As Iran’s nuclear program moves ahead and international agitation about the Islamic Republic’s nuclear activities intensifies, Arab states on the other side of the Persian Gulf are taking steps to develop their own nuclear capabilities. To offer insights and perspective on the Gulf’s “nuclear race”, we are pleased to present this post by our friend and colleague, Jean-François Seznec. (In March, we published Jean-François’s “Why Saudi Arabia Does Not Support a Strike on Iran”, see here.)
Jean-François is Visiting Associate Professor at Georgetown University’s Center for Contemporary Arab Studies, where his scholarship and teaching concentrate on the influence of political and social variables in the Gulf on financial and energy markets. He is currently focusing on industrialization in the Gulf, and, in particular, on the growth of the region’s petrochemical industry. Jean-François has 25 years’ experience in international banking and finance, ten of which were spent in the Middle East, and is Senior Adviser to PFC Energy as well as a founding member and Managing Partner of the Lafayette Group, LLC, a U.S.-based private investment company. He holds a MIA from Columbia University and a MA and Ph.D. from Yale University. He has just returned from a trip to Saudi Arabia.
From Jean-François Seznec:
After more than 100 trips to Saudi Arabia in the past 35 years, 10 years of living in the Gulf (including two years in Riyadh), and three trips to the Gulf this spring alone (including a two-week stay in Saudi Arabia), I feel that I am just beginning to know what I don’t know. Keeping this caveat in mind, this piece seeks to report on the nuclear issues in the Gulf, as well as the perception of the Iranian threat.
In Saudi Arabia, I was fortunate to attend a workshop put together by the Stimson Center of Washington and the King Faisal Research Center in Riyadh. The workshop was attended by a number of experts on nuclear issues from the United States, Japan, the European Union (EU), Turkey, Saudi Arabia and elsewhere.
Some of the main points, which came out during the various meetings are:
1- No one seems to doubt that Iran is pursuing a nuclear weapon capacity.
2- It seems to be common wisdom that the Arab countries of the Gulf, as well as Iran, desperately need to develop power generation and that such generation can no longer just come from natural gas or even crude oil.
3- Burning crude or heavy fuel oil for power generation is heavily polluting and inefficient and takes away from profitable exports.
4- Alternative energies like wind and solar are promising but too unreliable and expensive for the time being.
5- The only feasible and credible alternative to gas and oil to supply electricity and desalinated water will have to come from nuclear reactors.
There are of course other dimensions, which were subsumed in the meetings and not expressed as directly:
1- If Iran develops nuclear weapons, it may gain a strong and unacceptable bargaining tool to use against its Arab neighbors.
2- If Iran succeeds in developing only nuclear power generation capacity, it still would have a technological advantage, which until now has been maintained by the Gulf Arab countries in most industrial ventures.
3- The consensus is that most Gulf countries will now pursue very active nuclear policies, all couched in terms of power generation.
The Gulf Arab states are approaching the formulation of their nuclear policies in a variety of ways. The United Arab Emirates (UAE) contracted to purchase four reactors from Korea for $ 24 billion, with the first reactor coming on stream in 2017. To achieve this, the UAE had to sign a so-called “123” agreement with the United States, which forces it to renounce enriching fissile material and have no control over the technology. The Korean deal needed U.S. approval because most of the technology and some of the equipment included in the Korean contract will come from the United States. The UAE chose to follow this route in spite of the fact that the reactors they purchased are not the most advanced.
Of course, the UAE could easily give up on the right to enrich uranium, knowing that they would not have the means to develop technology by itself. Their own population is so small that they would have great difficulty developing rapidly the manpower necessary to build their own nuclear capacity. The Korean deal, however, gives the UAE a leg up in the race for nuclear prestige and advanced technology in electricity generation. The Emirates may be a bit behind Iran now, but will catch up rapidly and overcome the Islamic Republic by 2020 with four reactors.
Saudi Arabia, by contrast, has a larger pool of technicians and engineers than the UAE—albeit not many trained and experienced in nuclear matters. Given the right incentives and joint ventures with foreign partners, Saudi Arabia could eventually develop its own nuclear technology. Traditionally, the Saudis have wanted to control and develop the technologies used in the Kingdom’s industrialization. Control of technology brought from abroad has typically been secured through joint ventures or direct acquisition; once the Saudis secure control over technology originating outside the Kingdom, they typically work to develop it further in their own research centers.
Hence, it is very likely that Saudi Arabia will not wish to submit itself to the rigors of a 123 pact with the United States. It will not want to lose control of the technology involved or give up the possibility of enriching uranium indigenously.
Of course, the main drawback of this approach is that it limits the places from which the Saudis can source the necessary technology. If the Saudis wish to build their own nuclear industry, including uranium enrichment, based on the most advanced technology, they will have to work with France—at some considerable expense. Furthermore, in the UAE case, it appears that the French were not willing to transfer technology on their third-generation reactors, which the Saudis would almost certainly demand. Alternatively, the Saudis could turn to China or even Russia for older and not-as-highly regarded technology.
