BMI View: Developments in Egypt, Syria and Iran have disrupted relations between Saudi Arabia and its traditional ally, the United States. Although we expect the alliance to remain firm over the coming years, we note that Riyadh's foreign policy risks have increased, with the prospect of a US-Iran détente presenting a particular quandary to Saudi policymakers.
Over th e past few months, Saudi Arabia's foreign policy has encountered a number of setbacks , with Riyadh appearing isolated from its traditional ally, the United States. The Kingdom has struggled to adapt to changes in US policy over Syria and Iran, and has vocally diverged from Washington's line on Egypt .
Sharp Divide Over Egypt: The Egyptian army's ouster of Islamist President Mohammed Morsi in July 2013 presented Saudi Arabia with a windfall gain, bringing a friendly military-backed regime back to power in Cairo while gravely reducing the regional influence of the Muslim Brotherhood (a movement historically viewed by Riyadh with a high degree of suspicion). At the time, Saudi Arabia eulogised the Egyptian armed forces for having "managed to save Egypt at this critical moment from a dark tunnel God only could apprehend its dimensions and repercussions".
This close support has run at odds with the position adopted by the US , with the latter electing to suspend a large part of its US$1.3bn military aid to Egypt on October 9 (see 'Aid Cut-Off To Have Minimal Economic Impact', October 10) . Since July, Saudi Arabia and other Arab Gulf states have provided Egypt with a combined US$12bn in short- term funding, largely negating the effectiveness of the US aid cut-off. Riyadh has also adopted an unusually tough rhetoric, with King Abdullah announcing in a rare televised speech in August that "the kingdom stands with Egypt and against all those who try to interfere with its domestic affairs" - a veiled reference to Washington. Foreign Affairs Minister Saud al-Fa isal went further, issuing a lengthy statement denouncing the "strange cours e [and] hostile attitudes against the interests of the Arab and Islamic nations" of international policy on Egypt.
Bargaining Over Syria: Saudi Arabia has stepped up its involvement in the Syrian civil war since mid-2013 , asserting a leadership role that was previously occupied by Qatar. The Kingdom has become the main provider of arms to the rebels opposing Syrian President Bashar al-Assad's government , nurtured close relationships with moderate factions within the opposition, and made clear its intent ion of pursuing regime change in Damascus. Saudi intelligence chief Prince Bandar bin Sultan reportedly offered Moscow a mixture of strategic and ec onomic incentives - including a major arms deal and a pledge to safeguard Russia's gas contracts - if it were to drop its support for the Assad regime. Saudi officials have also sought a more active Western involvement in the Syrian conflict, and pushed heavily for an overwhelming US-led missile strike against Damascus following evidence of a major chemical weapons attack in August.
Instead, the US turned away from military action, reaching an agreement with Russia for the removal and destruction of Syria's chemical arsenal by mid-2014 . Saudi Arabia (along with Turkey, which also made strong calls for intervention) was left largely marginalised from the negotiations , even as Assad has emerged temporarily strengthened on the diplomatic stage. Further complicating Riyadh's strategic calculations , any escalation of Wester n support for the rebels is highly unlikely as long as the ch emical weapons agreement holds - leaving Saudi Arabia relatively isolated in its activist role.
Fear Of 'Betrayal' Over Iran: T he recent improvements in relations between Iran and the West present the Kingdom with a more existential quandary . On September 26, Iran's new President Hassan Rouhani announced his aim to reach a deal with world powers over Tehran's nuclear program me in three to six months and alleviate crippling economic sanctions and diplomatic isolation . Saudi officials have been left wrong-footed by the rapid change in Iranian foreign policy, and fear that a more substantive US-Iran r approchement would come at the expense of their own interests - concerns shared by Israel . On October 3, Riyadh took the unprecedented step of cancelling its annual address to the United Nations General Assembly, in a public expression of disapproval with the US.
Saudi Arabia has a long-standing rivalry with Iran, and the two countries have consistently vied for influence in the Middle East by intervening in regional conflicts, notably over Syria. Tensions have also remained fuelled by Saudi suspicion of Iran's nuclear program me and persisting unrest amongst Bahrain's majority Shi'a population, which Riyadh regards as stirred by Tehran. Saudi officials fear that a détente between Iran and the West would allow an expansion of Iranian control in the region, with Riyadh retaining only a subordinate and insecure geopolitical role. The lifting of sanctions on Iran would boost the Iranian economy and pave the way for substantial foreign investment inflows , potentially to the expense of Saudi Arabia . Indeed, we would expect a gradual return of Iranian crude to the market were such a scenario to occur , putting downside pressure on prices - which Saudi Arabia would then need to accommodate by cutting its own production.
|Short-Term Stability, Long-Term Fragility|
|MENA - Political Risk Ratings (max = 100)|
US-Saudi Relationship Will Remain Close For Now...
