Iran has come in from the cold

Theocracies tend to project their power and influence in the strangest ways. From local mystic rituals to get the natives onside, to subtle proselytising, to overt attempts to convert what my children would describe as “randomers”.

When I was a little boy, Ireland was a theocracy. We sent priests and nuns out to convert “randomers” and on Good Friday, the holiest day on the calendar and possibly the most boring day in the entire year, everything was closed, TV was awful and many of my mates were taken on sanctimonious pilgrimages by the grannies to do the stations.

It was as if we’d crucified the man himself and had to repent there and then. I hated it – all that crucifix-kissing and the total absence of joy. In fact, it was the most un-Irish of all days. That much was clear even to a six-year-old.

Thankfully, this country isn’t a theocracy any more (although there are some relics of the past still clinging on), and Ireland on Good Friday has ceased to resemble an ecclesiastical post-apocalypse wasteland.

However, this Easter, a proper theocracy is making the news. That theocracy is Iran.

The nuclear deal it signed in Switzerland last Thursday will have enormous ramifications for the politics of the Middle East and, via the price of petrol, significant consequences for the global economy. This is significant news.

Just to put it in context, when Israel and Saudi Arabia are on the same side opposing something, you know it is a big deal. For the past few years, there has been an odd alliance of the pro-settler Israeli right wing and the Taliban-financing extreme Wahhabi mullahs who run Saudi Arabia. How could this be?

Israel and Saudi Arabia are united by a mutual loathing of Iran. The Israelis hate Iran because (a) Iran constantly threatens to destroy Israel, even though it has not got the means to do this, and (b) Iran finances and arms Hezbollah in south Lebanon and has an on-off relationship with Hamas in Gaza and the West Bank. These days, Hamas is closer to Qatar than Iran, but that could change.

Iran also supports the Assad regime in Syria, and is pretty much the dominant external influence in Iraq.

For Saudi Arabia, the issue is sectarian. The Saudis, as Sunni Muslims, see themselves as the real leaders of Islam in the region.

The Iranians, on the other hand, are Shia; and the Saudis see them as a major threat to Saudi hegemony. The military action in Yemen, which kicked off this week led by the Saudis, is not about Yemen, but is about limiting Iranian influence in the region.

Therefore, anything that brings Iran in from the cold – such as the end of sanctions announced on Friday in return for the end to Iran’s nuclear program – can only strengthen Iran’s economy, and this scares Israel and Saudi Arabia.

Those two countries take the view that if a weakened Iran, enfeebled by years of sanctions can have so much influence in the region, what type of influence will a strengthened Iran have?

Iran is, after all, Russia’s ally in the region, but America and Obama are betting on something much bigger. It seems to me that, after the disastrous occupation of Iraq, the US no longer has the stomach for policing the region.

If it wants to control Sunni groups such as Isis, it needs Iran to be on its side on the ground.

The risk for Saudi and Israel is that this détente will not neuter Iran’s regional ambitions, but bolster them.

The US is gambling that a normalised Iran with an improving economy will become easier to deal with. The operating model for Obama is the 1973 visit of Richard Nixon to China, where the normalising of relations between the US and China pushed China onto a more capitalist road.

If this were to happen, the US would have an ally in the region that has influence in the Shia Muslim world, as opposed to having only Sunni Muslim allies like Saudi Arabia, Pakistan and Turkey.

For Iran, the commercial prize is enormous.

It holds the world’s fourth-largest proved crude oil reserves and the world’s second-largest natural gas reserves. Despite these abundant reserves, Iran’s oil production has substantially declined over the past few years and the growth of natural gas production has slowed. Sanctions have profoundly affected Iran’s energy sector.

A Russian friend of mine who does business in Iran – the Russians have been Iran’s friends since 1979 – described to me the hassle his company gets every week because it trades with Iran.

Because Iran could not get its hands on the latest technology in the oil business, it produces far less than it should, and of course it can’t export oil.

Despite this, Iran ranks among the world’s top ten oil producers and top five natural gas producers. Iran produced 3.2 million barrels per day (bbl/d) of petroleum and other liquids in 2013, and more than 5.6 trillion cubic feet (Tcf) of dry natural gas in 2012.

I spend quite a bit of time in the Gulf, and have witnessed that the fear of Shia Iran in the Sunni emirates is heightened by proximity – it is just across the sea. You will not get a straight answer from anyone about Iran, but it is very clear that the United Arab Emirates is on the side of Saudi Arabia, and that there is a sense of betrayal among the Gulf states which has been triggered by the US’s latest moves.

When you are atop the glittering skyscrapers edging the beaches of Dubai, you look out at the Straits of Hormuz towards the south-eastern coast of Iran. This is the most important route for oil exports from Iran and other Persian Gulf countries.

At its narrowest point, the strait is 21 miles wide, yet an estimated 17 million bbl/d of crude oil and oil products flowed through it in 2013 (roughly one-third of all seaborne traded oil and almost 20 per cent of oil produced globally).

It is not hard to see what’s at stake with the opening of Iran.

Despite recent high prices, Iran’s oil production is collapsing because of sanctions. According to the IMF, Iran’s oil and natural gas export revenue was $118 billion in 2012, dropped by 47 per cent to $63 billion in 2013, and kept falling last year. Iran’s natural gas exports have actually increased slightly over the past few years, but it only exports a small amount.

Imagine what opening western markets will do to Iran’s economy. Imagine what this massive new supply will do to oil prices. It is highly likely that oil prices will remain low for some time because of Iran’s nuclear deal, but only if economics alone determines its price. But we know that it doesn’t; politics does.

As we focus on Jerusalem today and celebrate Jesus Christ, a prophet admired by both Muslims and Jews, the big question is whether a stronger Iran means a safer Middle East. What do you think?