Two Years In, Iran-Saudi Rapprochement Proves Resilient
When Iranian and Saudi diplomats met in China in March 2023 to announce the restoration of their diplomatic relations, most experts predicted that relations would remain tentative. Yet two years on, relations between the two regional powers have surpassed even the most optimistic forecasts.
In April 2025, Saudi defence minister and brother of MBS Khalid bin Salman made a high-profile visit to Iran. During his trip, he held talks with Supreme Leader Ayatollah Ali Khamenei, a meeting that reflected both Riyadh’s deepening commitment to engagement with Tehran and its proactive stance toward the Iran-US nuclear negotiations underway at the time.
The resilience and significance of Saudi-Iran relations were also evident in the way both governments handled a provocative incident in Mecca during the Hajj pilgrimage in May. Iranian cleric Gholamreza Ghasemian, widely regarded as having close ties with Khamenei, released a video on social media while in Mecca, in which he made inflammatory and insulting remarks about MBS and his recent liberal cultural reforms.
Rather than allowing the incident to escalate into a diplomatic crisis, both governments cooperated discreetly. The Saudi government swiftly arrested Ghasemian and returned to Iran, reportedly with Tehran’s tacit approval. In an unexpected move, the Iranian government publicly condemned his remarks and reaffirmed its commitment to maintaining strong relations with Saudi Arabia.
Had such an incident occurred prior to the 2023 rapprochement, the responses from both governments would have likely been far more severe, in line with their previous handling of similar incidents.
Yet the most important test of the durability and strategic weight of this rapprochement unfolded, in Iran’s response to the Israeli strikes that began on June 12 and subsequent the US bombing of its nuclear facilities. Before the US strikes Iran had deliberately refrained from expanding the conflict beyond Israel, a restraint that boded well for GCC countries. Following the US strikes, Iran limited its retaliation to targeting a US base in Qatar, with prior notification to avoid casualties. Notably, it avoided striking US military assets in Saudi Arabia and refrained from disrupting shipping through the Strait of Hormuz. While all GCC states condemned Iran’s actions, Iranian President Masoud Pezeshkian held a phone conversation with Crown Prince Mohammed bin Salman in an effort to contain the damage to Iran-Saudi relations.
Earlier this week, on his return flight from the BRICS summit in Brazil on July 9th, Foreign Minister Abbas Araghchi made a stopover in Saudi Arabia. There, he met not only with his counterpart, Prince Farhad bin Salman al-Saud, but also with Defense Minister Khalid bin Salman bin Abdulaziz and Saudi Crown Prince Mohammed bin Salman—a line-up that underscores the importance that Saudi leaders assign to their relations with Iran.
While many analysts have debated the drivers behind the recent improvement in Saudi-Iranian relations, the deeper question now concerns what this shift means—for both countries and for the broader region. Given that their rivalry has long played out through proxy conflicts in places like Lebanon, Syria, Iraq, and Yemen, any sustained thaw between Riyadh and Tehran is likely to carry wide-reaching consequences. This analysis considers those implications with the assumption that the current Iran-Israel confrontation remains limited in scope—avoiding both regime change in Tehran and a collapse of the fragile détente between the two Gulf powers.
The reduction of hostilities and the winding down of proxy wars are likely to bring several direct benefits to both Saudi Arabian and Iran. These conflicts have imposed a heavy toll, draining financial and military resources. While Saudi Arabia largely confined its support for regional proxies to funding and supplying military hardware, Iran suffered considerable human casualties, particularly due to the involvement of the Revolutionary Guards and affiliated militias in theatres such as Syria and Iraq. In Syria alone, numerous members of Quds Force were killed during the country’s prolonged civil war (2011-2024) while defending the Assad regime.
If the thaw in relations holds, the financial burden of these proxy conflicts will diminish significantly. This is expected to reduce the intensity of the civil war in Yemen and allow Saudi Arabia to scale back its costly military campaign, ongoing since 2015.
Mohammed bin Salman will likely redirect those savings towards the ambitious Vision 2030 development programme, which has faced mounting financial difficulties in recent years. Iran, too, stands to benefit from a lighter financial load, although only part of the savings is likely to be channelled into the domestic economy. With tensions with the US and Israel ongoing, the Islamic government is expected to reallocate some of these savings toward other military priorities.
Saudi Arabia, which took a skeptical stance towards the 2015 US-Iran nuclear deal and consistently urged Washington to maintain a hard line on Tehran, has notably softened its position. As a result of its improved relations with Iran, Riyadh supported a negotiated outcome in the latest round of Iran-US talks, which began in April 2025 and was interrupted by the Iran-Israel war. Saudi officials publicly opposed the US military action against Iran’s nuclear facilities, and Israel’s military strikes.
Saudi Arabia’s Vision 2030 economic development plan depends heavily on attraction of international investment, which remains sensitive to geopolitical instability. The improved relations with Iran reduce the perceived risk of regional conflict and attacks on Saudi economic infrastructure, thereby enhancing Saudi Arabia’s ability to secure foreign capital for its ambitious mega projects.
While Iran also benefits from reduced tensions with Saudi Arabia, its investment climate remains fraught with risk. The country is still actively recovering from the 12-day war with Israel and the ceasefire agreement is delicate. Ongoing geopolitical tensions with the US and Israel, coupled with a challenging domestic business environment, continue to deter significant international investment in the country.
