Saudi-Iran Détente Hits Reality Check: Tehran’s Proxies Still Gatekeeping Iraq’s Economic Future
Despite last year’s diplomatic breakthrough between Saudi Arabia and Iran, Tehran’s political allies in Baghdad are reportedly blocking up to $100 billion in Saudi investments, exposing the limits of top-down reconciliation in the Middle East’s proxy battlegrounds.
The Ghost of Regional Rivalry
The March 2023 rapprochement between Saudi Arabia and Iran, brokered by China, was heralded as a potential game-changer for Middle Eastern stability. After years of proxy conflicts from Yemen to Syria, the restoration of diplomatic ties between the region’s two heavyweight rivals promised to ease tensions and unlock economic opportunities. Iraq, which has long served as a chessboard for Saudi-Iranian competition, seemed poised to benefit from this newfound cooperation through increased Gulf investment in its war-torn western provinces.
However, according to recent Arab media reports, the reality on the ground tells a different story. Pro-Iranian political parties and militias within Iraq’s complex political ecosystem are allegedly working to obstruct Saudi investment projects that could inject much-needed capital into Iraq’s struggling economy. This resistance suggests that while Riyadh and Tehran may have shaken hands in Beijing, their local allies and proxies haven’t received—or aren’t following—the memo.
The $100 Billion Question
The scale of blocked investments—potentially reaching $100 billion—underscores what’s at stake. Western Iraq, particularly Anbar province, desperately needs reconstruction funding after years of ISIS occupation and military operations. Saudi investment could provide jobs, rebuild infrastructure, and offer an economic lifeline to Sunni-majority areas that have historically felt marginalized by Baghdad’s Shia-dominated government.
Yet for Iran and its Iraqi allies, Saudi economic influence represents more than just competition for contracts. It threatens to upset a carefully cultivated sphere of influence that Tehran has built since the 2003 U.S. invasion. Through political parties, militia groups, and economic networks, Iran has established itself as Iraq’s most influential neighbor. Saudi investments, particularly in Sunni areas, could create alternative power centers and reduce Iraqi dependence on Iranian goods, electricity, and political patronage.
The Limits of Diplomatic Breakthroughs
This disconnect between diplomatic normalization and ground-level resistance reveals a fundamental challenge in Middle Eastern geopolitics: the autonomous nature of proxy relationships. Iran’s Iraqi allies—from political parties to Popular Mobilization Forces—have their own interests, constituencies, and sources of power that don’t always align perfectly with Tehran’s diplomatic initiatives. Similarly, Saudi Arabia’s ability to translate diplomatic goodwill into concrete economic opportunities depends on navigating Iraq’s labyrinthine political system, where every major decision requires consensus among competing factions.
The situation also highlights Iraq’s continuing struggle to assert sovereignty over its own economic decisions. Despite Iraqi Prime Minister Mohammed Shia’ al-Sudani’s efforts to position Iraq as neutral ground and attract Gulf investment, the reported obstruction demonstrates how external rivalries continue to constrain Baghdad’s options. This economic gatekeeping not only deprives Iraq of needed investment but also perpetuates the country’s role as an arena for regional competition rather than an independent actor.
If the Saudi-Iranian détente cannot overcome proxy resistance in Iraq—where both countries have vital interests and established networks—what hope is there for it to transform other regional conflicts where the stakes are equally high and the proxy relationships equally entrenched?
