The fifth round of talks between Iran and Saudi Arabia were held in Baghdad on 21 April in the presence of Iraqi Foreign Minister Fuad Hussein, and unlike the previous four rounds of meetings, reports suggest the discussions were promising.

This time, regional developments have prompted Tehran and Riyadh to enter the talks with a new approach and reach a preliminary agreement over their differences. Iranian Foreign Ministry spokesman Saeed Khatibzadeh on 25 April called the meetings “proactive and positive.”

During an interview with Iraqi daily Al-Sabah, Prime Minister Mustafa Al-Kadhimi praised the atmosphere between Iran and Saudi Arabia, saying he believes an understanding is imminent. “We are confident that the understanding will come soon, God willing, and that there is a real breakthrough in relations between all countries in the region, backed by a firm conviction and sound intentions,” he said.

The US news website Axios quoted a former media director of the Iranian foreign ministry’s negotiating team as saying the discussions touched on the sensitive subject of reopening the Iranian and Saudi embassies – with Riyadh reportedly agreeing to reopen the Tehran embassy, on condition that the embassy’s activities are limited to those related to the Organization of Islamic Cooperation (OIC) based in Jeddah.

According to various media sources, the two sides have decided to exchange delegations within the next 30 days to fully address the reopening of embassies, and Riyadh has agreed to allow 40,000 Iranian pilgrims to take part in the Hajj pilgrimage in July.

Although Iran and Saudi Arabia have held four rounds of talks mediated by Iraq from April to September 2021, Iran suspended the talks last month due to the kingdom’s execution of 81 men, including 41 Shia Muslims and two Ansarallah prisoners of war.

Constant tensions

Tensions have plagued relations between Iran and Saudi Arabia in the four decades since the 1979 Islamic Revolution, and the neighboring states have severed ties twice. The last incident occurred in January 2016 following the execution of outspoken Shia cleric Sheikh Baqir Al-Nimr, sparking angry protestors to storm the Saudi embassy and consulate in Tehran and Mashhad.

After severing ties, officials of the two countries have consistently accused each other of initiating and fanning instability in West Asia. Saudi Crown Prince Mohammed bin Salman (MbS) in an interview with Egypt’s Al-Shorouk newspaper called Iran, the Muslim Brotherhood (Turkey), and extremist groups a “triangle of evil.”

Threatening to redirect regional conflicts onto Iranian soil, MbS warned during a tactless interview with MBC television, “We will work so that the battle is on their side, inside Iran, not in Saudi Arabia.”

In response, Iranian officials have repeatedly condemned Saudi Arabia for its covert terror-supporting activities in the country, and directly blamed Saudi officials for the 2017 terrorist attacks in Tehran when a band of ISIS militants simultaneously attacked the Iranian parliament and Ayatollah Khomeini’s mausoleum, leaving 17 dead and 46 wounded. At the time, then-foreign minister Javad Zarif tweeted “Terror-sponsoring despots threaten to bring the fight to our homeland. Proxies attack what their masters despise most: the seat of democracy.”

These tensions continued until last year, when Riyadh appeared to suddenly change its tune. “Iran is a neighboring country, and all we aspire for is a good and special relationship with Tehran,” MbS said in a television interview broadcast in April 2021. The Iranian Foreign Ministry also welcomed the talks with Saudi Arabia.

The dynamics of the relationship

At the time of his election in 2021, Iranian President Ebrahim Raisi expressed his desire for good relations with neighbors. In March, MbS said his country and Iran were “neighbors forever,” and that it was “better for both of us to work it out and to look for ways in which we can coexist.”

New regional and international developments and their impact on the geopolitics and economies of both Iran and Saudi Arabia have created a mutual interest in resuming relations.

Tehran is engaged in major sanctions-removal negotiations in Vienna to finalize the Joint Comprehensive Plan of Action (JCPOA), while Riyadh is working to improve ties with Ankara, as demonstrated by Turkish President Recep Tayyip Erdogan’s recent visit to the kingdom – a first since Turkey revealed the gory details Saudi journalist Jamal Khashoggi’s brutal murder at his embassy in Ankara.

Under the US administration of President Joe Biden, relations between Washington and Riyadh have also noticeably deteriorated. US intelligence has publicly implicated MbS in Khashoggi’s killing, and Biden has not spoken directly to the Saudi crown prince in the 16 months since he took office – in sharp contrast to the close ties MbS enjoyed with former President Donald Trump.