The Iran-Saudi rapprochement is also expected to lower geopolitical and investment risks in Lebanon, Syria and Iraq—countries that have long been the battlegrounds of the Iran-Saudi proxy war. The termination of this conflict promises greater stability and security in these states. In addition, Iran’s diminished capacity to exert influence in the region, following the defeats of Hezbollah in Lebanon and the collapse of the Bashar al-Assad regime in Syria, will likely further contribute to further stabilisation. Notably, there are already clear indications of growing GCC investments in all three countries.
Since the fall of the Assad regime and the weakening of Hezbollah, Saudi Arabia has adopted a far more proactive role in both Syria and Lebanon. These developments have significantly eroded Iran’s influence, shifting the balance of power decisively in Saudi Arabia’s favour. While Iran remains eager to restore its lost influence, the strategic importance of its rapprochement with Saudi Arabia may outweigh those ambitions, making Tehran reluctant to jeopardise the relationship by destabilising Syria or Lebanon.
The détente between Iran and Saudi Arabia may also pave the way for greater political stability in Iraq, with direct implications for improving its business environment. Iraqi officials have long recognised the detrimental impact of theIran-Saudi rivalry on their country and, alongside China, actively facilitated mediation efforts between 2021 and2023. With relations between Saudi and Iraq improving since 2017, the Iran-Saudi rapprochement is likely to accelerate the expansion of these ties, fostering greater economic and political stability across Iraq.
One of the most consequential outcomes of the Iran-Saudi rapprochement is its potential to unlock greater transport connectivity in the Middle East and Central Asia. Iran, Syria and Iraq are strategically positioned to serve as vital north-south and east-west transit hubs for the wider region. Within the framework of its Belt and Road Initiative, China has advocated for several regional highway and railway projects. However, progress on many of these initiatives has been slow, largely due to longstanding Iran-Saudi hostilities.
Despite ongoing sanctions, Iran has developed a North-South transit route that connects Central Asia and Russia to the Persian Gulf. However, this corridor remains underutilised due to the GCC countries’ reluctance to rely on the trans-Iran rail and highway network. A thaw in Iran-GCC relations may unlock this potential, facilitating greater land trade between the Gulf, Central Asia, and China.
Iraq also stands to benefit. The Development Road—a major transit highway and railway connecting the Faw Port to Turkey—could become a vital transit and tourism route. While GCC states have shown interest in investing, political instability and regional rivalries have stalled progress. Improved Iran-Saudi ties may reduce these obstacles, encouraging regional cooperation and investment.
In the oil sector, both Iran and Saudi Arabia remain two of the largest producers in OPEC+, though Iran’s output has been constrained by sanctions. Their rivalry often undermined policy coherence within the block. Saudi Arabia and other GCC members also took advantage of Iran’s sanctioned export capacity to increase their own output. Normalised relations may strengthen internal coordination on pricing and production, increasing OPEC+’s market influence. However, if sanctions on Iran are lifted and production rises, this may moderate prices.
While the rapprochement is unlikely to directly affect the US oil sanctions on Iran, it could support diplomatic momentum in future US-Iran negotiations. Should sanctions ease, increased Iranian output would likely contribute to global oil market stability.
Geopolitically, the thaw presents a setback for Israel’s efforts to expand the Abraham Accords to involve Saudi Arabia. Iran’s reduced threat diminishes one of Saudi Arabia’s key motivations for pursuing formal ties with Israel. Combined with Israel’s treatment of Palestinians in the Gaza war, the Saudi appetite for normalisation has further waned.
The Iran-Saudi rapprochement presents a mixed picture for US interests. While the longstanding security partnership between the United States and Saudi Arabia remains intact—and MBS maintains a close business relationship with the Trump family—Riyadh is increasingly asserting an independent foreign policy towards Iran, China, and Russia.
The United States has not publicly opposed the normalisation of Iran-Saudi relations, viewing it as a potential means to reduce the security risks that Iran’s proxies pose to US military and economic assets in the region. Notably, Saudi Arabia has played a constructive role in encouraging Iran to show greater flexibility in the nuclear negotiations.
However, the rapprochement has reduced Iran’s isolation, which was demonstrated by the refusal of Saudi Arabia, Kuwait and Qatar to support the US military action against Iran. The agreement also highlights China's growing diplomatic influence, with Beijing playing a key role in mediating the Iran-Saudi breakthrough. There are further signs of Chinese efforts to mediate between Iran and Egypt.
For China, the benefits are clear. Reduced tensions lower risks to its vital oil imports from both Iran and Saudi Arabia, while easing proxy conflicts in the region creates more stable environments for Chinese investment, particularly in countries like Iraq, Syria, and Lebanon.
The Iran-Saudi rapprochement remains one of the most significant diplomatic developments in the Middle East in recent years. Its implications go beyond bilateral ties. The longstanding rivalry fuelled instability across the region—especially in Syria, Iraq, and Lebanon. Reduced hostilities improve political stability, enhance the regional business climate, and support a broader shift from geopolitical confrontation to economic development and cooperation.
Nevertheless, the rapprochement remains precarious. Long-standing geopolitical and ideological disagreements continue to simmer beneath the surface, and hardline elements within Iran’s leadership may yet resort to proxy manoeuvres in Syria or Lebanon, actions that could swiftly reignite tensions with Riyadh. Although the recent Iran-Israel war and subsequent US strikes on Iranian nuclear facilities have not derailed the rapprochement, the regional security landscape remains volatile.
The current ceasefire between Iran and Israel is tenuous at best, and further missile exchanges cannot be ruled out. In such a climate, even minor escalations—or unforeseen flashpoints—risk unravelling the diplomatic gains made over the past two years. The mutual outlook for Tehran and Riyadh is promising, but remains far from guaranteed.
Photo: IRNA
