Implications of Iran-Saudi Arabia Reconciliation for Pakistan

Iran and Saudi Arabia’s recent reconciliation and resumption of diplomatic ties are unprecedented developments that will change the geopolitics of the region in the years to come. In a deal mediated by China, the two countries agreed in March to repair ties and reopen embassies.

Due to Islamabad’s close ties with Saudi Arabia, its geographic proximity to Iran, and the compulsion to maintain a balance between them, the development will also impact Pakistan profoundly.

The resumption of diplomatic relations between Tehran and Riyadh is likely to improve Pakistan’s internal security, economic prosperity, political stability, and its relations with the Middle East and beyond. It is therefore essential for Islamabad to assess the implications of this deal and take necessary actions accordingly.

In an effort to relieve some pressure off its foreign policy, Pakistan has traditionally sought closer ties between Iran and Saudi Arabia. Islamabad tried hard to bring the two countries closer, but was unsuccessful as Riyadh and Tehran were compelled to compete on the basis of their own policy considerations. 

Nevertheless, the situation changed recently when China, with some help from Pakistan, facilitated a deal between the two countries. The development is also a testament to China's diplomatic prowess and its ability to bring about change even in seemingly intractable situations.

The deal has brought hope for policymakers in Islamabad and Tehran equally. Historically, Saudi Arabia has kept a close eye on the ties between Pakistan and Iran, putting pressure on Islamabad not to expand trade ties with Tehran. The growing rapprochement will take away this crucial hurdle. Aside from expanding trade into strategic cooperation, this agreement will also provide both countries with more opportunities to participate actively in China’s Belt and Road Initiative (BRI), build more mutual dependency, and improve security cooperation in order to combat militancy.

The Iran-Saudi Arabia reconciliation is already bearing fruit for Pakistan. It has allowed Pakistan to move ahead with its own deals with Iran without interference from Riyadh. Pakistan and Iran have taken steps to open border trade and their officials have met to discuss a currency swap agreement and other issues. Pakistan has also signed a major electricity deal with Iran and is in the process of drafting a security agreement with Tehran, which is expected to be finalized soon.

Amid its troubles rooted in economic sanctions, Iran has in recent years looked to Pakistan as a potential partner. An Iranian official told The Diplomat that Tehran is ready to work with Pakistan in their own currencies. “Both countries would benefit from this since they would be able to trade goods and services without worrying about United States sanctions linked to the dollar trade,” the official said.

A similar sentiment is present in Pakistan, which aims to evade dollar-related trade options with Iran due to fears of U.S. sanctions. The U.S. sanctions against Iran have had a major impact on Pakistan’s trade relations with its neighbor. In order to avoid the risk of being sanctioned, Pakistan is exploring various options, including further expansion of border markets, barter trade, currency swap options, and the use of local currencies. All these options are aimed at protecting Pakistan's economic interests in Iran while still maintaining its ties with the United States.

With Saudi Arabia reconciling with Iran, it is likely to subject Pakistan to less pressure on religious and cultural issues. Previously, Saudi Arabia would push Pakistan to maintain distance from Iran, even with regard to cultural relations. It would not allow Islamabad to get too close to Tehran, and repeatedly expressed displeasure over Pakistani Shia pilgrims traveling to Iran.

This emerging situation of détente between the two Muslim world heavyweights will allow Pakistan to facilitate further ties between Iran and Saudi Arabia, which could potentially alleviate sectarian tensions in Pakistan. A Shia Hazara leader in Quetta told The Diplomat on condition of anonymity that Iran and Saudi Arabia “coming closer is good news for the community.” In Balochistan, Shia Hazaras, mostly in Quetta, have suffered tremendous persecution and violence over the years from many sectarian groups.

Several administrative restrictions and targeted attacks have made the journey to Iran difficult for Shia pilgrims. “Tehran-Riyadh reconciliation will hopefully reduce discrimination against us and open up new opportunities,” the Shia Hazara leader said. 

The recent reconciliation between Iran and Saudi Arabia has been met with cautious optimism. While it is a positive step forward, there are still many concerns about whether the two countries can maintain this reconciliatory path in the medium to long run. This is because both countries have conflicting interests when it comes to regional power.

Pakistan will have to carefully devise its policy toward Iran. It will need to be mindful of balancing its relationships with both Iran and Saudi Arabia without taking sides. The reconciliation has opened up for Pakistan the option of deepening ties with both countries if it wishes to. This may ultimately be a win-win-win situation for all parties involved, as long as the relationships are managed carefully.