Oman: Iran’s best friend in the Gulf

The sultanate of Oman appears set to play a key role in Iran’s efforts to reintegrate into the regional and global economy. While other Middle Eastern states kept their distance during Iran’s years of isolation, Oman stuck with its longtime trading partner and is now set to reap the benefits, as the two countries move ahead with large-scale joint economic initiatives.

A long-planned $60bn undersea gas pipeline project has been given fresh impetus since sanctions on Iran were lifted earlier this year. The Korea Gas Corporation, a partly state-owned South Korean energy company, is reported to be nearing an agreement to build pipelines that will pump 20m cubic metres of Iranian gas a day to Oman, where it will be converted into Liquefied Natural Gas for international export.

Plans for another major bilateral project are coming to fruition. An ongoing feasibility study for the construction of a car manufacturing hub in the Omani port of Duqm is likely to be concluded this month. The plant, a $200m joint venture with the Khodro Industrial Group, the region’s largest automobile manufacturer, is expected to produce 20,000 cars within two years. Production is set to begin next year, with the bulk of output destined for neighbouring markets including Yemen, Sudan and Ethiopia.

The rapid expansion of business ties between the two countries was underlined recently when Oman’s central bank granted its approval for Bank Muscat, the sultanate’s largest lender, to open a branch in Tehran, making it one of the first foreign banks to enter the Iranian market following the removal of sanctions.

During the international embargo, Oman complied with UN sanctions directed specifically at entities connected with Iran’s nuclear and ballistic missile programmes, but chose not to conform to the blanket sanctions imposed by the US and other western countries. In fact, the Omani government actively encouraged the expansion of economic ties with Iran. At the height of the sanctions regime between 2012 and 2013, Oman’s annual bilateral trade with Iran reportedly grew by some 70 per cent to $873m, and by the end of 2015 it exceeded $1bn. Last month, Mohammed Reza Nematazadaeh, Iran’s Minister of Industry, Mines and Trade, reportedly estimated that bilateral trade between the countries would reach $4bn within five years.

Religion has played a significant role in determining Oman’s friendly attitude towards Iran. Since Oman is predominantly Ibadi, a branch of Islam that is neither Sunni nor Shia, the sultanate’s relations with Iran have never been spoiled by the sectarian tensions or rivalries that have caused so much friction in Iran’s relations with other Gulf Cooperation Council states.

During the recent escalation of Sunni-Shia tensions following the execution of a Shia cleric by Saudi Arabia in January 2016, which culminated with Iranian crowds attacking the Saudi embassy in Tehran, Oman did not join other GCC states in cutting or downgrading diplomatic ties with Iran. Some observers see Oman’s 75-year-old ruler Sultan Qaboos as a stabilising force between rivals Iran and Saudi Arabia.

Oman has been able to maintain friendly relations with Iran while remaining a strategic ally of the US and a key member of the GCC. This is largely due to all parties attaching great importance to its strategic location at the eastern entry of the vital Strait of Hormuz, through which the region’s oil is transported to global markets. Oman’s privileged position has enabled the sultanate to be an effective go-between for the west and Iran on several occasions, including the hosting of secret talks that eventually led to the signing of the nuclear deal in July 2015.

But while Iran has long been able to count on Oman’s support, the potential for their growing cooperation should not be overstated. Oman may become one of Iran’s most important partners in the post-sanctions era, but the Islamic Republic’s integration into the regional economy would require a major détente with its Sunni rivals in the Gulf. Given the current friction between Iran and Saudi Arabia and their respective allies, that seems a long way off.

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