The Cipher Brief sat down the Former U.S. Ambassador to Oman, Gary Grappo, to discuss the current state of affairs in the Gulf Cooperation Council. According to Grappo, many GCC policies have been driven by the competition between Saudi Arabia and Iran over regional leadership, and tension between the two countries is “a major issue that will continue for a while.”

The Cipher Brief: What role does the Gulf Cooperation Council currently play in Middle East affairs?

Gary Grappo: Without question the GCC plays a very influential role in Middle East politics for several reasons. First, Saudi Arabia – one of the major countries in the Middle East, certainly on the Arab side –  serves as the host for the GCC and is also the major country within the GCC in almost every respect, whether it’s militarily, economically, or population wise.

Vis-à-vis the entire region, Saudi Arabia, along with Egypt – although a bit less so today given Egypt’s problems  – have traditionally been seen as major influencers of events in the Middle East.

Second, all of the GCC countries have traditionally maintained pretty close relations with the U.S. That’s very important to both sides. Some of that is a bit in question now, given the Iran nuclear accord that the U.S. signed along with the other P5+1 countries as well as the election of U.S. President Donald Trump and what direction his administration might take.

Certainly, up until most recently, there have been very close relationships between the GCC countries and the U.S., which in turn has had a significant impact on the regional policies of both sides.

TCB: How have the GCC countries worked to counteract Iran’s regional aggression, especially given that the countries have different relations with Tehran?

GG: The defining issue with respect to Iran is regional leadership. Until the last three or four years, Saudi Arabia has more or less occupied that position. That’s being challenged by Iran, and that challenge and the ensuing tension are defining the direction of GCC’s political policies.

We are seeing it played out most definitely in Yemen, right at the back door of Saudi Arabia and Oman, another GCC member, and then also in places like Syria and even in Iraq and Lebanon. It really comes down to a wrestling match between the two countries for regional leadership.

Obviously, the GCC has lined up behind Saudi Arabia but without overtly challenging Iran, or at least they’ve been trying to avoid that.

Oman, however, has taken a different approach. Oman is the only country that did not side with Saudi Arabia in the coalition fighting the Houthis in Yemen to reinstall the previous government led by Abd Rabbuh Mansour Hadi. This was probably due Oman’s neutrality and to the close relationship Oman has tried to cultivate with Iran, which lies just across the Strait of Hormuz from Oman. Oman is trying to keep its distance and trying to remain neutral, and has sought a way to resolve the conflict rather than become a participant. It’s been the host of a number of peace talks on the Yemen crisis including the most recent one I can recall back in November, which former U.S. Secretary of State John Kerry attended. So Oman has looked for ways to mend this difference.

There is an overall recognition – no one says it publicly – that the conflict in Yemen has been a political, economic, and military drain most definitely on Saudi Arabia and perhaps on the other Gulf countries as well. I don’t think anyone expected the campaign to go this long. It’s almost reached a stalemate as we approach the two-year point of Saudi Arabia’s formal intervention in Yemen.

The Cipher Brief: How important is what happens in Yemen to the power playing dynamics in the region?

GG: Yemen is an enormous source of instability in the Arabian Peninsula even setting aside the question of Iran. There is the possibility of refugees moving into Oman and Saudi Arabia and perhaps, if they can manage it, even crossing over into Egypt. Because of the instability in Yemen there is also the opportunity presented to extremist organizations including al Qaeda and the Islamic State. In fact, we have seen a resurgence of al Qaeda’s Yemen branch, al Qaeda in the Arabian Peninsula, as a result of the civil war.

The principle reasons for this resurgence is due to the fact that the attention of other Arab countries has been deflected away from al Qaeda. The U.S. has also been unable to carry out the kind of activities it was doing in Yemen prior to the conflict.

And then, of course, you add to that the inroads that Iran seems to be trying to make in Yemen and it becomes a source of major contention between Saudi Arabia and Iran specifically, but also between the GCC and Iran more generally.

Finally, Yemen is suffering a fairly severe economic crisis. Some of that is due to the civil war, of course, but there are also profound structural problems in that economy, making it by far among the poorest and least developed in the Arabian Peninsula and the region as a whole. That also accounts for the country’s instability.

