Iran and Saudi Arabia will restore diplomatic ties, easing a geopolitical rivalry in the Persian Gulf that has unnerved oil markets.  

The countries have been reaching out to each other for at least the past two years, first secretly and gradually more publicly. It’s part of a broader regional realignment that’s seen several old foes reestablish or forge new ties as the US steps back from the Middle East, a key security concern for Riyadh. 

The deal to restore relations, which includes commitments to reopen embassies within two months, was signed in China after days of negotiations between secretary of Iran’s Supreme National Security Council Ali Shamkhani and his Saudi counterpart, the Islamic Republic News Agency reported. Saudi state-run media confirmed the agreement. 

“Clearing up misunderstandings” and looking toward better relations “will certainly develop regional security and increase cooperation between Persian Gulf countries,” IRNA cited Shamkhani as saying.

Oil prices held losses after the announcement, which could soften the geopolitical premium that has periodically hit the market as a result of tensions between the two adversaries, especially over the war in Yemen where they back opposing sides. 

In 2019 an assault claimed by Iran-backed Yemeni fighters on Saudi Arabia’s Abqaiq facility temporarily knocked out half the production capacity in the world’s biggest oil exporter, triggering a brief price spike. Brent futures were trading near $81 a barrel on Friday.

“This is a huge game changer and an acknowledgment that the policy of isolation and containment of Iran has not worked in Riyadh’s interest,” said Sanam Vakil, deputy head of the Middle East and North Africa program at Chatham House. 

Saudi Arabia cut ties in 2016 after its Tehran embassy was mobbed.

Now Riyadh has come around to the idea that direct diplomacy can help the kingdom manage its tensions with Iran, including on Yemen, as well as forestalling future attacks, Vakil said. Work still needs to be done to achieve this, and what was announced today is a roadmap, she added. 

Talks had stalled in December after Tehran accused Riyadh of using satellite TV channels to support protests that have rocked the Islamic Republic, the AP reported.

Saudi Arabia, which has battled Iranian-backed fighters in Yemen since 2015, is pushing for an end to a conflict that’s exposed its oil facilities to drone and missile attacks. Establishing formal relations with Iran could help ease that conflict and potentially allow Saudi Arabia to withdraw from the war if a peace deal materializes.

Saudi Arabia’s top priority is to “find a way to have a permanent ceasefire in Yemen,” Saudi Foreign Minister Prince Faisal Bin Farhan said Thursday in Moscow. 

–With assistance from Sam Dagher and Grant Smith.


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