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Iran Shifts the Middle East

Ian Bremmer, Ph.D

(LinkedIn Pulse) – It took nine years, but there is finally a deal on Iran’s nuclear program. What’s next? A fundamental shift in the Middle East’s balance of power. Here’s the shape of things to come.

First, it’ll take a little time, but Iran’s economy is about to take off. Even saddled with sanctions, Iran has a $420 billion economy. By some estimates, Iran’s economy will jump from about 3 percent growth in 2014 to 5 percent by mid-2016 and to as high as 8 percent by the end of 2017. This isn’t just about surging oil exports; Iran is not just another petro-state but a relatively diversified economy with a strong capital market and a large consumer base. At 78.5 million people, Iran has the second-largest population in the Middle East after Egypt. Sanctions are estimated to have cost Tehran about 20 percent of its GDP, so their rollback is significant no matter how you cut it. Last year, Iran did about $8.3 billion in trade with the EU, and experts believe the figure could jump 400 percent over the next three years.

Second, tensions between Shia Iran and Sunni Saudi Arabia are about to get much worse. They’re already fighting via proxies in Iraq, Syria, and Yemen. The Saudis have had much more money than Iran to spend on this fight. With the lifting of sanctions, that balance will shift. After all, Iran has the world’s fourth-largest proven crude oil reserves, and estimates are that Iran will produce an additional 500,000 barrels per day by next spring, and one million extra barrels per day by the end of 2016. As Iraq also ramps up production, the Saudis will find that they are losing more than market share; they’re also losing power within OPEC. No longer sure that America is a trusted ally, the Saudis will look toward China and others to make new friends. And the region’s proxy wars are likely to become more intense.

Finally, Iran will lead the charge against ISIS. President Obama doesn’t have the public support to put US troops back into Iraq. (Not that he wants to.) Saudi Arabia hasn’t been much help, because the Sunni jihadis who lead ISIS help the Saudis keep Iraq’s Shia-dominated government off balance. Iran, threatened by ISIS, has the motive and the means to pick up the slack. Sanctions have hampered Iran’s military for years. In fact, Iran spends only a fifth of what Saudi Arabia does on defense. A resurgent Iranian economy will increase Tehran’s ability to fund Iraqi Shia militias, the best hope of countering ISIS.

This deal is far from perfect. Decades of hostility won’t evaporate overnight. But mutual advantage from the lifting of sanctions could create if not the beginnings of a beautiful friendship at least the potential for a more pragmatic relationship.

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