Imagine two merchants, each of whom owns a shop in the same market. Both men depend on the same product, along with some other items, to maintain their shops and support their extended families. Historically, things have gone in favour of the first merchant, who managed to attract foreign investors and build strong ties with the market’s major customers without threatening his counterparts in other markets. As the first accumulates barrels of this product, selling them cheaply to guarantee steady sales, the second merchant faces difficulties on account of a limited production capacity and major buyers refusing to do business with him (egged on by the first). To stay afloat, he decides to sell at a high price and within a brief span of time.
Of course, the market is governed by competition, but this rivalry has also taken non-economic forms. Outside the market, each man mounts a podium on which to sell the same symbolic product, in contradictory tones, as they vie for control. As tensions heighten and both men fear one another, they begin to spend on weapons rather than letting their families enjoy the income, giving leaders of the larger market the chance to exploit and profit from the feud. What if the two sellers arrived at a suitable plan to sell the barrels and another plan to exchange the other items – could this alleviate the competition over sales and leadership and enhance each merchant’s profits and independence? What if the first merchant was called the Kingdom of Saudi Arabia and the second the Islamic Republic of Iran?
Does politics reflect economics or the other way around? What governs the economic and commercial relations between states? Are they defined through political relations, or do they influence politics via state interests, which contribute to strained relations, as the past two decades of “trade war” between the US and China has shown? Conventional wisdom tells us that with increased international trade and greater interdependence in global economics, states tend to be more restrained toward engaging in international conflicts. For instance, former US President Bill Clinton (1993-2001) believed that expanding trade could improve US-China relations, and, more broadly, China’s relations with the international community. While there are cases that contradict the interrelatedness of political and economic ties at the international level, such as the United Arab Emirates and Iran, a trend in the scholarship confirms a direct correlation between political ties and the volume of international trade. Just as economic factors impact political structures, political ties and security interests are crucial determinants of global economic relations, while wars, on the other hand, impede international trade.
This paper explores these assumptions in relation to Saudi-Iranian economic relations by empirically assessing how political ties affect trade between the two. Over the past four decades, much scholarship has focused on Saudi-Iranian relations, first in terms of the causes and developments of the regional rivalry, which scholars have disagreed on how to address. Some argue that domestic insecurity in both countries has heightened ideological and political competition, while others use the lens of the Sunni-Shi’i conflict or political economy. Others are interested in the role of external factors rather than a sectarian analysis of the conflict, which some regard as a cold war for influence in the Islamic world. Finally, other scholars have made practical proposals for conflict resolution. A wider set of literature has concentrated on various aspects of the struggle, such as regional conflicts in Syria, Bahrain, Yemen, and even Africa; cyber warfare; Saudi-Iranian competition over the oil market; and the Hajj pilgrimage as a reflection of conflict or dialogue.
Taking a fresh perspective, this paper examines economic ties. A review of existing literature reveals a gap in the study of Iran’s commercial relations with Saudi Arabia and the GCC states. In 2017, the volume of Gulf-Iranian trade was USD 19.1635 billion according to GCC estimates and USD 10.6842 billion according to Iranian estimates. What, then, is the basis of trade between Riyadh and Tehran? What is its volume? Which sectors do they trade in? Do Saudi-Iranian economic relations reflect the conflict or, conversely, strengthen economic ties and therefore help relieve tensions between the two?
This paper carries out a political-historical analysis of commercial exchange between Saudi Arabia and Iran to interpret the rise and fall of trade volume between the two from 2000 to 2020, investigate the extent to which political disturbances
impact bipartite trade relations, and explore whether economic factors can play a role in (de)escalating the conflict. Given the discrepancy between official statistics on trade volume from GCC countries and Iran, the study compares overall GCC figures monitored by the UN Economic and Social Commission for Western Asia (ESCWA). It does not rely on data from a single country due to the differences in figures provided by each state, with data from Iran as monitored by the International Monetary Fund (IMF).
The first section provides an overview of Gulf-Iranian economic relations, detailing the leading trade indicators. The second section addresses Saudi-Iranian trade exchange since 2000, meshing trade and politics to investigate how the two variables are related. The third section considers the future of Saudi-Iranian economic relations.