Engaging ME: KSA-Iran detente, prospects for Pakistan
THE recent reconciliation between Saudi Arabia and Iran, mediated by China, marks a significant shift in the Middle East’s geopolitical landscape. The seven-year-long period of hostility between the two countries had led to widespread instability and insecurity, impacting the entire region. This development has led to the re-establishment of diplomatic relations and the reopening of embassies between the two arch-rivals of the Middle East, presenting a new chapter of cooperation and collaboration beyond the region.
Pakistan is well-poised to benefit from the Saudi-Iran deal as it brings about a positive outlook for the country’s foreign policy objectives. The restoration of diplomatic ties between Iran and Saudi Arabia presents a favourable climate for energy and trade cooperation that can boost Pakistan’s economy. Pakistan has traditionally had strong trade relations with Iran, while Saudi Arabia is a crucial economically with a considerable Pakistani Diaspora. The deal marks a step towards regional peace and stability and Pakistan welcomes this development as a positive one.
Pakistan’s constructive role in the Middle East is well-established and it has consistently supported efforts to bridge gaps between countries in the region. China’s Belt and Road Initiative (BRI) aims to develop a large, interdependent market and increase China’s political power in the Middle East region. Pakistan’s engagement in the BRI is critical for its future economic growth. Saudi Arabia and Iran which are top sites for China’s construction projects, have signed the BRI along with 19 other Middle Eastern countries.
Pakistan can offer a lot to the Middle East and China through the framework of CPEC. The China-Pakistan Economic Corridor (CPEC), a flagship corridor of the BRI, was launched in 2015 and is ultimately worth around $62 billion. China has already invested nearly $26 billion in the project. The second phase of CPEC is currently underway and upon completion, it will provide an economical transportation route for China to transport natural gas and crude oil to Gwadar Port from Western China. The renovation of the Karakoram Highway in Northern Pakistan which is now fully functional, has opened new avenues for bilateral trade between the two countries and will be further modernized and expanded in the near future.
The strategic location of Gwadar Port in Pakistan presents great economic and geopolitical opportunities for both China and Pakistan. Gwadar, located at the entrance of the Strait of Hormuz which handles one-third of the world’s oil shipments, has the potential to be a game-changer in Pakistan’s economic relations with the Middle East. As a crucial node in the China-Pakistan Economic Corridor (CPEC), Gwadar aims to connect China and the Central Asian States to the Indian Ocean. The port’s importance to China’s military and naval capabilities in the region cannot be overstated. Pakistan’s Gwadar Free Zone project can attract local and foreign investors, while tax incentives offered by the government can encourage businesses to set up operations there. Gwadar’s potential as a manufacturing hub can also draw Chinese and Middle Eastern companies looking to expand their operations.
Iran is strategically balancing its relationships with India and China as they compete for influence in the region. India has been using the Chabahar Port to bypass Pakistan, but it is uncertain whether India will maintain ties with Iran as its relationship with the US grows. China’s inclusion of Iran in the BRI may have played a role in its decision to mediate the Saudi-Iran rivalry. However, China’s investment in the Gwadar Port in Pakistan which competes with India’s investment in Chabahar, could affect Iran’s relationships with both countries. Nevertheless, the development of a highway and a natural gas pipeline connecting Chabahar to Gwadar could enable Iran to export natural gas to Pakistan and China via Gwadar, presenting opportunities for multi-faceted cooperation between Pakistan and Iran.
China’s 25-year strategic trade and investment agreement with Iran in 2021, valued between $200-300 billion, is part of its Belt and Road Initiative. This move could be seen as an attempt to challenge India’s investment in the Chabahar deep-sea port which competes with the Chinese-controlled Gwadar Port in Pakistan. Likewise, Saudi Arabia’s involvement in the deal could bring peace to the region which would be a welcome development for Pakistan. The agreement will require Pakistan’s route for energy supply, with Islamabad potentially receiving oil and gas from Iran at a discounted rate while China benefits from Iranian oil at a discount of at least 12%.
Saudi-Iran détente also presents an opportunity for Pakistan to obtain Iranian oil and gas without pressure from Saudi Arabia. Saudi Arabia’s investment in CPEC, including the establishment of a mega oil refinery in Gwadar, could be a game-changer for the region. Moreover, the railways and pipelines under the CPEC project, currently under construction, will create a new channel for the flow of goods between the Middle East and China, increasing economic and geopolitical interdependence. Pakistan can generate significant revenue by connecting routes and trade at cheaper rates giving a significant boost to its economy.
Gwadar Port city’s development also holds the potential to boost Pakistan’s tourism industry and attract foreign direct investment from Arab countries. It’s modern transport infrastructure and top-notch facilities can appeal to tourists worldwide, particularly from the Middle East. Furthermore, the ongoing development of the Gwadar Special Economic Zones and re-export zones will boost Pakistan’s economy. Saudi Arabia and UAE have already announced major investments in Gwadar’s oil terminal city, with the former investing $10 billion in petrochemicals in 2019 and the latter preparing a $5 billion joint venture for constructing an oil refinery.
In conclusion, the normalization of ties between Saudi Arabia and Iran presents a significant opportunity for Pakistan to further strengthen its relationship with both countries and to benefit from increased economic cooperation. As a key player in the BRI, Pakistan is well-positioned to take advantage of this new development and it is hoped that this breakthrough will lead to elevated peace and stability in the Middle East.
—The writer is researcher with China-Pakistan Study Centre at the Institute of Strategic Studies Islamabad.
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