The Ukraine crisis worsened those relations when the Saudis refused a US request to increase oil production to drive energy prices down. According to the Wall Street Journal, MbS refused to even answer Biden’s phone call and shouted angrily at US National Security Advisor Jake Sullivan during an informal meeting in the kingdom. Riyadh has realized that it can no longer rely on the US for security and must resolve tensions by de-escalating with neighbors such as Iran.

Money matters

The vulnerability inherent in Saudi Arabia’s oil revenue dependency has prompted the country to ramp up efforts to attract foreign investment and diversify its economy. This is in accordance with MbS’s economic reform blueprint – Vision 2030 – which could place Riyadh in fierce competition with its Emirati neighbors. The economic results so far, however, have not been promising.

The kingdom once accounted for nearly 30 percent of global oil exports; today that figure has fallen to just around 12 percent. At its current rate of depletion, Saudi Arabia’s $444 billion in reserves would cover just two years of spending.

Last year, Saudi net foreign assets fell by almost $27 billion to $464 billion, the lowest level in 19 years. The ministry of finance had to increase its debt ceiling from 30 percent of GDP to 50 percent. In response to the dire budgetary conditions, the government was forced to triple the value-added tax and end the cost-of-living allowance of public sector employees through subsidy programs, a big source of public grievance.

By 2020, Saudi Arabia had a budget deficit of about $80 billion, accounting for approximately 12 percent of GDP. In the same year, the tourism sector decreased by 45 percent which caused pessimism about the realization of tourism goals in Vision 2030.

According to the ambitious plan, Saudi Arabia is aiming to generate 100 million domestic and international visitors a year, which in turn will increase tourism revenue from 3 percent of the current GDP to 10 percent by 2030.

These kinds of economic setbacks have prompted a serious Saudi drive to improve its attractiveness to foreign investors, which will require de-escalating tensions with its neighbors and ending almost three years of Yemeni drone and missile retaliatory strikes inside major Saudi cities. Foreign investment needs, above all, a secure and conflict-free environment in which to thrive.

The war in Yemen

While Riyadh’s main war coalition partner, the UAE, ostensibly withdrew its forces from Yemen in February 2020, Saudi Arabia is still fully engaged in the destructive seven-year war in which the cost of sustaining air, ground, and sea operations is said to have reached $200 million each day. Riyadh is now considering various face-saving solutions to exit its Yemeni quagmire, and one of the goals of establishing relations with Iran is to help create a permanent ceasefire in Yemen, given Iran’s influence with the country’s Ansarallah resistance movement.

A two-month Yemeni truce mediated by the United Nations on 1 April has allowed fuel cargos to enter the port of Hodeidah and facilitated commercial flights to and from Sanaa Airport. This was followed by the effective resignation of Yemeni President Abdrabbuh Mansur Hadi on 7 April, and the transfer of power to a new eight-member Leadership Council, a move welcomed by Tehran.

“I have a word of advice out of benevolence to Saudi officials: Why do you continue a war that you are certain you will not win? Find a way out of the war,” Iran’s Supreme Leader Ayatollah Ali Khamenei stated at a recent meeting. His gentler tone is believed to hint at the top Iranian decision-maker’s backing for diplomatic engagement to end Yemen’s battles.

These developments may lead to a faster resolution of the war in Yemen, which is one of the more pressing obstacles marring a Tehran-Riyadh reconciliation. Iran and Saudi Arabia have each accused the other of escalating hostilities and military operations throughout the seven years of war. Resolving the Yemeni case thus eliminates one of the important sources of conflict between the two countries.

‘Mutually Assured Development’

In respect to economy and state finances, Saudi Arabia and Iran have good reason to work together to control oil prices. The nations, respectively, boast the second (16.2 percent) and fourth (9.5 percent) largest oil reserves in the world. Furthermore, both Tehran and Riyadh depend heavily on energy sales for their national budgets and have a keen interest in stabilizing oil prices.

If Iran shortly reaches a satisfactory nuclear agreement with world powers in Vienna, it can release its stored oil into the market quickly, pushing oil prices downward. Due to US sanctions, Iran currently holds more than 80 million barrels of oil in storage. Gradual export of this stockpile can both inject hard currency into the country’s struggling economy and affect world market prices.

Some sources predict that after sanctions are halted, Iran could boost its output by 500,000 barrels a day as soon as early as May, and reach daily output of 1.3 million barrels by the end of this year. Close cooperation with Saudi Arabia can provide Tehran with better management of production and increase the stability of oil prices.

While recent internal and regional developments have brought Saudi Arabia and Iran to the table, they may continue to face obstacles from intent spoilers like Israel, which prefers to keep Iran isolated at all costs. It remains to be seen how the two countries will manage these problems in the future.