Although the drawbacks described above present substantial challenges to Saudi foreign policy, their immediate cost to Riyadh should not be exaggerated. Both the chemical weapons agreement over Syria and the ongoing talks on Iran's nuclear programme are characterised by enormous political and technical difficulties. While the Assad regime has so far cooperated with the terms of the agreement and allowed international inspectors into Syria, the process is likely to take a considerable amount of time, and we expect the US and its allies to maintain the threat of unilateral military action against Damascus in the future (see 'Chemical Weapons Agreement Presents Formidable Challenges', September 18) .
Similarly, n egotiations between Iran and the West could be thrown off course by hardliners on both sides, and we cannot preclude that the recent 'charm offensive' by Tehran might be merely part of a tactical move aimed at easing economic pressure and mitigate risks of an Israeli or US military attack . Under a scenario whereby talks end in failure, the sanctions regime would likely be tightened further, and risks of an Israeli military attack on Iran's nuclear facilities would increase significantly (see 'US - Iran Talks: Three Scenarios', October 1) .
More generally, Washington's military commitment to Saudi Arabia and other Arab Gulf allies stretches back decades, and has endured despite previous periods of strains between the two sides. Indeed, back in 2007 - at another low point in US-Saudi relations - we wrote that "Saudi Arabia's somewhat more prominent diplomatic manoeuvring in the Middle East, and its increasingly independent public line from the US, has led to a great deal of speculation that the alliance between the two sides is faltering. In reality however, mutual interests mean that the alliance is as firm as ever and negative commentary from both sides represents a bit of 'carrot and stick' diplomacy rather than a fundamental change in relations " (see 'US Alliance Still Firm If Not Friendly', August 10 2007) . We maintain much the same view today.
|No Disputes On That Front|
|Saudi Arabia - Arms Transfer Agreements, by Supplier (US$bn)|
The US retains deep-rooted commitments to the Middle East, and will continue to uphold policies aimed at guaranteeing the security of oil shipments (especially through the Strait of Hormuz) to friendly states; protecting Israel from external threats, including Iran; and maintaining a balance of power between the region's most powerful states. On October 15, the US sent a strong signal of continued support, announcing plans to sell Saudi Arabia and the UAE US$10.8bn in advanced weaponry, including air-launched cruise missiles and precision munitions . Saudi Arabia has consistently been amongst the largest buyer of US arms, with US$52.1bn of agreements between 2008 and 2011 (see chart above ) . At the same time, attempts by Riyadh to distance itself publicly from the alliance play well to a regional audience overwhelmingly critical of the US.
... But Foreign Policy Risks Have Increased
Nevertheless, Saudi uneasiness over both the scale of its new commitments and the future direction of American foreign policy is unlikely to be easily assuaged. As we have already noted in the past, Saudi Arabia's rising exposure to the Syrian conflict carries numerous risks: the increasingly sectarian nature of the conflict could ignite further tensions in Saudi Arabia's Shi'a dominated Eastern Province, and will accelerate the flow of Saudi jihadists to Syria. At the same time, Riyadh has few concrete tools to influence events on the ground (see 'Drawn-Out Involvement In Syria Brings Risks', July 10 ) . These limitations have become clear over the past month, with leading rebel factions turning decisively against the leadership of the moderate Syrian National Coalition supported by Riyadh .
The benefits for Saudi Arabia of close ties with the Egyptian military-backed government are clearer , given Egypt's strategic importance in the region. Nevertheless, such an alliance is hardly bereft of risks, despite the current semblance of relative stability and policy continuity in Egypt (see 'Political Risks Moderating, For Now', September 16) . Renewed turmoil in the country could place Saudi Arabia in the same position as Qatar - which gambled heavily on the regional success of the Muslim Brotherhood at the onset of the Arab Spring, only to lose all its gains following Morsi's downfall (see 'Increasing Backlash From Assertive Foreign Policy', May 20) .
In the long run, a cooler Saudi-US relationship might well prevail, particularly if Iran is successfully reintegrated into international diplomacy. To be sure, s tructural factors b roadly run against the alliance. T he US' energy imports from the Gulf are declining; its influence in the Middle East has narrowed; and Chinese economic and diplomatic clout in the region is growing, albeit from a very low base. The US overtook Saudi Arabia to become the world's biggest oil producer in October 2013 - while China surpassed the US as the largest importer of crude. However, it will be many years - probably at least a generation - before China is capable of displacing the US as the main external power in the Gulf (see 'US 'Energy Independence': Geopolitical Consequences', January 15) .