In 2016, Saudi Arabia executed Shiite cleric Nimr al-Nimr and, in retaliation, demonstrators stormed the Saudi Embassy in Tehran. As a result, both Iran and Saudi Arabia broke their ties and closed their embassies. Thus, it surprised the international community when Iran and Saudi Arabia signed an agreement with China as the mediator on 10 March 2023. According to the deal, both countries are set to reopen their embassies to restore their ties. 

The deal surprised the international community by involving two major rivals- Iran and Saudi Arabia- in reaching an agreement. Hence, analysing what the deal means to Iran and Saudi Arabia is essential.  

First, the deal comes for Iran when it is regionally and internationally isolated. Since the United States’ unilateral withdrawal from the JCPOA, Iran has remained under heavy international sanctions. Alongside the international sanctions, several other affairs, such as COVID-19, the Russia-Ukraine war, and the recent demonstrations supporting Mahsa Amini, have further deteriorated the internal stability. Subsequently, these developments crippled domestic and international trade, despite Iran sharing good relations with Russia and supplying aerial weaponry to it for the Ukraine war. It is emphasised when Iran’s currency hit an all-time low recently, showcasing the inflation of essential goods and services. Thus, Iran increased its reliance on China through undeclared oil imports, avoiding escalation in the international forum. Therefore, the deal gives Iran a glimpse of hope to reduce its isolation by improving its relations and further addressing its economic concerns.

Second, the deal directly impacts the JCPOA. Saudi Arabia has remained a significant critic of the Iran nuclear program and was putting pressure on Europe and the US for more concessions. Thus, Iran considered it a diplomatic victory as the agreement was announced when the JCPOA negotiations have been in a deadlock, with speculation being rife that the nuclear program deal will never get revived. Meanwhile, it is still allowing Iran to engage with countries in the region while also opening avenues to reduce criticism about its nuclear program from the international community, especially countries in the Middle East region.

Third, for China, getting involved when the future of the JCPOA is bleak is indeed critical. Since the West failed to negotiate a deal since the USA unilaterally withdrew in 2015, China remains the last hope not just for the West but for its interests. It is because any turmoil in the region could significantly impact China’s interests concerning its energy security and ambitious Belt and Road initiative in the Middle East. So, it is a risk that it would not want to take, and hence, due to its stakes in the region, there is an increased expectation that China could bring all the concerned parties to the table to negotiate the JCPOA since the agreement. Even so, if China succeeds in creating a situation where the negotiation seems viable, it will add to the prestige earned after becoming a mediator in the Iran-Saudi Arabia deal. However, until now, China has only shown an economic interest in the region while using the security commitments provided by the USA. It has time and again emphasised that it is not interested in maintaining military bases in the region. After all, it is far more focused on the Indo-Pacific regions than the Middle East.

Fourth, Iran had already started working on restoring its ties with several Gulf monarchies, including the UAE. Thus, restoring ties with Saud Arabia, considered the region’s most influential monarchy, opens avenues for Iran to improve its relations with other nations who were earlier reluctant to cooperate with Iran due to its prevailing tensions with Saudi Arabia. Alongside that, through this deal, President Ebrahim Raisi can divert the attention of the international and domestic community towards the deal and away from the recent demonstrations in support of Mahsa Amini. 

Finally, Iran had concerns with reports of the possibility of Saudi Arabia normalising its ties with Israel. Before the Abraham Accord, the regional dynamics varied as most Gulf monarchies did not recognise Israel. However, after the Abraham Accord, several countries such as Bahrain, Morocco and the UAE normalised the ties that directly impacted Iran’s standing in the region and increased the process of its isolation. By signing the deal, Iran addresses its concerns about Israel and Arab nations’ cooperation in striking its nuclear facility.

Alongside Iran, the Kingdom held several concerns, and the deal addresses them. First, the deal addresses the Kingdom’s security concerns. It is because Iran for long supported the Houthis in the Yemen war, and the group is also responsible for several cross-border attacks on soldiers and oil facilities of Saudi Arabia. It includes the attacks in September 2019, when the Abqaiq and Khurais oil processing facilities were targeted for drone attacks, and further investigation suggested Iranian involvement. However, despite the security assurance, when the USA refused to respond to the drone attack, the Kingdom was taken aback as they realised they were on their own. This lack of effective US response encouraged the Saudis to back-channel communications with Iran to address these security concerns. 

Second, the deal is expected to influence various proxy wars in Lebanon and Yemen, amongst others in the region. The primary security concerns due to their rivalry forced these nations to rely on arms and ammunition massively supplied by the USA. Furthermore, these nations sell these weapons to third parties, including non-state actors such as al-Qaeda. The possibility of reduced violence will significantly impact the reliance on US security systems, including arms and ammunition, making the USA the world’s top military supplier. This military equipment was purchased in dollars, forcing the countries to maintain US Treasury bonds. However, with the progress in the deal, there will be a reduced reliance on US military equipment. Both nations have also applied to BRICS, a bloc pushing for trade in local currencies that India, Russia and China spearhead. Thus, both these developments are taking place simultaneously, accelerating the de-dollarisation process.

To conclude, the Iran-Saudi Arabia agreement brings the much-needed step towards peace in the region. Consequently, since the announcement, there has been growing optimism that it will further pave the way for a diplomatic solution between the two nations to resolve the various proxy wars that are taking place in the Middle East, including in Syria, Iraq, Yemen and Lebanon. It is because the deal underscores that Iran and Saudi Arabia are making progress in their relations by addressing their concerns. On the one hand, the deal primarily addresses its economic concerns for Iran. On the other hand, for Saud Arabia, the deal is more inclined to security concerns regarding the cross-border attacks by the Iran-backed Houthis. It is evident as one of the massive developments since the deal is that Iran has assured it will stop supplying military weapons to Houthis in Yemen. Also, the Saudi Arabia-backed-Iran International channel fanned the protests following Mahsa Amini’s death. Hence, after the deal, Sudi Arabia agreed not to broadcast any news through that channel that would provoke the general public in Iran. Furthermore, Saudi Arabia has agreed to finance $3 billion to rebuild Yemen’s economy.

Nonetheless, the concern remains the continuation of the agreement considering the decades-old rivalry between the two nations. So far, the deal is limited to addressing the short-term interests rather than focusing on the root cause of these issues. Moreover, one cannot deny that Iran has long had the ambition to become the regional power and the status quo is currently held by Saudi Arabia, despite recent developments, including Abraham Accords and Qatar’s rise post the sanctions. Be that may; the agreement is unlikely to erase that ambition. Be that may, the latest agreement is a remarkable achievement in their relations, and it would further open avenues to improve their relations. It will directly impact the Yemen war, although, in the future, other wars in the region may also witness possible negotiations to reduce the violence. It will reduce the amount spent on military equipment, reducing reliance on US military equipment. Since military purchases are made in dollars, this move directly contributes to the defence de-dollarisation. The de-dollarisation will reduce Middle East nations as they aim to increase their assertion in the global economic system and reduce their reliance on the USA. So, it is a massive step for them to restore their ties by reopening their embassies. Therefore, both Saudi Arabia and Iran must continue to evolve their reactions in the long run to make a significant impact that befits the region.