Geopolitics will dampen Gulf-Iran trade potential

Significance

The primary economic impact on the Gulf Cooperation Council (GCC) states of the lifting of the international sanctions on Iran on January 16 has been further weakness in oil prices. However, the deal has other implications for the region. Some Gulf countries have the potential to gain from both a revival in bilateral trade and financing flows with Iran. Working against this is the frosty status of diplomatic relations with Iran, which are at their lowest ebb since the 1980s.

Impacts

• There are opportunities to import Iranian food and consumer goods into the Gulf.
• Political tensions may discourage oil firms operating in the GCC from also investing in Iran.
• If a Saudi-Iranian grand bargain eventually materialises, commercial opportunities will increase considerably.
• The risk of direct military confrontation in the Gulf is low.