As its military efforts to counter Iran’s advance elsewhere in the Middle East founder, Saudi Arabia is pursuing a soft power push in Iraq to try to stem Iranian encroachment. Its tactics of investment, trade and diplomacy are already gaining traction in Baghdad.

With his coalition’s victory in the May 12 Iraqi elections, firebrand Shi'ite cleric-turned-Iraqi nationalist Muqtada al-Sadr is set to be the kingmaker in the new government – which, signs suggest, is likely to be well-disposed to the Saudis, and wary of Iranian influence.

In their competition for regional supremacy, Iran has gained the upper hand over Saudi Arabia in their proxy wars in Syria and Yemen. Yet in Iraq, Tehran seems to have been wrong-footed – for the time being – by Riyadh’s charm offensive to woo Shia leaders and to frustrate Iran’s attempts to consolidate its influence over the fractured country.

Open gallery view Saudi Crown Prince Mohammed bin Salman meets with Iraqi Shi'ite leader Muqtada al-Sadr in Jeddah, Saudi Arabia July 30, 2017 Credit: Bandar Algaloud/Courtesy of Saudi Royal Court/Handout/File Photo via REUTERS

The Saudi move is backed by the U.S. which shares Riyadh's concerns over Iran’s regional aspirations, and hopes investment from the kingdom and other Gulf states will help to stabilize Iraq.

In the past year, under the leadership of Mohammad bin Salman, commonly known as MBS, Riyadh has stepped up its engagement with Shia-majority Iraq. The elections - in which Baghdad’s geopolitical orientation was a key consideration among the leading contenders - was a key impetus for this accelerated engagement. Indeed, rumors that MBS himself would pay a pre-election visit to Baghdad had provoked alarm in Iran and amongst Iranian-backed Iraqi politicians.

Sadr’s electoral success could open the way for further Saudi engagement. His Sairoon ("Marching Towards Reform") coalition, an unlikely combination of reformed Shia militants, communists, secular and civil society groups, won 54 seats in the ballot – the highest number – but still fell well short of a majority.

Sadr did not run for office, but he will have a big say in the composition of the next government and the appointment of the next prime minister. He may enable the incumbent Haider al-Abadi to retain power.

Iran – which backed a pro-Iranian bloc, led by Shia militia leader, Hadi al-Amiri, that came second securing 47 seats – will seek to use its influence to prevent such an outcome, but it is unclear how much leverage it really has.

While the Saudis would have preferred the Western-orientated Abadi to have won outright (his coalition was third with 42 seats) Sadr’s election victory is a favorable result, notwithstanding his unwavering distrust of America.

Indeed, MBS has been cultivating the cleric, who is hugely popular among Iraq’s Shia underclass and who has also reached out to the country’s demoralized Sunnis, now recovering from the depredations of Islamic State’s tyrannical rule.

Critically, Sadr appears to have disavowed his sectarianism – his so-called Mahdi Army once battled occupying U.S. forces and engaged in inter-communal bloodletting – and remains stoutly opposed to Iranian involvement in Iraqi politics, which deepened under the sectarian leadership of former premier Nouri al-Maliki, Abadi's predecessor.

In the years following the 2003 U.S.-led invasion, Riyadh likely saw Iraq as a lost cause as Iran extended its sway. But under Abadi, who since coming to power in 2014 has been keen to engage with his country’s neighbors, relations have improved.

Open gallery view Iraqi Shi'ite cleric Moqtada al-Sadr meets with ambassadors of Turkey, Jordan, Saudi Arabia, Syria and Kuwait, in Najaf, Iraq. May 18, 2018 Credit: \ Alaa Al-Marjani/ REUTERS

Saudi Arabia and Iraq restored diplomatic relations in late 2015 – broken after Saddam Hussein’s invasion of Kuwait in 1990 – and the last 12 months have seen what amounts to a concerted MBS-inspired, alliance-building strategy begin to take shape.

Abadi twice visited Riyadh in 2017, but it was Sadr’s trip last July that really underlined the Crown Prince’s desire to send out an olive branch to Iraq’s Shia heartlands. There, many regard Saudi Arabia as a sponsor of Sunni extremism during Iraq’s years of ethnic turmoil, and are no doubt concerned about Saudi persecution of its own Shia minority.

Nonetheless, pragmatic Iraqi Shia leaders sceptical of Tehran’s intentions view Saudi overtures both as a counterweight to their eastern neighbor and a source of much-needed investment for the reconstruction of Iraq following the defeat of ISIS.

Riyadh recently pledged (an albeit modest) $1.5 billion for the rebuilding of Sunni towns and cities destroyed in the conflict. It aims to invest in other areas of the economy too: an early recipient may be a petrochemical plant in the southern port city of Basra, which will reportedly lessen Iraq’s reliance on Iranian petroleum products. There are also plans for major investments in the development of agriculture in the western province of Anbar, which borders the Saudi kingdom.

Much else has been achieved. Border crossings have reopened; air connections have resumed, with around 140 flights a month between Riyadh and Baghdad; Saudi business missions have been exploring commercial opportunities, amid reports of intense competition between Saudi and Iranian goods.

Indeed, in April an Iranian official said his country was losing its appeal in Iraq’s markets, pointing to reduced customs fees for Saudi merchandise. Riyadh has set a target of $6 billion worth of trade with Iraq over the next 10 years.

Open gallery view Supporters of Shiite cleric Muqtada al-Sadr carry his image as they celebrate in Tahrir Square, Baghdad, Iraq. May 14, 2018 Credit: Hadi Mizban/AP

There have also been more symbolic overtures, which carry no less weight.

Saudi poets recently attended a literary festival in Basra and an exhibition match was staged between the Saudi and Iraqi national football teams in the city, where Riyadh has opened a consulate. In their first encounter for decades, the Saudis lost 4-1 - but achieved a major public relations victory, with Iraqi fans packing Basra’s 60,000-capacity stadium. King Salman, MBS’s father, has now pledged to build a 100,000-seater venue in Baghdad.

Part of the Saudi strategy is to appeal to Iraqis’ strong Arab identity, in an effort to transcend the Sunni-Shia divide. That approach clearly has traction, particularly among those Shia for whom Iraqi nationalism trumps any affinity with their Persian co-religionists. Many Iraqi Shia died fighting for their country in the Iran-Iraq war of the 1980s.

Iraq owes Iran a lot for its support in defeating ISIS. Without its intervention, the conflict would arguably still be raging, as there were clearly limits to the resources the U.S. was prepared to commit to countering the extremists. Economically, Iraq still remains heavily dependent on Iranian goods and commodities – Iran is the country’s third-biggest trading partner after Turkey and China.

Yet many Iraqi Shia would prefer not to see Iran exploit its contribution to the suppression of ISIS to deepen its involvement in Iraq. They see Saudi Arabia’s growing engagement not only as a counterbalance but an opportunity for their country to play a more active role in the Arab world, which it has been denied for decades by isolation and conflict.

With Sadr as a prime political kingmaker, Riyadh will continue to extend its economic and diplomatic influence over Iraq, possibly squeezing the space currently occupied by Iran. Tehran will resist.

So Saudi Arabia must be careful not to push too hard.

The last thing Sadr, Abadi or other Riyadh-friendly Shia leaders will want is Iraq turning into a stage for a tug of war between its neighbors that could lead to a militarized confrontation. Syria and Yemen provide a salutary reminder of where that can lead.

Yigal Chazan is an Associate at Alaco, a London-based business intelligence consultancy.