Can Oman and Iran's 'Special' Relationship Last?

07/29/2013 03:45 pm ET | Updated Sep 05, 2014

Oman's primary foreign policy objectives appear to be to ensure stability in the Persian Gulf and maintain independence from Saudi Arabia. For decades, a pillar of Muscat's foreign policy has been to balance its alliances with the U.S., its fellow Gulf Cooperation Council (GCC) states, and Iran. Oman's strategy of playing off its more powerful neighbors' political divisions has served Omani interests well, enabling it to maintain a highly flexible foreign policy. But the prospects of a military confrontation between the West and Iran, and the ongoing Syrian conflict, are challenging Muscat's ability to maintain its intricate web of alliances.

While Oman continues to use its leverage to thwart a military confrontation in the Persian Gulf, officials in Muscat have accepted that their influence is naturally limited, and they have taken actions to prepare for a scenario in which the Strait of Hormuz is closed. Regardless of how events may or may not unfold, it is clear that Oman is determined to pursue an independent foreign policy that will continue to leave Washington, Riyadh and Tehran speculating about Muscat's next move.

Oman maintained an alliance with Iran after the Shah's ouster in 1979, and economic dependence on hydrocarbon exports has prompted Oman to accept Iran's regional influence by virtue of their shared sovereignty over the Strait of Hormuz. Muscat sponsored secretive cease-fire talks between Tehran and Baghdad during the Iran-Iraq War and recently attempted to resolve tension between the U.S. and Iran, underscoring its preference for serving as a bridge between Iran and the West/Sunni Arab states.

It would be inaccurate, however, to state that Omani-Iranian relations are entirely cordial. Oman's navy does not conduct official drills with Iran's navy, for example, as it does with other GCC states, the U.S., India and Pakistan. Oman has been a military partner of the U.S. since 1980 and grants the U.S. military access to its air bases and ports. Oman has willingly assisted Washington in building a defense shield designed to counter Iran's perceived threat. During U.S. Secretary of State Kerry's recent visit to Muscat, he discussed the sale of a $2.1 billion missile system (THAAD) intended to link the GCC states' defense systems, in an effort to contain Iran. THAAD is the only known existing defense system that can intercept missiles inside and outside of the earth's atmosphere.

In an attempt to lure Oman away from the U.S./GCC campaign against Iran, Tehran has sought to offer Muscat rewards to maintain its relative independence. In April, the speaker of Iran's parliament, Ali Larijani, urged Iran to implement a natural gas transfer project to Oman, following the signature of an agreement between the two whereby Iran would provide natural gas to an Omani Liquefied Natural Gas (LNG) factory that would convert the gas into LNG for its citizens. And for years there has also been talk about an India-Iran-Oman energy triangle, whereby an under-sea natural gas pipeline would connect Oman and India. Oman would naturally like to have the best of both worlds; continuing to reap the benefits of the West's most advanced military technology while playing an important role in the distribution of Iranian natural gas.

While preventing a military confrontation between the West/Israel and Iran constitutes a vital national interest, Oman benefits from the international sanctions imposed on Iran. A thriving black market has fueled economic growth on the Musandam Peninsula. Port-towns, such as Khasab, serve as a hub for Iranian trade with the outside world. Iranians seeking luxury goods frequently travel to the UAE, and products are shipped by truck into Oman before being ferried to Iran. Smugglers reportedly transit from Khasab to Qeshm up to five times a day, transporting the goods that Iranians otherwise could not have access to due to the sanctions. Oil, cigarettes, heroin and trafficked humans are also reportedly transported across the water that separates the Arabian coast and Iran. Omani authorities seem to have turned a blind eye to these thriving black markets, as well as to the tourism agency in Musandam that has even incorporated these trade operations into their sightseeing tours. Thus, the status quo with Iran's standoff with the West (i.e. sanctions but no war) serves Oman's interests very well.

Despite Oman's stake in the game, and obvious interest in continuing to play it, Muscat knows that in reality, it is relatively powerless to prevent a war in the Persian Gulf. Oman's acceptance of this reality was underscored earlier this year when the country began to construct the Al-Duqm port on the Arabian Sea. Once completed, this port will provide Oman with the capacity to export its hydrocarbon resources without depending on the Strait. Saudi Arabia and the UAE are also engaged in discussions about the construction of a pipeline that would transfer their oil/gas to Al-Duqm.

Thirteen months ago, Abu Dhabi inaugurated a 230-mile pipeline from the UAE's Habshan field to the Fujairah offshore oil terminal situated in between the Musandam Peninsula and the region of Al-Batinah in the Gulf of Oman. Given Abu Dhabi's investment of $3.3 billion in this pipeline, the UAE (like Oman) is not confident placing its bets on the continuation of long term stability in the Gulf -- or the Strait remaining open indefinitely -- as tension continues between the West and Iran.

Saudi Arabia and Oman's perception of the "Iranian threat" is fundamentally different, as are their strategies for addressing the expansion of Iranian influence across the Arab world. According to U.S. diplomatic cables, the Saudi Ambassador to the United States, Adel al-Jubeir, expressed King Abdullah's desire to see Washington "cut off the head of the snake" by launching a pre-emptive military strike on Iranian nuclear sites. By contrast, Oman's foreign minister, Yusuf bin Alawi, stated Oman's far more relaxed stance -- that a nuclear-armed Iran would not constitute a destabilizing force for the region.

To weaken Iran and its sphere of influence, Riyadh has taken bold moves to arm rebels in Syria against the Assad regime, sent in its own security forces within the Peninsula Shield to crush a Shia-led uprising in Bahrain during 2011, deported Hezbollah supporters from Saudi Arabia, and bombarded Houthi rebels along the Saudi-Yemeni border. Clearly, Riyadh and Muscat's alternative foreign policies vis-à-vis Iran are driven by different aspirations - Saudi leaders seek to assert the Kingdom as the region's dominant power, while the Omanis seek to strike a balance of power between Saudi Arabia and Iran.

Whereas the 1,400-year old Sunni-Shia divide plays an important role in the Sunni Gulf Arabs' position on Iran, Oman (which is neither Sunni nor Shia, but Ibadist) has no interest in permitting this ancient conflict to subject the Sultanate to grave dangers. Muscat understands that Iran is unlikely to change its fundamental position on its right to enrich uranium as Iranian Supreme Leader Khamenei is still driving the bus on Iranian foreign policy. Muscat therefore seems to believe that it is better to focus on its military and political interests with the U.S., while simultaneously pursuing its economic interests with Iran. Should the West/Israel attack Iran, Sultan Qaboos will be forced to make some difficult decisions. Until then, Oman will enjoy a unique and privileged position in the Gulf.

*Daniel Wagner is CEO of Country Risk Solutions, a cross-border risk advisory firm, and author of the book "Managing Country Risk". Giorgio Cafiero is a research analyst with CRS based in Washington, D.C.

Printed with permission from the Institute for Near East and Gulf Military Analysis (INEGMA) in Dubai, UAE.