In any case, the Saudis—who signed a cooperation agreement on nuclear issues with the United States two years ago—are unlikely to bother negotiating a deal with the United States, Korea, or Japan. Companies in Japan as well as Korea use U.S.-based technology and, thus, would require conclusion of a 123 agreement between Saudi Arabia and the United States. As noted above, such an agreement would almost certainly preclude technology transfer to the Saudis and forbid uranium enrichment in the Kingdom. Furthermore, the Saudis will almost certainly want to avoid being dragged through the mud by a virulently anti-Saudi U.S. Congress.
It does appear that the fairly sudden interest in nuclear energy in the Gulf was not triggered just by the need for electricity. The GCC states have known for some time that an increase in demand for electricity of 8% per year and an even greater increase in demand for desalinated water would not be sustainable if these states relied solely on natural gas or crude oil to generate electricity—certainly not without endangering economic growth. The urgency which one can sense in the efforts of GCC states to move into nuclear energy was undoubtedly triggered by Iranian initiatives. The Saudis do not want to be left behind Iran or even the UAE in terms of technological advance, ability to maintain industrial primacy, and—to a certain extent—nuclear bragging rights.
A Nuclear Free Zone
It seems pretty clear that the Saudis do not have the wherewithal or interest to develop nuclear weapons. This may explain the Kingdom’s efforts to promote the idea of the Middle East as a nuclear weapons free zone.
The concept, of course, would have Israel give up its nuclear weapons against assurances that Iran would not pursue its program. This idea is unlikely to win many converts, either in the present Israeli government or in Tehran. One hopes that a nuclear free zone could be negotiated and presented as a major victory for each of the parties. Iran would show that it could force Israel to back down and Israel could show that its tough policies have won its peace for the long term. Many in the Gulf would like this outcome and would probably back it with substantial sums of money for all concerned. But, it all sounds a bit too idealistic to see daylight.
In the meantime, the Saudis are happy to promote any policy that would delay the Iranian program. It seems that the GCC, as a whole, heartily supports sanctions against Iran, even at a substantial cost to the UAE in terms of trade and financial flows. There is a feeling in the Gulf that Iran’s economy is on the verge of collapse. Iran’s oil and gas fields are very poorly managed. Iran is importing more gas than it exports. It is still importing 130,000 barrels per day (bpd) of gasoline. Economically, it finds itself increasingly isolated. China is not the golden partner that Iran hoped for. China now buys over 1million bpd of oil from Saudi Arabia and less than 300,000 bpd from Iran. China is promising a great deal to Iran, but, as of yet, not one drop of oil has been produced by Chinese companies there. The investments in gas fields and LNG projects signed by China are very much pie in the sky, in the sense that with a very low price for gas on world markets and plentiful supplies from Qatar, Chinese companies have very little incentives to live up to their MoUs. The Iranian government keeps touting its own projects in petrochemicals, refining and oil/gas fields, while in fact achieving very little. The sanctions will, of course, not stop imports, even of sensitive materials, but they are increasing costs substantially, thereby increasing pressure on the Iranian treasury.
But, while the Gulf Arab states support and would applaud a collapse of the Iranian economy, it seems very unlikely—notwithstanding assessments offered by many in Washington and in Israel—that GCC governments would support military operations against Iran. The interpretation of the discussions between an array of neo-conservatives and the UAE ambassador to the United States, Yousef al-Otaiba, in Aspen last month seems to reflect wishful thinking on the part of the Israel lobby rather than real views in the Gulf. By and large, the Arab states fear that military action against Iran would be equivalent to kicking a hornet’s nest, pushing Iran to promote civil unrest in the Gulf, sabotage key industries, and limit the flow of oil. [NB: Is this week’s “terrorist” attack on a Mitsui tanker in the straits a warning to the GCC?] In essence, an attack on Iran could bring the economic miracle of the Gulf Arab states to a screeching halt, impoverishing everyone, endangering local regimes, and encouraging extremists.
Many in Washington claim that GCC leaders say “in private” that they would support a U.S. attack on Iran, as witnessed by Ambassador al-Oteiba’s remarks. However, I am firmly convinced that this is just not the case. This understanding of “in private” statements reflects only a selective and self-serving hearing of Gulf leaders’ words.
In the meantime, the Arab states of the Gulf wish to develop nuclear power generation, and the Saudis are likely to seek enrichment facilities. Ultimately, they may want to reach a “Japanese state” of technological development, whereby they could have a strong base of nuclear power plants and be able to build weapons rapidly if they so desired.
In conclusion, it appears that the race for nuclear technology in the Gulf is as much a race to show which side has the strongest capacity for sophisticated development and the means to achieve it. At this time, obviously, Iran is ahead. However, the Arab states of the region are seeking to catch up. They will spend the money and expand the manpower necessary to do so. Judging from their successes in other advanced industries, they can use their extensive financial resources, political vision, and emphasis on technology to achieve industrial dominance in selected fields. Indeed, they may win a nuclear race and overcome an Iran weakened by poor leadership and economic collapse, without the United States intervening to facilitate that outcome, beyond the imposition of strong economic sanctions.