Oman looks to raise profile in Asia after helping Saudi Arabia and Iran bury the hatchet

The sultanate of Oman is working to capitalise on recent successes as mediator between rival neighbours Saudi Arabia and Iran and the boosting of its debt-laden economy with renewable energy investments by Asian importers of its oil and gas.

A low profile Indian Ocean nation, Oman has for decades maintained its neutrality in the Middle East's manifold political disputes and conflicts. Sultan Haitham bin Tariq, leader since early 2020, worked closely with Iraq and Kuwait to end a seven-year suspension of diplomatic relations between Riyadh and Tehran, formally announced last week as part of a deal brokered by China.

His policies represent the continuation of the 50-year era of former Sultan Qaboos bin Said, during which Haitham long served as Oman's top diplomat.

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Having hosted several rounds of confidence-building talks between Iran and Saudi Arabia in the lead up to the so-called Beijing Agreement, Oman is also playing a key role in ending the civil war that has plagued its southern neighbour Yemen since 2014. The conflict is between the Saudi-backed government there and Houthi rebels, supported by Iran.

Oman's diplomats accompanied Saudi officials to Yemen's capital Sanaa for talks on April 9 with Houthi insurgents, aiming to negotiate a six-month ceasefire agreement as part of a proposed two-year political transition to end the war, which has seen hundreds of thousands die from violence and hunger.

Saudi Arabia has been mired in the conflict since 2015 after intervening militarily, as the leader of an Arab coalition, to save the internationally-recognised Yemeni administration.

Francis Owtram, an honorary research fellow with the Institute of Arab and Islamic Studies at Britain's Exeter University, said Oman would "look to capitalise diplomatically and economically" on its successes as a diplomatic intermediary.

Sultan Haitham came to the throne in January 2020 after his cousin, who had ruled for half a century, died. With the nation's economy in crisis, "there had been concerns that Oman would face pressure from Saudi Arabia and the United Arab Emirates" to take sides on issues like their four-year land, air and sea blockade of Qatar which ended in 2021, said Owtram. But the new ruler did not take sides.

The two nations - along with Bahrain and Egypt - had imposed the blockade on Qatar and cut ties with it amid accusations - all denied - that it supported terrorism and was too close to Iran.

The recent brokering of better relations between the Saudi-led bloc of countries involved in the blockade and Iran and its allies should also reduce the pressure on Oman to take sides, given that it has maintained a cordial relationship with Tehran since the 1970s, Owtram said.

Oman used this relationship to help mediate the end of the nine-year war between Iran and Iraq in 1989, thereby establishing its credentials as the region's neutral player.

Muscat has remained "steadfast in its course of neutrality throughout the turbulent times in the region in the past 20 years", although its fence-sitting has created tension with its Gulf Cooperation Council (GCC) partners Saudi Arabia and the UAE, which "time and again tried to drag Oman into their camp", said Andreas Krieg, an associate professor in the School of Security Studies at King's College London.

The cold wars of the previous two decades between the GCC and Iran, and so-called cold conflicts between GCC members, "created expectations for Oman to align, which it refused", he said.

The current thaw "works in Oman's favour" because former opponents and competitors are now seeking the sultanate to mediate their conflicts after its recent successes, Krieg said.

To a large degree, Oman's policy of non-alignment is dictated by its location and history of rebellions backed by Saudi Arabia and Yemen as recently as the 1970s, the analysts said.

Oman - around the size of Poland, and significantly smaller than Saudi Arabia and Iran - occupies "a significant area of geostrategic real estate" on the southeast corner of the Arabian Peninsula, Owtram said, and governs the Musandam Peninsula overlooking the Straits of Hormuz. Around a quarter of the world's oil production is exported through there, he added.

Since the 1970s, "regime consolidation and survival has been the main motivation of Oman's foreign policy, which sees it following a pragmatic foreign policy of not taking sides. This allows it to draw on reservoirs of goodwill if a state seeks to intimidate it", Owtram said.

While this has often led the media to describe it as the "Switzerland of Arabia", Oman "does not conform to the characteristics of a neutral country" because Britain and the United States have long acted as guarantors of its national security, said Owtram, who has written several books on the sultanate, including A Modern History of Oman: Formation of the State Since 1920.

Oman's pragmatic foreign policy has also enabled it to avoid becoming embroiled in tension between its security guarantors the US and China, the latter being its biggest foreign investor, analysts said.

"Oman is not as much a strategic player for the US as Saudi Arabia or the UAE are," Krieg said. "It has also only ever engaged China in the trade and investment domain, not in the domains of security and military affairs as Saudi Arabia and UAE have done, for example. Here, Oman's integration into [China's] Belt and Road Initiative is not seen as problematic in Washington."

As well as its discreet diplomacy, Oman last year began pushing to build on its long-standing energy ties with Asia's major economies, to bolster its finances.

The Covid-19 pandemic raised Oman's debt-to-gross-domestic-product (GDP) ratio to nearly 70 per cent - the higher the ratio is, the less likely it is that a nation will pay back its debt, and the higher the risk of default.

Such debt prompted Oman to begin a programme of fiscal reforms, including the privatisation of state-owned enterprises. Accordingly, the State Grid Corporation of China acquired a 49 per cent stake in the Oman Electricity Transmission Company (OETC) in December 2019.

Windfall revenues from oil and liquefied natural gas (LNG) exports last year helped Oman slash its debt to about 40 per cent of GDP, prompting S&P Global Ratings to revise its economic outlook on the sultanate to "positive" from "stable" on April 2.

In December and January, respectively, Oman LNG signed multi-year gas supply contracts with existing clients in Japan, and new ones in Thailand and Turkey.

Along with Korea LNG, Japan's Mitsubishi Corp, Mitsui & Co, and Itochu Corp are minority shareholders in Oman LNG, which since 2000 has been the second largest Middle East exporter of LNG to Asia, after Qatar.

Oman's Asian partners are also taking a prominent role in the sultanate's efforts to switch its power generation sector to renewables, and to become a hub for investments in exportable "green hydrogen" projects - hydrogen made without fossil fuels.

In March, Oman awarded a contract to Korea Western Power and another to a joint venture between Singapore's Sembcorp Industries and China's Jinko Power, to build and operate the sultanate's biggest solar power generation park.

Also last month, Oman's Hydrom - set up to orchestrate the nation's interest in green hydrogen - signed 47-year agreements with companies from seven countries, including India and Singapore, to develop production projects collectively worth 20 billion rials (US$52 billion), expected to begin in 2028.

The projects each take seven years to develop, with a production phase of 40 years.

"Oman's future in terms of economics, trade and energy is in the East. This is why Oman is well advised to expand engagement with Asian markets and their governments as much as needed to ensure stable consumption and long-term contracts," said Krieg of King's College London.

But, he added, Oman still relies heavily on the US and the UK for security and defence. "This is unlikely going to change in the short and mid term, even if its prosperity is tied much closer to Asia."

This article originally appeared on the South China Morning Post (SCMP).

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