TEHRAN: The Saudi-Iranian tensions could impact not just the economy of Iran, but also that of the wider Middle East and Africa (MEA) region, analysts have said. It could also affect investors’ appetite for risk, “spell increased volatility” in the financial markets and create pressure on oil prices.
“[The] impact of the conflict on key sectors such as oil, tourism and trade but also on the overall economy could be felt not only by Iran but also by the already fragile MEA region,” said Kinda Chebib, senior research analyst at Euromonitor International, in her analysis sent to Gulf News.
Chebib noted that the two countries have import-export ties, with the trade exchange between them exceeding $266 million (Dh977 million) in 2014. By the end of 2014, the volume of Saudi exports to Iran reached about $102 million, while Saudi imports from Iran hit $181 million.
“The situation can have a repercussion on the economy, as trade has also been halted between the two. An area that could potentially suffer if there is acceleration in tensions is oil.”
The tourism industry is another area that can feel some impact. Soon after Saudi Arabia severed ties with Iran, 150 flights between the two countries were reportedly stopped. “This can be detrimental for the tourism industry in the region, as tens of thousands of Iranians travel to [Saudi] each year to complete Haj and Umrah pilgrimages. This is in addition to the fact that [obtaining] visas is likely to become more difficult for Iranians in general,” Chebib said.
“Intensified crisis between the two countries could trouble investors, since most Saudi oil production comes from its Eastern Province, dominated by Shiites.”
January saw a dramatic start to the New Year. The equity markets crashed on poor manufacturing data in China and Saudi Arabia severed diplomatic ties with Iran.
Members of the Gulf Cooperation Council (GCC) region responded to Saudi’s move, with Bahrain announcing afterwards that it had cut diplomatic ties with Tehran. The UAE also downgraded its relations, while Kuwait recalled its ambassador, and Qatar and Oman criticised Iran’s meddling.
The tensions added to investor anxiety, with the S&P dropping more than 2 per cent and the Euro Stoxx more than 3 per cent. The US and German 10-year government bond yields also fell.
“The collapse in China’s equity market, combined with geo-political tensions and weak global manufacturing data proved to be a powerful cocktail undermining investor risk appetite,” said ABN Amro in its January 5 analysis.
Another bank said a flare-up in the row between Saudi and Iran, along with other “geopolitical risks”, could upset global financial markets and have broader economic and political ramifications.
