Outflanking Iran: The Salman Canal Proposal

The Riyadh-based Arab Century Center for Studies published a report last month that calls for a 950km canal to be built through Saudi Arabia and Yemen, allowing the oil rich gulf to bypass the Straits of Hormuz.

The project is estimated to cost $80bn and will take 5 years. What is perhaps most striking about the study and limited/regional media attention it has gotten, however, is the distinct lack of geo-strategic considerations and consequences.

salman1The focus of the study is on the social benefits to those living on or near the proposed canal, the time that transporters will save, and the potential for regional and international tourism that will be gained from this regional revival. This again is the accidental or intentional avoidance of the strategic reality this project will bring. Make no mistake, the proposed Salman Canal is a tinder box of ideas between Arabian and Persian energy competition. It should furthermore come as no surprise that this report has come only weeks after the signing of the JCPOA nuclear accord with Iran. Whether this study is the product of academic imagination, or an example of backroom side-dealing, the Salman Canal proposal represents Saudi fears and quite possibly Saudi Arabia’s first attempt to outflank a rising Iran post-JCPOA.

The report makes two primary claims as to the feasibility and benefit of this project: reduced costs for gulf exporters and the general social and quality of life benefits for the areas near the canal. First, exporters that commonly pass through the Straits of Hormuz will have their travel time cut in half. This will therefore reduce shipping costs – which is therefore a net benefit to producers and consumers. Second, the Canal will “revive the empty quarter” in Saudi Arabia and Yemen. This revival will see the construction of industrial and residential cities, new areas of tourism and commerce, and is estimated to potentially create millions of jobs. In short, according to the report, the Salman Canal is a win for everyone – Saudi and Yemeni citizens will have new and higher paying jobs, a poorer region will be revived and invigorated with energy and economic growth, and energy producers in the region and consumers around the world will enjoy better access and prices to one of the world’s most important energy-producing regions. To use the words of the Head of the Arab Century Center for Studies, Saad Bin Omar, “The canal will add 1,200km of clean and splendid coasts in the Empty Quarter and will have 20 tunnels for cars and pedestrians on the Saudi side, while it will add 700km of waterfront to Yemen and revive the desert areas in the east of the country.”

salman2This outlook requires one large assumption, or a certain degree of ignorance, regarding the parties that benefit from, or control, the Straits of Hormuz. In this case it is difficult to see how the Salman Canal is not seen as an act of Saudi economic warfare from the perspective of Iran. The most obvious lens to view the potential change is in oil, and therefore, money. While the JCPOA has been argued both positively and negatively as a plan that brings billions to Iran through the removal of economic sanctions, the Salman Canal will somewhat negate this benefit. Saudi Arabia is the largest oil exporter through the Straits of Hormuz. However, the Canal will offer a benefit also to Iraq, Kuwait, Qatar, Bahrain, and the UAE. Each ship and barrel provides a transaction cost to the host it ships through. In this case, the Salman Canal, if it is indeed a shorter and cheaper route, undercuts Iran’s economic advantage in the region dramatically.

A second lens is each nation’s new geostrategic leverage. Iran has for many years used the global importance of Hormuz as a bargaining chip and at times a de-facto veto on the world stage. It has been long argued that if Iran were to blockade the Straits in order to secure a political or negotiated advantage that the global price of oil could increase by 50% in a matter of days. These terms are understandably unacceptable to the global market. The Salman Canal would effectively eliminate Iran’s most important geostrategic ploy. While the Salman Canal is only a document at this stage, what is important for energy and Gulf security experts is paying attention to key political moments in the coming months. In other words, if this report moves from paper to planning, where will the great and regional powers line up? Not just the United States and EU, but Russia, China, and India.

From the US perspective this question is quite challenging. On the one hand the US may feel compelled to make moves to assure and reaffirm its historic relationship with Saudi Arabia. This relationship has been tepid at best since the signing of the JCPOA. Supporting the Salman Canal could be seen as an act of balancing or a form of benign neutrality in Middle East policy. Just because US has begun to open diplomatic and economic ties with Iran, does not mean it needs to cut off or lessen its ties with Saudi Arabia. This, however, will be in direct contestation with Iran and Russia. For Iran, US support of Saudi Arabia in this venture could be seen as classic Western diplomacy – to extend one hand in favor while keeping the other clenched and concealed. Iran will likely turn to old and new forms of brinksmanship in negotiation – first by threatening to blockade the Straits of Hormuz and second by mimicking much of the current US Presidential primary debates with the Republican Party by threatening to ‘tear up the deal.’ From the Russian perspective, any US support will look no different than other moves to divert economic power and energy toward the strategic dominance of America. From the Caspian, to Ukraine, to the Gulf, Russia fears its influence is being challenged if not waning in respect to the US. The fear in all of these cases is when does brinksmanship cross the line and devolve into open and dangerous conflict?

As it currently stands the Salman Canal is just a proposal, nothing more. If the geostrategic realities continue to be ignored it should probably stay that way. For economic advantage aside, ignoring those realities will surely bring not just a quicker oil route through the Gulf, it will bring a whole new level of tension and potential hostility to a region that, quite frankly, cannot endure it.