Oman's moderate, independent foreign policy has sought to maintain good relations with its neighbors and avoid external entanglements as demonstrated by the Oman-Iran agreement to work on boosting bilateral ties as diplomatic difficulties persist in the GCC. Although the region does not fully approve of the partnership between the two countries due to Iran's distancing from the Arab world, Oman has always maintained a neutral relationship focused on economic growth and trade with the majority of its neighbors. Given the lifting of international sanctions on Iran in January 2016, the two countries have increased their economic and investment activities in the region.
The Islamic Republic of Iran's Customs Administration's (IRICA) data show that Iran's exports to Oman witnessed a staggering increase of 116% in volume and 45% in value in the last Iranian year ending in March 2017, from 648,000 tons of commodities worth USD375 million to 1.4 million tons worth USD544 million. Moreover, according to the IRICA, the average growth of the value of Iran's annual exports to Oman during the last 11 years to March 2017 stands at 24% and is expected to further increase by USD600 million by the end of the next fiscal year, according to Chairman of the Iran-Oman Joint Chamber of Commerce Mohsen Zarrabi.
Among the many Oman-Iran collaborations, for which the Omani government allocates bank loans covering 50-70% of all underlying costs, according to the Secretary of Iran-Oman Chamber of Commerce Anahita Farzam, is the USD1.2 billion undersea gas export pipeline. The project will connect Iran's vast gas reserves with Omani consumers as well as with liquefied natural gas (LNG) plants in Oman that could re-export the gas.
In 2013, the two countries signed an agreement to supply gas to Oman through the new pipeline in a deal valued at USD60 billion over 25 years. However, the project has been delayed due to disagreements over the price and US pressure on Oman to find alternative suppliers.
According to government sources, the proposed common 36-inch diameter undersea pipeline will connect the Kooh e Mobarak compression station in Iran to Sohar. From Sohar, 1 billion cubic feet (28.3 million cbm) per day of gas would enter the Oman gas system, while another 1 billion cbf per day of gas would continue flowing over land via a 24-inch pipeline to the Ras Al Jaffan compression station and then below the Arabian Sea to Porbandar in the western Indian state of Gujarat.
Recently, Iranian Minister of Petroleum Bijan Namdar Zangeneh announced, “the two countries agreed that the gas exports pipeline avoids water controlled by the UAE and passes through deep waters.” Nevertheless, he was keen on the decision not having any economic impact on the project. Members of Shell, Total, and Korea Gas Corp (KOGAS) also attended this meeting and offered their respective proposals.
Furthermore, Iran's largest auto manufacturer, Iran Khodro (IKCO), will begin building cars in Oman between 2017 and 2018 as part of a USD200 million joint venture with the Oman Investment Fund (OIF). The fund will own 60% of the venture, Khodro 20%, and an Omani investor, Issa al-Ryiami, 20%, thus promising to be a rewarding project for all parties. According to Mohammad Totonchi, Iran's chargé d'affaires in Muscat, the car factory would be located in Duqm Special Economic Zone and, as per the agreement, would jointly produce 20,000 units per annum of the Dena model and export it to East Africa and Yemen.
Amidst increasing tensions within the regional block, the GCC seems to be silently allowing—if not implicitly supporting— Oman's economic ties with Iran, and Oman's continued civil relations with Iran could prove especially advantageous.