudi Arabia and Iran severed, 150 direct flights between the two countries carrying on a monthly basis a large number of pilgrims have been stopped. This can be detrimental for the tourism industry in the region, as tens of thousands of Iranians travel to KSA each year to complete Haj and Umrah pilgrimages. This is in addition to the fact that visas obtention is likely to become more difficult for Iranians in general. The situation can also have a repercussion on the economy, as trade has also been halted between the two. An area that could potentially suffer if there is acceleration in tensions between Iran and Saudi Arabia is oil. Rising tensions between Saudi Arabia and Iran - major oil producers – made the oil prices rise from the day following the embassy assault. Intensified crisis between the two countries could troubles investors, since most Saudi oil production comes from its Eastern Province, dominated by Shiites.

Tensions could however ease and limit the long term impact on Iran, as several officials in the country appeared to show sign of regret and condemned the attack. Several MEA countries understanding that the impact of the crisis on a “powder keg” region potentially devastating have shown relatively neutral positions and warned about the danger of accelerated tensions. Turkey has offered to help resolve the conflict peacefully, while Pakistan would aim at reducing the tensions.

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