Oman Fights Saudi Bid for Gulf Hegemony With Iran Pipe Plan

Photographer: Mohammed Mahjoub/AFP/Getty Images

Iranian President Hassan Rouhani, left, and Oman's leader Sultan Qaboos Bin Said Al-Said review the honour guard during a welcome ceremony in Muscat on March 12, 2014. Close

Iranian President Hassan Rouhani, left, and Oman's leader Sultan Qaboos Bin Said... Read More

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Photographer: Mohammed Mahjoub/AFP/Getty Images

Iranian President Hassan Rouhani, left, and Oman's leader Sultan Qaboos Bin Said Al-Said review the honour guard during a welcome ceremony in Muscat on March 12, 2014.

Oman’s plan to build a $1 billion natural-gas pipeline from Iran is the latest sign that Saudi Arabia is failing to bind its smaller Gulf neighbors into a tighter bloc united in hostility to the Islamic Republic.

The accord was signed during Iranian President Hassan Rouhani’s visit to Oman last month, and marks the first such deal between Iran and a Gulf Cooperation Council state in more than a decade. Oman is in good standing with the U.S. too: a $2.1 billion purchase of air-defense systems from Raytheon Inc. was announced during a visit by Secretary of State John Kerry last year. Oman, led by 73-year-old Sultan Qaboos Bin Said Al-Said, hosted secret talks between the U.S. and Iran in the run-up to November’s Geneva agreement, Foreign Minister Yusuf Bin Alawi Bin Abdullah told al-Hayat newspaper this week.

Saudi Arabia’s oil reserves and population exceed the combined total of the Gulf Cooperation Council’s other five members, yet it has struggled to impose policy on its smaller neighbors. Some are uncomfortable with Saudi opposition to changes in the region including the U.S.-Iranian thaw and the rise of political Islam.

“Oman isn’t enthusiastic about integration and cooperation, and I don’t think it ever will be,” Abdulkhaleq Abdullah, an Emirati academic and author of “The Gulf Regional System,” said in a phone interview. “The Sultan has always maintained a sense of mysteriousness about Oman, and they think of themselves as somewhat different from the rest of the GCC.”

No Skyscrapers

Oman faces Iran across the Strait of Hormuz, the world’s most important trade route for crude shipments.

A nation of 4 million with an $82 billion economy, it has opted out of the race among neighbors to build the tallest building, most luxurious resort or biggest mall. The capital, Muscat, is relatively free of skyscrapers and the shops in its souks, unlike in most Gulf cities, are run by locals. Oman’s leader, Qaboos, was born in 1940 and there’s no heir apparent, since he has no brothers or children.

The GCC has failed to make much progress with a proposed customs union and shared currency. After the Arab uprisings of 2011, though, Saudi Arabia promoted a more ambitious plan, urging its fellow Sunni Muslim monarchies to integrate their economic, foreign and security policies on the model of the European Union.

A key motivation for King Abdullah is what the Saudis see as a growing threat from Iran.

Proxy Conflicts

The rivalry between the two countries intensified after the Islamic revolution of 1979, which mobilized the masses in a form of street politics that’s anathema to Saudi Arabia’s monarchy.

Shiite-led Iran is also blamed for fomenting unrest among Shiites in GCC states -- especially in Bahrain, where Saudi-led troops helped suppress protests in 2011, and in Saudi Arabia itself. Saudis and Iranians have faced off in proxy conflicts across the region, from Bahrain to Syria to Lebanon.

The prospect of détente between the U.S. and Iran, with an interim nuclear deal already in place and a permanent one under negotiation, has put Saudi Arabia, a longtime U.S. ally, on edge. President Barack Obama traveled to the kingdom last month to reassure King Abdullah that negotiations over Iran’s nuclear program won’t undercut Saudi interests.

Where the Saudis see threats, Oman sees economic opportunity.

‘Big If’

Gas from Iran may arrive as early as 2017, Oman’s Oil Minister Mohammed Al-Rumhy said this month. Oman will pay for the pipeline, which will extend from the Iranian province of Hormuzgan to Sohar in Oman, and some of the gas may be re-exported to neighboring countries, his Iranian counterpart Bijan Namdar Zanganeh said in March. Oman already imports natural gas from Qatar.

If those predictions are fulfilled, the pipeline will be the first functioning one between Iran and the GCC. An earlier project to bring Iranian gas to the United Arab Emirates broke down because Crescent Petroleum Co. and Iran couldn’t agree on prices, and the pipeline they built remains unused more than 10 years after the deal was signed.

That history suggests the new pipeline remains “a big if,” said Adam Ereli, former U.S. ambassador to Bahrain. “There’s been no shortage of deals over the past 25 years signed with Iran over exploration, pipelines and trading,” he said. Usually, “something comes along to derail the deals.”

The U.S., which imposes penalties for trade with Iran, hasn’t commented on Oman’s plan.

“The U.S. will understand Oman’s position,” said Abdullah Baabood, director of the Gulf Studies Program at Qatar University. “It needs the gas and it’s not getting enough from its neighbors.”

‘More Carefully’

While there are fewer sanctions on Iranian gas than oil, under the broadest interpretation “the building of a natural gas pipeline is sanctionable,” said Ramsey Jurdi, a compliance attorney at the Dubai office of law firm Chadbourne & Parke. “Oman at a national level might be doing what businesses are doing, which is to be first to market when sanctions are lifted.”

That may happen even before construction of the pipeline starts. After the latest round of talks in Vienna this month, Iran and world powers said they’re still on track for a final accord by July. Iranian Foreign Minister Mohammad Javad Zarif said in an article in Foreign Affairs magazine that the pace of talks “augurs well” for a deal by then.

Oman is well placed to benefit from Iran’s reintegration into the global economy, which would only strengthen the two nations’ historic ties. In 1973, before Iran’s revolution, the Shah sent troops and cash to help Qaboos quell an uprising in the province of Dhofar.

‘Smartest Guy’

Unlike the Saudis, the Omanis don’t see Iran as a threat, which is one reason why Oman has shied away from Saudi Arabia’s plans for a Gulf Union, according to Coline Schep, a London-based Middle East analyst at Control Risks.

When Nizar Bin Obeid Madani, Saudi Arabia’s state minister for foreign affairs, told a regional conference in December about the importance of Gulf union, Oman’s Foreign Minister Yusuf Bin Alawi Bin Abdullah asked for the microphone. He said Oman wants no part in it, according to Sultan Sooud Al-Qassemi, a U.A.E.-based writer on Gulf relations who witnessed the exchange.

Oman isn’t the only GCC country that hasn’t adopted Saudi Arabia’s foreign policy. Qatar has refused to toe the Saudi line on another regional issue, supporting political Islamists including the Muslim Brotherhood in Egypt after the 2011 revolts. Last month, Saudi Arabia, the U.A.E. and Bahrain recalled their ambassadors from Doha, accusing Qatar of undermining regional security.

“Oman plays it a little more carefully than Qatar has done,” Schep said by telephone.

Qaboos “has set himself on a safe course, becoming America’s broker in the region, warming things up with Iran, and saying unequivocally that it wants nothing to do with Saudi Arabia’s sponsored Gulf union,” said Christopher Davidson, author of “After the Sheikhs: The Coming Collapse of the Gulf Monarchies.” “He’s the smartest guy in the region.”

To contact the reporter on this story: Dana El Baltaji in Dubai at delbaltaji@bloomberg.net

To contact the editors responsible for this story: Andrew J. Barden at barden@bloomberg.net Ben Holland

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