Saudi Arabia clearly does not want to see Iran dominating the region. On the other hand, we think that Saudi Arabia's financial condition has become so serious that it may be forced to agree to dangerous undertakings that hold open the possibility of raising the price of oil. Iraq is working hard to make such an action meaningless, by reducing the need for Turkish intervention in the North. Turkey, which wants to see Iraqi oil flowing through Turkish pipelines, would not be pleased with an attack. Hence, there has been interesting cooperation between the Iraq and Turkey on the Kurdish question.
Turkey remains a problem for Iranian policy.
A final threat to Iranian plans stems from the internal struggle between conservatives and moderates in Tehran. On Saturday, Tehran Mayor Gholamhossein Karbaschi, a close ally of President Khatami, was arrested on corruption charges. This is perhaps the most overt challenge to Khatami and his reformist agenda by Iran's conservative faction to date. Should Khamenei choose this moment to rein in Khatami, the resulting inward focus may temporarily distract the Iranians from their foreign policy goals. Nevertheless, we judge the possibility of a renewal of the Iran-Iraq conflict as substantial in the coming quarter.