The Cipher Brief: What is the level of economic cooperation between GCC countries and Iran?

GG: During the mid-2000s, when I was serving as U.S. Ambassador to Oman, there was a significant uptick in trade between Iran and the GCC, particularly between Oman and the United Arab Emirates, and Iran. It’s important to note that a lot of the imports into Iran were going through the UAE so they showed up in trade statistics as exports out of the UAE or Oman when in fact they were re-exports, including even from Saudi Arabia.

There was fairly significant trade during that period – we are probably talking about a quarter of Iran’s imports passing through the GCC countries, principally the UAE and Oman.

What really changed, of course, was the international sanctions regime against Iran. By 2014, and certainly by 2015, we saw a very substantial reduction in exports out of the GCC to Iran.

Now, trade is a potential wedge issue among the GCC countries. That is to say that with the lifting of sanctions on Iran, I would expect Oman most especially, but even the UAE and maybe others, to start looking fairly aggressively for export opportunities into Iran and for Iran to look for those opportunities as well as ways to forge stronger economic ties with individual GCC countries. It’s an issue that bears watching.

It’s been reported that during Iranian President Hassan Rouhani’s recent visit to Muscat, Oman, last week, the two countries signed a major gas pipeline deal – $60 billion – that will bring Iranian gas into Oman. We could possibly see more projects like that. Economics is going to be a major attraction for a number of the GCC countries as the sanctions regime abates and Iran looks to expand its economic relations throughout the region.

The Cipher Brief: Is there a unified oil policy for GCC member countries?

GG: Ultimately, each country will look to address its own specific interests. Those countries in the GCC that export oil, with the exception of Oman, are OPEC members, so they work within OPEC. However, without question, there are coordinating discussions and clearly the long pole in that tent is going to be Saudi Arabia, but Kuwait is also very influential. There is coordination, but the real driver there is going to be Saudi Arabia.

Oman is not a part of OPEC but has an interest in OPEC’s policies, particularly its recent agreement to lower production levels in order to boost prices. But there is no formal coordinating mechanism, at least that I’m aware of.

TCB: What are some factors that could influence the GCC moving forward?

GG: The one thing that I would really emphasize is this ongoing tension between Saudi Arabia and Iran over regional leadership. That’s not just Gulf leadership; it’s in the entire region. The perception among most of the Gulf countries, if not all of them, and other Arab countries in the region with the possible exception of Iraq, is this effort on the part of Iran to assert itself as at least a regional leader and perhaps the regional leader. That’s provoking some real tensions between Saudi Arabia and Iran as we saw for example in the Hajj crisis of last year, the execution of Shiite Sheik Nimr al-Nimr in Saudi Arabia last year, and what followed. That’s pretty much going to drive the relationship between Iran and the GCC as we move forward. I do not expect this to escalate to military confrontation, however – neither side could afford that. In fact, there may be some efforts to try and mend that because it’s also provoking some of the sectarian conflicts that we are seeing throughout the region. This is a major issue that is going continue for a while, however.

There are several things that should be taken into account as we go forward. First, what will be Trump Administration’s policies regarding Iran, Syria, and Yemen? The U.S.-Saudi relationship will be a critical part of those policies. And, relatedly, how will his administration seek to strengthen that relationship, if at all?

Second, what happens to the Saudi leadership is very important. King Salman is an older man, reportedly facing health issues. There is a real question once we see him depart over who will succeed him, even though he’s been designated. That could certainly alter things.

Third, internal Iranian politics, namely the health of the Supreme Leader and the country’s presidential elections scheduled for this coming May will certainly have an impact.

Finally, what will happen with the price of oil? Right now, oil prices haven’t really increased much after the production reduction agreement among the OPEC members and a number of non-OPEC members, including Russia. If this price stagnation continues, it will create significant economic pressures on the oil-exporting countries. In fact, it already has in countries like Oman, Saudi Arabia, Kuwait, and Iran.

All of these will have a bearing on relations between the GCC and Iran going forward.